Heartland Group (HGH) investor relations material

Deal rationale and strategic fit

• Merger aims to create a stronger New Zealand challenger bank with enhanced scale, regional focus, and broader product offerings, becoming the seventh largest in the country with $15 billion in assets and a 171% increase in asset base.

• Combined entity will leverage both banks' regional strengths, maintain community connections, and retain specialist product focus across New Zealand and Australia.

• Strategic drivers include increased scale, diversified product set, realization of synergies, and enhanced shareholder value.

• Supports Toi Foundation's philanthropic activities through a diversified investment portfolio.

• The merger addresses rising compliance costs and technology investment needs for subscale banks.

Financial terms and conditions

• Total consideration is $620 million, including a $50 million pre-completion dividend from TSB, representing 76% of TSB's book value.

• Payment structure: $250 million in equity (17.5% shareholding at $1.25/share, 15% premium), $56 million subordinated note, and $264 million vendor loan for two years.

• No new ordinary equity required; vendor loan provides capital flexibility.

• Transaction costs estimated at $15 million, split between FY2026 and FY2027.

• Implied valuation: 0.76x book value, 12x last 12 months NPAT, or 8x including synergies.

Synergies and expected cost savings

• Material cost synergies of $34 million per annum expected at full run rate within three years post-completion.

• Synergies mainly from reducing shared overheads and duplication, not frontline or product overlap.

• Additional upside possible from funding efficiencies, liquidity, and technology leverage, not included in base case.

• One-off integration costs expected to be similar in magnitude to annual synergies, at ~$34 million over three years.