TSB Heartland Proposed Merger
Frequently asked questions. Ngā pātai pūtake.
15th July 2026, The FAQ contain supplementary information to that made publicly available during the first submission period.
Supplementary questions and answers are indicated with a ** before the question.
Supplementary information within answers are bolded and in italics.
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- Understanding the
proposal and process - What this means for TSB
- What this means for
Toi Foundation - Understanding the
proposed projections
There are two key reasons:
First, it will support TSB to have more scale and better access to capital for funding its future growth and development.
Second, it will help Toi Foundation start to diversify its investment portfolio and significantly increase the amount of money available for Toi Foundation to give back to the community, which is Toi Foundation’s core purpose. If the proposal goes ahead, we expect it to increase the funds available for distribution to the Taranaki community by $20 million a year.
Over five years, it’s another $100 million going back to initiatives that support Taranaki communities.
You can see examples of what that funding contributes to at: OUR STORIES
We are proposing to sell 100% of the ordinary shares in TSB to Heartland Group, the parent company of the merged bank, for an aggregate consideration of $620million, which will be comprised of debt, equity and cash. Toi Foundation will take an approximate 17.5% shareholding in Heartland Group.
Yes.
Under clause 7.4 of Toi Foundation’s Trust Deed, the trustees may, by a resolution passed by at least 75% of trustees, “sell or otherwise dispose of all or any of the Bank Shares, ” provided they engage with the community, have regard to the effect of the sale on the community and consider any submissions received in response to the required public notice.
The sale of bank shares held by a community trust such as Toi Foundation is also directly contemplated in the Community Trusts Act 1999 which states “The trustees of a community trust may sell or otherwise dispose of any shares held by the trust in the capital of a trustee bank’s successor company if a resolution has been passed by not less than 75% of the trustees approving the sale or disposition”(section 19).
The full clause 7.4 in Toi Foundation’s Trust Deed can be found on our website (at the bottom of our feedback page): YOUR FEEDBACK
The two banks are quite different, which is part of the rationale for the proposed merger.
TSB is a full-service retail bank with a strong residential mortgage and deposit-taking business and a branch presence. Heartland is a leading provider of reverse equity mortgages, asset finance, and vehicle finance. The combination brings together complementary businesses rather than simply overlapping ones – this is important because it will mean TSB’s Taranaki operations and associated jobs are retained in Taranaki.
Heartland was founded in Ashburton and is listed on both the NZX and ASX (Australian Stock Exchange). Approximately 90% of Heartland is New Zealand-owned, with approximately 5% Australian owned and approximately 5% held by international managed funds. Heartland is the only New Zealand bank to have acquired an Australian bank.
We have a deep commitment to making prudent strategic choices about our investments.
To assess this offer, and to oversee the process, we sought extensive professional advice, including independent investment and legal advice, independent valuations and economic and financial advice that helped us weigh up the opportunities against our strategic philanthropic and investment objectives, our commitments under our trust deed (including the community impact), and the strategic goals of TSB.
The process has involved:
> Market testing (running a competitive process to assess interest in, and the nature and value of any offers for, TSB)
> Assessing the offers against each other and the status quo
> Independent financial advice in relation to:
– Valuation, by Clarien, an independent expert firm that specialises in assessment of the value fairness and merits of proposed transactions. Clarien assessed fair market value for TSB (including having regard for excess capital arising from announced RBNZ capital changes) and concluded that the proposed sale price of $620million for the TSB shares is within its assessed fair market value range
– The pricing of the debt components of the transaction (Forsyth Barr).
– Neither Clarien nor Forsyth Barr have any financial interest in whether or not the proposal proceeds.
> Progressing with detailed financial, economic, tax, legal, technology, commercial and due diligence assessments of the preferred proposal.
> Advisers to Toi Foundation include Antipodes, Bell Gully, Corporate Value Associates, Grant Thornton, KPMG, and NZIER.
> The expert advice Toi Foundation has received contains a significant amount of commercially sensitive information relating to the proposed transaction and, in some instances, information that is subject to legal professional privilege. As such the advice itself cannot be publicly disclosed.
As we have said, Toi Foundation has received independent expert valuation advice in relation to the proposed transaction.
Clarien’s opinion is that the $620million is within its assessed range of fair market value.
A key factor is that TSB’s earnings do not support a valuation equal to book value, TSB’s return on equity is significantly below the assessed cost of capital for TSB.
Yes.
The RBNZ has recently announced changes that are beneficial to small banks like TSB (and also Heartland). These benefits have been taken into account, including in Clarien’s assessment of fair market value.
The Heartland proposal understood TSB’s strong community focus and the potential merger demonstrated how we could bring the best of both banks together to form a New Zealand challenger bank with scale and a strong suite of service and products.
We’re confident Heartland understands TSB’s strengths and benefits and will be able to continue to maximise those.
The names of potentially interested parties are strictly confidential and we will not make any comment. Every party involved signed very strict and legally binding confidentiality agreements.
We have explored multiple options. What I can confirm is that Heartland’s proposal was the most compelling offer in all respects.
No other discussions allowed for a merger, or this type of continued ownership.
If the merger is approved, Toi Foundation will be the largest shareholder in Heartland Group Holdings, the proposed owner of the merged bank. That means Toi Foundation will continue to be involved in the future shape of TSB.
Part of the financial consideration of the proposed merger is a vendor loan from Toi Foundation to Heartland Group. This loan has to be repaid within two years and will pay a market interest rate to Toi Foundation. These types of arrangements are not unusual for transactions of this nature. The interest rate and loan terms have been carefully considered by Toi Foundation’s legal and financial advisors.
Toi Foundation undertook Due Diligence on Heartland prior to announcing this potential transaction.
Heartland did not lose money last year. Its Net Profit after Tax (NPAT) was $38.8 million in FY25. It did, however, experience a higher level of impairment expense in FY25.
Heartland specialises in higher margin, higher risk lending products. So, while it may experience a higher level of impairment expense than TSB, it also benefits from a higher net interest margin.
What counts is its Return on Equity which, on average, has been superior to TSB’s over the last five years.
All investments involve risk. Toi Foundation is already subject to investment risk in relation to TSB (and its investment in Fisher Funds), however, this risk is just less visible as the shares in each are not listed. This means Toi Foundation is not immune from value volatility and risk.
The value of the shares would decrease in the same way it would increase if the share price increases.
We note the Heartland Group Holdings Limited’s share price went above the $1.25 per share listed in the Merger Implementation Agreement following the announcement, meaning the market believed the announcement was positive.
Recent analyst reports have higher possible Price Share Targets ranging from $1.40 per share to up to $1.70 per share.
As a shareholder, if there was a future capital raise, we would need to participate at the level required, or our shareholding would be diluted. This is common to all listed company investments.
The proposal is subject to approval by the Reserve Bank of New Zealand (RBNZ) and (if needed) the Financial Markets Authority (FMA). Toi Foundation is engaging with the Taranaki community through the submissions process before it makes any final decision about whether to proceed, and Heartland also needs to seek shareholder approval.
No decisions have been made. A conditional merger agreement has been signed, which is subject to Toi Foundation’s community consultation, Heartland shareholder approval and regulatory approval. Toi Foundation has not made a final decision on whether to proceed. The trustees will consider all feedback received during the consultation process.
If the proposal proceeds, there would be no changes to the range of TSB products and services. As the merger takes effect, the larger scale of the new Bank would provide more opportunities for customers to access a wider range of specialised products, reflecting the complementary strengths of TSB and Heartland.
The new merged bank would be called TSB Heartland.
TSB Heartland would have a continued strong association with the Taranaki region, complementary products and services, and an improved long-term performance outlook.
The merged bank brings together two complementary banking organisations. Their specialist areas do not compete with each other.
The banking sector (including TSB) has changed hugely in the last 20 years. We expect that rapid rate of change to continue. Technology and new developments, such as open banking, are evolving quickly.
Banks, and banking products, are likely to be very different in the future. Customer demands and preferences on how they engage with their banks are also rapidly changing.
Given that reality, we cannot make promises today about banking services in the future against that backdrop.
If the proposal proceeds, the new merged bank would continue to be a regional champion. Specialist teams would be retained in Taranaki to support future growth. TSB Heartland Bank would continue to have a close association with the Taranaki region, retaining New Plymouth operation and contact centres, and maintaining local branch network and customer-facing roles.
The Heartland proposal absolutely understood TSB’s strong community focus and the potential merger demonstrated how we could bring the best of both banks together to form a new challenger bank with scale and a strong suite of service and products.
TSB Heartland would have a continued strong association with the Taranaki region, complementary products and services, and an improved long-term performance outlook.
As we all know, there are no guarantees now because TSB, and any other bank, needs to continually evolve to meet customer’s needs.
In terms of providing guarantees on future bank services / operations, the banking sector (including TSB) has changed hugely in the last 20 years. We expect that rapid rate of change to continue. Technology and new developments, such as open banking, are evolving quickly.
Banks, and banking products, are likely to be very different in the future. Customer demands and preferences on how they engage with their banks are also rapidly changing.
We don’t think it is realistic to make promises today about banking services in the future against that backdrop.
TSB’s track record is something Toi Foundation is genuinely proud of, including its early achievements in banking software. But the scale and cost of what’s ahead of it is materially different. The major IT projects that banks need to undertake today to keep pace with change are multi-hundred-million-dollar projects. TSB needs to do that with a fraction of the revenue base of the major banks. This is part of the reason why helping TSB get more scale is important.
The most obvious need is scale. TSB needs to be able to grow to continually meet the costs of operation, the capital requirements set by the Reserve Bank of New Zealand, and other regulatory requirements.
Without larger scale, TSB will find it difficult to compete against the larger banks and the increasing number of other financial companies who are delivering digital banking services and products.
Toi Foundation’s objective is to grow the amount of money it has available to distribute and make a positive impact in the Taranaki community, now and in the future. While TSB remains profitable, it produces a relatively low return on its capital and requires high capital reinvestment to meet Reserve Bank rules and to fund investment in compliance and technology. In simple terms this means that TSB needs to retain a lot of its profit and as a result pays out less than other similar investments.
Through the proposed merger, Toi Foundation expects to achieve a higher return on its capital and be able to consistently distribute more money into the Taranaki community.
The decision made in the 1980s to keep TSB independent was the right one at that time. We all owe the leaders from that time our gratitude for their willingness to make a brave decision that went against the conventional wisdom of the day.
The world TSB operates in today is extremely different but we can make decisions with the same values and that prioritise Taranaki’s interests.
We believe the proposed merger with Heartland is preferable to the status quo because it will help TSB have access to the capital it needs to keep growing and improving, it commits to keeping the bank’s operations and associated jobs in Taranaki, it materially grows how much money Toi Foundation will give back to Taranaki, and it gives Toi Foundation a meaningful say in the merged bank’s as the largest shareholder with seats on the board.
There is no question that the Trustees who lead the 1986-1988 campaign made a good decision. However, the facts today are fundamentally different:
– There is a much more competitive banking environment than there was then.
– Customers often have multiple relationships with banks and the way they bank has changed significantly in recent years. It is expected that technology will mean this trend continues.
– Regulatory changes have contributed to the increased competition, including making it much more difficult to “back people” outside of what are relatively commoditised policy settings to provide a point of difference (in terms of lending decisions)
– Very significant technology costs and an ever-increasing regulatory cost burden that makes it difficult for small banks to compete against the larger banks.
– TSB has had to respond by expanding its business beyond Taranaki and become a nationwide bank to build a broader customer base over which to spread the associated fixed costs. As a consequence, the majority of TSB’s lending is now outside the Taranaki region
We would hope they would see this Proposal as a win win win – for TSB, for the Taranaki community and for Toi Foundation.
TSB has the opportunity to achieve scale through the merger and to offer its customers and team new opportunities. It also, as part of a listed company, would have access to capital and expertise in a way Toi Foundation is unable to provide.
Importantly, we think they would understand the realities of a completely different business operating environment, that has very different regulatory conditions, and they would see this as a means of still delivering on the things that the people of Taranaki believe are important.
They would also understand the immense difference that up to an additional $20million of grants each year would make to the Taranaki community. Over five years, that would be $100million. Importantly, this additional $20million each year of additional community funding would continue year on year.
TSB has no ownership in Fisher Funds.
This Proposal does not affect Toi Foundation’s ownership in Fisher Funds in any way.
Yes, all of Toi Foundation’s giving will continue to go only to initiatives in Taranaki.
We should be able to take steps towards diversifying and acceleration the growth rate of our investment portfolio and realise better returns which will enable us to grow our community funding each year.
If the proposal goes ahead, we expect it to increase the funds available for distribution to the Taranaki community by $20 million a year. Over five years, it’s another $100million going back to initiatives that support Taranaki communities. You can see examples of what that funding contributes to at: OUR STORIES
We will continue to make funding decisions as we currently do, in line with our strategy of creating a thriving, inclusive and equitable Taranaki.
There are no bonus payments being paid to Toi Foundation trustees.
The Foundation currently appoints all of the banks directors and one of these is a Toi Foundation Trustee. If the merger proceeds, an establishment panel will oversee the implementation of the merger, before governance transitions to an independent bank board. If the proposed transaction and merger proceeds, and subject to Heartland Group shareholder approval, upon the completion of the transaction, it is expected that one Toi Foundation nominee would be appointed to the Heartland Group Board.
It is also expected that two existing TSB directors would join the TSB Heartland Bank Board.
It is important to note that while Toi Foundation owns 100% of TSB, its Board of Directors has a statutory responsibility to manage the bank. This is decreed by the Reserve Bank of New Zealand and the legal responsibilities associated with directorships.
We need to understand that ownership does not mean control of its operations.
Just as importantly, we need to understand that modern banks are subject to a lot more regulatory oversight than they were in the past, so shareholders have very limited control.
TSB has an independent Board of Directors, of which only one is a Toi Foundation Trustee.
While we work closely with the Board to support its strategy, Toi Foundation does not have control of the Board, or the operations of TSB. That has been the case since TSB was established.
We believe the proposed merger delivers on strong governance, with local representation through two Toi Foundation directors being appointed to the TSB Heartland Bank board and one director to the Heartland Group Holdings Limited Board, and community commitments with the continuation of banking services and local operations here in Taranaki.
It is important to point out that the directors of any Bank (and any listed company) must always act in the best interests of the Bank, as distinct from the best interests of the Shareholder. That is an important distinction and a legal requirement – they are always under scrutiny from the Reserve Bank in that regard under its prudential supervision role.
If the merger proceeds, an establishment panel will oversee the implementation of the merger, before governance transitions to an independent bank board. If the proposed transaction and merger proceeds, and subject to Heartland Group shareholder approval, upon the completion of the transaction, it is expected that one Toi Foundation nominee would be appointed to the Heartland Group Board. It is also expected that two existing TSB directors would join the TSB Heartland Bank Board.
The proposal, if approved, is for three directors; one at the listed holding company and two at TSB Heartland, the proposed merged bank.
The $30million annual return is calculated by applying the agreed interest rates to the debt and cash components below, and the projected dividends on the $250million ordinary share investment in Heartland Group. The $30mill equates to a blended cash yield of just under 5% (on $620mill.)
The key difference is that Toi Foundation will have realised the value of TSB through the merger if the Proposal moves forward. To enact the merger, Toi Foundation would sell 100% of its shares in TSB and, in turn, become the largest shareholder in Heartland Group Holding Limited, the proposed owned of the new merged bank TSB Heartland.
That means Toi Foundation can immediately begin getting a higher level of return than Toi Foundation is able to do now from TSB dividends.
Added to that, Toi Foundation is not taxed on interest income because it is a charity, this means we can achieve an enhanced outcome on fixed income investments, over equity investments.
The existing and ongoing regulatory requirements for reinvestment in the bank to fund loan growth means Toi Foundation only realises a small portion of TSB’s annual profit in dividends.
The vast majority of the dividends are required to be reinvested in the bank – which means it currently can’t be distributed to the community. This requirement is expected to continue to be the case for the foreseeable future.
The $620 million aggregate consideration to Toi Foundation comprises:
– $264 million vendor loan provided by Toi Foundation to Heartland Group
– $56 million of subordinated debt regulatory instrument (issued by Heartland Bank as Tier 2 capital)
– $250 million in ordinary shares in Heartland Group (200 million shares at NZ$1.25 each), giving Toi Foundation an approximate 17.5% shareholding in Heartland Group
– $50 million pre-completion cash dividend from TSB
The trustees have had professional advisors assisting them throughout this process. This advice has also been reviewed and checked.
The Foundation is comfortable the $30million return is realistic (see questions above).
The Foundation hasn’t factored in capital returns in its forecast, so the best case could be higher than that. However, we believe taking this conservative approach is the best way for the Foundation.
The figures in the table below have been corrected and updated to include FY2026.
TSB DIVIDEND, NZ$mill:
FY17: 10.0
FY18: 20.0
FY 19: 10.0
FY20: 2.5
FY21: –
FY22: 12.5
FY23: 10.0
FY24: 15.0
FY25: 10.0
FY26: 16.5
It is important to note that the vast majority of Net Profit After Tax (NPAT) is required to be reinvested in the bank-which means it can’t be distributed to the community. This requirement is expected to continue to be the case for the foreseeable future.
None of the $30million is projected to come from capital returns. It is estimated to come from the projected interest and dividend returns (see questions above).
Over time, it is expected that capital returns would come from the growth in the $250million share investment (i.e. the 17.5% of Heartland Group Holdings Limited), however, we have been conservative and not provided for any allowance for this in the projections.
The key difference is that Toi Foundation will have realised the value of TSB through the merger if the Proposal moves forward. To enact the merger, Toi Foundation would sell 100% of its shares in TSB and, in turn, become the largest shareholder in Heartland Group Holding Limited, the proposed owned of the new merged bank TSB Heartland.
If approved, Toi Foundation would immediately begin getting a higher level of return than it is able to do now from TSB dividends.
It would also continue to receive income from Fisher Funds each year. This revenue is not factored into and is additional to the $30million.
The average annual dividend Toi Foundation has received from TSB over the last 10 years is $11million. This represents a cash return of 1.77% (on the $620 million transaction value) per annum. Toi Foundation will get significantly more than that if this transaction proceeds.
As set out in our answer to question Exactly how is the projected $30 million annual return calculated?, the cash yield from the sale proceeds (across the various components) equates to c. 5%.
Note that Toi Foundation is not taxed on interest income because it is a charity, this means we can achieve an enhanced outcome on fixed income investments, over equity investments.
In terms of dividends, Heartland Group has a long track record of higher profits (Return on Equity) that have enabled a higher dividend payout ratio than TSB. That is expected to continue and Toi Foundation (and therefore the Taranaki community) would benefit from it. Some cost savings are expected over time as economies of scale from the larger merged organisation are realised, however, these would be much less consequential in lifting returns from $10million to $30million than the matters set out above.
Building a thriving, inclusive and equitable Taranaki
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