Whitehall, OH – October 24, 2023 – Heartland BancCorp (“Heartland” and “the Company”) (OTCQX: HLAN), parent company of Heartland Bank (“Bank”), today reported net income of $4.9 million, or $2.43 per diluted share, in the third quarter of 2023, compared to $5.1 million, or $2.50 per diluted share, in the third quarter of 2022, and $4.8 million, or $2.39 per diluted share, in the preceding quarter. In the first nine months of 2023, net income increased 9.1% to $14.2 million, or $7.01 per diluted share, compared to $13.0 million, or $6.43 per diluted share, in the first nine months of 2022.

The company also announced that its board of directors declared a quarterly cash dividend of $0.759 per share. The dividend will be payable January 10, 2024, to shareholders of record as of December 25, 2023. Heartland has paid regular quarterly cash dividends since 1993.

“We generated solid third quarter earnings reflecting strong revenue generation, steady balance sheet growth and stable credit quality metrics,” stated G. Scott McComb, Chairman, President and Chief Executive Officer. “In an effort to mitigate the impact of the current rate environment, we remain disciplined and intentional with the loans we are putting on the balance sheet, as we are still in an uncertain rate environment as Fed actions have slowed inflation but not as effectively as desired. We made changes earlier in the year to moderate the growth rate of loans to an annualized target range in the high single digits, and we remained selective on the loans we added during the quarter, as well as adhering to disciplined loan pricing. The result was more muted loan growth during the third quarter of 1%, and new loans had an average rate of 7.85%, up approximately 26 basis points from the prior quarter. On the deposit side, we have been successful at growing new deposit accounts, while also maintaining core deposit balances.”

“We continue to see good growth in our Columbus and Cincinnati markets and look for ways to capitalize in these markets and surrounding areas,” McComb continued. “During the third quarter, we opened our 20th Heartland Bank branch in Delaware, Ohio, located in the Delaware Community Plaza. Delaware County has been on our radar for quite a while, and we are very excited to bring our brand of community banking to this thriving county just north of Columbus.”

Third Quarter 2023 Financial Highlights (at or for the three months ended September 30, 2023)

• Net income was $4.9 million, or $2.43 per diluted share, compared to $5.1 million, or $2.50 per diluted share, in the third quarter of 2022.
• Provision for credit losses was $500,000, compared to $480,000 for the third quarter a year ago.
• Net interest margin was 3.52%, compared to 3.61% in the preceding quarter and 4.20% in the third quarter a year ago.
• Third quarter revenues (net interest income plus noninterest income) increased 3.8% to $18.5 million, compared to $17.8 million in the third quarter a year ago.
• Annualized return on average assets was 1.07%, compared to 1.31% in the third quarter of 2022.
• Annualized return on average tangible common equity was 14.01%, compared to 15.27% in the third quarter a year ago.
• Net loans increased $15.3 million during the quarter, or 1.0%, to $1.50 billion at September 30, 2023, compared to $1.49 billion three months earlier.
• Total deposits increased $21.2 million during the quarter, or 1.4%, to $1.58 billion at September 30, 2023, compared to $1.56 billion three months earlier.
• Credit quality remains pristine, with nonperforming loans to gross loans of 0.14% and nonperforming assets to total assets of 0.11%, at September 30, 2023.
• Tangible book value was $67.78 per share, compared to $62.90 per share a year ago.
• Declared a quarterly cash dividend of $0.759 per share.

Balance Sheet Review

Assets

Total assets increased 16.5% to $1.83 billion at September 30, 2023, compared to $1.58 billion a year earlier, and increased 1.6% compared to $1.81 billion three months earlier. Heartland’s loan-to-deposit ratio was 95.2% at September 30, 2023, compared to 95.5% at June 30, 2023, and 96.4% at September 30, 2022.

Interest bearing deposits in other banks were $24.2 million at September 30, 2023, compared to $5.3 million a year earlier and $20.0 million three months earlier.

Average earning assets increased to $1.72 billion in the third quarter of 2023, compared to $1.67 billion in the second quarter of 2023, and $1.44 billion in the third quarter a year ago. The average yield on interest-earning assets was 5.59% in the third quarter of 2023, up 20 basis points from 5.39% in the preceding quarter, and up 99 basis points from 4.60% in the third quarter a year ago.

Loan Portfolio

“As planned, we pulled back on loan growth during the quarter, with net loans increasing 1.0% over the prior quarter end, and average loans increasing 2.2% compared to the prior quarter,” said Ben Babcanec, EVP and Chief Operating Officer. “We continue to moderate the growth rate of loans while remaining disciplined with loan pricing.”

Net loans were $1.50 billion at September 30, 2023, which was a 1.0% increase compared to $1.49 billion at June 30, 2023, and a 15.6% increase compared to $1.30 billion at September 30, 2022. Commercial loans increased 12.1% from year ago levels to $169.4 million, and comprise 11.1% of the total loan portfolio at September 30, 2023. Owner occupied commercial real estate loans (CRE) decreased 14.3% to $277.1 million at September 30, 2023, compared to a year ago, and comprise 18.2% of the total loan portfolio. Non-owner occupied CRE loans increased 34.4% to $502.0 million,
compared to a year ago, and comprise 33.0% of the total loan portfolio at September 30, 2023. 1-4 family residential real estate loans increased 21.1% from year-ago levels to $500.0 million and represent 32.9% of total loans. Home equity loans increased 30.3% from year-ago levels to $52.5 million and represent 3.4% of total loans, while consumer loans increased 21.5% from year-ago levels to $19.9 million and represent 1.3% of the total loan portfolio at September 30, 2023.

Deposits

Total deposits were $1.58 billion at September 30, 2023, a 1.4% increase, compared to $1.56 billion at June 30, 2023, and a $229.8 million, or 17.0% increase, compared to $1.35 billion at September 30, 2022. “While total deposit balances increased modestly during the third quarter, average deposits increased $44.6, or 2.9% million, to $1.82 billion in the third quarter of 2023 compared to the preceding quarter, with the growth primarily in money market and CD accounts,” said Babcanec. “While we are able to maintain strong deposit balances, some of the DDA runoff during the quarter was due to rate sensitive clients reallocating to interest bearing accounts.”

At September 30, 2023, noninterest bearing demand deposit accounts decreased 4.5% compared to a year ago and represented 28.8% of total deposits; savings, NOW and money market accounts increased 8.8% compared to a year ago and represented 44.0% of total deposits; and CDs increased 83.5% compared to a year ago and comprised 27.2% of total deposits. The average cost of deposits was 2.05% in the third quarter of 2023, compared to 1.76% in the second quarter of 2023 and 0.30% in the third quarter of 2022.

Shareholders’ Equity

Shareholders’ equity was $149.6 million at September 30, 2023, compared to $151.1 million three months earlier and $139.5 million a year earlier. At September 30, 2023, Heartland’s tangible book value was $67.78 per share compared to $68.54 at June 30, 2023, and $62.90 at September 30, 2022.
Heartland continues to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” with tangible equity to tangible assets of 7.50% at September 30, 2023, compared to 7.70% at June 30, 2023, and 8.09% at September 30, 2022.

Liquidity

Heartland had ample sources of available liquidity as of September 30, 2023, including a $220 million line of credit at the Federal Home Loan Bank, as well as additional credit lines of $85 million. Nearly 69% of Heartland’s client deposit balances were FDIC insured or collateralized as of September 30, 2023.

Operating Results

In the third quarter of 2023, Heartland generated a ROAA of 1.07% and a ROATCE of 14.01%, compared to 1.10% and 14.19%, respectively, in the second quarter of 2023 and 1.31% and 15.27%, respectively, in the third quarter a year ago.

Net Interest Income/Net Interest Margin

Net interest income, before the provision for credit losses, increased modestly to $15.3 million in the third quarter of 2023, compared to $15.2 million in the third quarter a year ago, and increased 1.5% compared to $15.0 million in the preceding quarter. In the first nine months of 2023, net interest income increased 10.9% to $45.6 million, compared to $41.2 million in the first nine months of 2022.

Total revenues (net interest income, before the provision for credit losses, plus noninterest income) were $18.5 million in the third quarter of 2023, a 3.8% increase compared to $17.8 million in the third quarter a year ago, and a modest increase compared to $18.4 million in the preceding quarter. Year to date, total revenues increased 9.6% to $54.9 million, compared to $50.1 million in the same period a year earlier.

Heartland’s net interest margin was 3.52% in the third quarter of 2023, compared to 3.61% in the preceding quarter and 4.20% in the third quarter of 2022. “The unprecedented rise in funding costs that is affecting the entire banking industry continued to impact our net interest margin during the third quarter. While deposit pricing pressure continues, we are benefitting from repricing loans at higher rates,” said Carrie Almendinger, EVP and Chief Financial Officer.

Heartland’s net interest margin continues to remain above the peer average posted by the Dow Jones U.S. MicroCap Bank Index with total market capitalization under $250 million as of June 30, 2023.*

Provision for Credit Losses

Heartland recorded a $500,000 provision for credit losses in the third quarter of 2023, compared to an $800,000 provision for credit losses in the second quarter of 2023, and a $480,000 provision for credit losses in the third quarter of 2022. “Our overall credit quality metrics continue to remain stable, and we are seeing minimal signs of stress in the loan portfolio,” said McComb.

Noninterest Income

Noninterest income increased 23.6% to $3.2 million in the third quarter of 2023, compared to $2.6 million in the third quarter a year ago, and decreased 4.7% compared to $3.4 million in the preceding quarter. Gains on sale of loans and originated mortgage servicing rights increased 278.6% to $708,000 in the third quarter of 2023, compared to $187,000 in the third quarter a year ago, and increased modestly compared to $704,000 in the preceding quarter. In the first nine months of 2023, noninterest income increased 3.7% to $9.2 million, compared to $8.9 million in the first nine months of 2022.

“Similar to the prior quarter, we experienced strong secondary loan activity during the third quarter, and we were successful with executing on swaps, with $189,000 in swap referral fee income,” said Almendinger.

Noninterest Expense

Noninterest expenses were $12.0 million during the third quarter of 2023, a 2.4% increase compared to $11.7 million in the preceding quarter, and an 8.4% increase compared to $11.1 million in the third quarter a year ago. Salary and employee benefit expenses, the largest component of noninterest expense, were $7.4 million in the third quarter of 2023, compared to $7.3 million in the second quarter of 2023, and $7.1 million in the third quarter of 2022. Higher FDIC insurance premiums during the quarter also contributed to the quarterly increase. Year to date, noninterest expense totaled $35.4 million, compared to $32.5 million in the first nine months of 2022.

“We are making a company-wide effort to keep operating expenses in check, and as we look to grow the team, our focus remains on adding new associates in revenue producing roles,” said Almendinger.

The efficiency ratio for the third quarter of 2023 was 64.7%, compared to 63.5% for the preceding quarter and 62.0% for the third quarter of 2022.

Income Tax Provision

In the third quarter of 2023, Heartland recorded $1.1 million in state and federal income tax expense for an effective tax rate of 18.1%, compared to $1.1 million, or 18.3%, in the second quarter of 2023 and $1.2 million, or 19.4%, in the third quarter a year ago.

Credit Quality

Beginning January 1, 2023, Heartland began accounting for credit losses under CECL which replaced the former “incurred loss” model for recognizing credit losses with an “expected loss” model.

At September 30, 2023, the allowance for credit losses plus unfunded commitment liability (ACL + UCL) was $19.2 million, or 1.26% of total loans, compared to $18.7 million, or 1.24% of total loans, at June 30, 2023, and $16.2 million, or 1.23% of total loans, a year ago. As of September 30, 2023, the ACL represented 888% of nonaccrual loans, compared to 789% three months earlier and 2,322% one year earlier.

Nonaccrual loans were $1.9 million at September 30, 2023, compared to $2.2 million at June 30, 2023, and $699,000 at September 30, 2022. At September 30, 2023, nonaccrual loans totaled 12/ loans with an average balance of approximately $162,000. There were $146,000 in loans past due 90 days and still accruing at September 2023, compared to zero at June 30, 2023, and $404,000 at September 30, 2022. Net loan charge-offs totaled $47,000 at September 30, 2023, compared to $43,000 in net loan charge-offs at June 30, 2023, and $176,000 in net loan charge-offs at September 30, 2022.

There was no other real estate owned and other non-performing assets on the books at September 30, 2023, compared to $5,000 at June 30, 2023 and $5,000 at September 30, 2022. Non-performing assets (NPAs), consisting of non-performing loans and loans past due 90 days or more, were $2.1 million, or 0.11% of total assets, at September 30, 2023, compared to $2.2 million, or 0.12% of total assets, at June 30, 2023, and $1.1 million, or 0.07% of total assets, a year ago.

About Heartland BancCorp

Heartland BancCorp is a registered Ohio bank holding company and the parent of Heartland Bank, which operates 20 fullservice banking offices and TransCounty Title Agency, LLC. Heartland Bank, founded in 1911, provides full-service commercial, small business, and consumer banking services; professional financial planning services; and other financial products and services. Heartland Bank is a member of the Federal Reserve, a member of the FDIC, and an Equal Housing Lender. Heartland BancCorp is currently quoted on the OTC Markets (OTCQX) under the symbol HLAN. Learn more about Heartland Bank at Heartland.Bank.

In June of 2023, Heartland was ranked #119 on the American Banker Magazine’s list of Top 200 Publicly Traded Community Banks and Thrifts based on three-year average return on equity as of December 31, 2022.

During the first quarter of 2023, Heartland was ranked 36th on the OTCQX’s Best 50 list for 2023. The OTCQX Best 50 is an annual ranking of the top 50 U.S. and international companies traded on the OTCQX Best Market, based on an equal weighting of one-year total return and average daily dollar volume growth. Companies in the 2023 OTCQX Best 50 were ranked based on their performance during the 2022 calendar year. 

Safe Harbor Statement 

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about (i) the benefits of a merger between Heartland Bank and Victory Community Bank, including future financial and operating results, cost savings enhancements to revenue and accretion to reported earnings that may be realized from the merger; (ii) Heartland’s plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts; and (iii) other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “targets,” “projects,” or words of similar meaning generally intended to identify forward-looking statements. These forward-looking statements are based upon the current beliefs and expectations of Heartland’s management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of Heartland. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the anticipated results discussed in these forward-looking statements because of the following factors, among others: (1) the assumptions and estimates used by Heartland’s management include both assumptions as to certain business decisions that are subject to change and, in many respects, subjective judgment, and thus is susceptible to multiple interpretations and periodic revisions based on actual experience and business developments, and thus, may not be realized; (2) legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which Heartland is engaged; (3) changes in the interest rate environment may adversely affect net interest
income; (4) results may be adversely affected by continued diversification of assets and adverse changes to credit quality; (5) competition from other financial services companies in Heartland’s markets could adversely affect operations; (6) the impact of the coronavirus (COVID-19) pandemic on the employees and clients of Heartland, as well as the resulting effect on the business, financial condition and results of operations on Heartland; and (7) the current economic slowdown could adversely affect credit quality and loan originations.

Heartland cautions that the foregoing list of factors is not exclusive. All subsequent written and oral forward-looking statements are expressly qualified in their entirety by the cautionary statements above. Heartland does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made, except as required by law.