Whitehall, OH – April 24, 2023 – Heartland BancCorp (“Heartland” and “the Company”) (OTCQX: HLAN), parent company of Heartland Bank (“Bank”), today reported net income of $4.5 million, or $2.19 per diluted share, in the first quarter of 2023, compared to $4.0 million, or $1.99 per diluted share, in the first quarter of 2022, and $5.0 million, or $2.48 per diluted share, in the preceding quarter.  

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

“Heartland’s first quarter operating performance was strong, with good revenue generation and solid balance sheet expansion,” stated G. Scott McComb, Chairman, President and Chief Executive Officer.  “We achieved balance sheet growth in both loans and deposits while mitigating the impact of a rapidly increasing rate environment.  Additionally, our loan pipeline remains healthy as we embark on the second quarter.  While the net interest margin decrease was primarily related to pressure from the funding side of the balance sheet, we remain prudent with all new loan pricing.  With our strong capital position, excellent credit quality and ample sources of liquidity, we remain well positioned for growth in the year ahead.”

“Near the end of 2022, we opened our permanent office in Cincinnati, and we’ve been adding to our top-quality team of associates as we continue to implement our Greater Cincinnati expansion strategy,” McComb continued.  “Our brand of community banking is being well received in Cincinnati, just as it’s been in all the markets that we serve.  I couldn’t be prouder of our team of associates for achieving these accomplishments while continuing to help our clients navigate this challenging economic environment.”

First Quarter 2023 Financial Highlights (at or for the three months ended March 31, 2023)

• Net income was $4.5 million, or $2.19 per diluted share, compared to $4.0 million, or $1.99 per diluted share, in the first quarter of 2022.
• Provision for loan losses was $750,000, compared to $480,000 for the first quarter a year ago.
• Net interest margin was 3.87%, compared to 4.13% in the preceding quarter and 3.83% in the first quarter a year ago.
• First quarter revenues (net interest income plus noninterest income) increased 11.7% to $17.9 million, compared to $16.1 million in the first quarter a year ago.
• Annualized return on average assets was 1.06%, compared to 1.14% in the first quarter of 2022.
• Annualized return on average tangible common equity was 13.36%, compared to 11.68% in the first quarter a year ago.
• Net loans increased $64.3 million during the quarter, or 4.6%, to $1.45 billion at March 31, 2023, compared to $1.39 billion three months earlier.
• Total deposits increased $111.4 million during the quarter, or 7.6%, to $1.57 billion at March 31, 2023, compared to $1.46 billion three months earlier.
• Credit quality remains pristine, with nonperforming loans to gross loans of 0.09% and nonperforming assets to total assets of 0.07%, at March 31, 2023.
• Tangible book value was $67.09 per share, compared to $66.92 per share a year ago.
• Declared a quarterly cash dividend of $0.759 per share.

Liquidity

Heartland had ample sources of available liquidity as of March 31, 2023, including a $220 million line of credit at the FHLB, as well as additional credit lines of $85 million.  Nearly 67% of Heartland’s client deposit balances were FDIC insured or collateralized as of March 31, 2023.

Balance Sheet Review

Assets

Total assets increased 21.3% to $1.77 billion at March 31, 2023, compared to $1.45 billion a year earlier, and increased 6.1% compared to $1.66 billion three months earlier.  Heartland’s loan-to-deposit ratio was 92.6% at March 31, 2023, compared to 95.3% at December 31, 2022, and 90.6% at March 31, 2022.

Interest bearing deposits in other banks was $37.3 million at March 31, 2023, compared to $56.3 million a year earlier and $5.3 million three months earlier.

Average earning assets increased to $1.61 billion in the first quarter of 2023, compared to $1.52 billion in the fourth quarter of 2022, and $1.35 billion in the first quarter a year ago.  The average yield on interest-earning assets was 5.18% in the first quarter of 2023, up 27 basis points from 4.91% in the preceding quarter, and up 111 basis points from 4.07% in the first quarter a year ago.

Loan Portfolio

“Loan growth was a highlight again this quarter, increasing $64.3 million, or 4.6%, over the prior quarter end with great activity across nearly every loan segment,” said Ben Babcanec, EVP and Chief Operating Officer.  “Additionally, we remain disciplined with loan pricing as core client deposits are still our main source of loan funding.”

Net loans were $1.45 billion at March 31, 2023, which was a 4.6% increase compared to $1.39 billion at December 31, 2022, and a 27.4% increase compared to $1.14 billion at March 31, 2022.  Commercial loans increased 16.0% from year ago levels to $165.7 million, and comprise 11.3% of the total loan portfolio at March 31, 2023.  Owner occupied commercial real estate loans (CRE) increased modestly to $285.6 million at March 31, 2023, compared to a year ago, and comprise 19.4% of the total loan portfolio.  Non-owner occupied CRE loans increased 35.2% to $468.1 million, compared to a year ago, and comprise 31.9% of the total loan portfolio at March 31, 2023.  1-4 family residential real estate loans increased 46.7% from year ago levels to $486.1 million and represent 33.1% of total loans.  Home equity loans increased 24.5% from year ago levels to $44.7 million and represent 3.0% of total loans, while consumer loans increased 40.0% from year ago levels to $18.5 million and represent 1.3% of the total loan portfolio at March 31, 2023.

Deposits

Total deposits were $1.57 billion at March 31, 2023, up $111.4 million, or 7.6%, compared to $1.46 billion at December 31, 2022, and up $310.6 million, or 24.7%, compared to $1.26 billion at March 31, 2022.  Average deposits increased $75.0 million to $1.49 billion in the first quarter of 2023 compared to the preceding quarter.  “We were successful at growing deposit balances during the quarter, primarily in money market and CD accounts.  Also notable was the consistency of our noninterest bearing demand deposits, declining 1.0% from an average balance perspective since the fourth quarter,” said Babcanec.  “While the rapid rise in market interest rates has caught up to funding costs, we remain focused on funding the majority of new loan growth with core client deposits.”  At March 31, 2023, noninterest bearing demand deposit accounts decreased 2.7% compared to a year ago and represented 31.1% of total deposits; savings, NOW and money market accounts increased 18.4% compared to a year ago and represented 43.7% of total deposits, and CDs increased 122.2% compared to a year ago and comprised 25.2% of total deposits.  The average cost of deposits was 1.24% in the first quarter of 2023, compared to 0.70% in the fourth quarter of 2022, and 0.15% in the first quarter of 2022.  

Shareholders’ Equity

Shareholders’ equity increased to $148.1 million at March 31, 2023, compared to $143.9 million three months earlier and $147.7 million a year earlier.  The increase in shareholders’ equity compared to the prior quarter was primarily due to a $2.3 million increase in accumulated other comprehensive income related to a decrease in the unrealized loss on available for sale securities.  At March 31, 2023, Heartland’s tangible book value increased to $67.09 per share, compared to $65.09 at December 31, 2022, and $66.92 at March 31, 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 7.71% at March 31, 2023, compared to 7.92% at December 31, 2022, and 9.32% at March 31, 2022.

Operating Results

In the first quarter of 2023, Heartland generated a ROAA of 1.06% and a ROATCE of 13.36%, compared to 1.23% and 15.63%, respectively, in the fourth quarter of 2022 and 1.14% and 11.68%, respectively, in the first quarter a year ago. 

Net Interest Income/Net Interest Margin

Net interest income, before the provision for loan losses, increased 19.9% to $15.3 million in the first quarter of 2023, compared to $12.8 million in the first quarter a year ago, and decreased 3.1% compared to $15.8 million in the preceding quarter. 

Total revenues (net interest income, before the provision for loan losses, plus noninterest income) was $17.9 million in the first quarter of 2023, an 11.7% increase compared to $16.1 million in the first quarter a year ago, and a 2.0% decrease compared to $18.3 million in the preceding quarter. 

Heartland’s net interest margin was 3.87% in the first quarter of 2023, compared to 4.13% in the preceding quarter and 3.83% in the first quarter of 2022.  “Our net interest margin was impacted during the first quarter by higher funding costs due to the rapid rise in market interest rates.  The marginal cost of deposits in the first quarter was 3.61%, as competition for deposits continued in our markets,” 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 December 31, 2022.^*

Provision for Loan Losses

Heartland recorded a $750,000 provision for loan losses in the first quarter of 2023, compared to a $480,000 provision for loan losses in both the fourth quarter of 2022, and in the first quarter of 2022.  “The higher provision for loan losses during the first quarter was a result of strong loan growth, as well as implementing the CECL loan loss methodology,” said McComb.  “Overall credit quality remains very stable, and we are not seeing signs of stress in the loan portfolio.”

Noninterest Income

Noninterest income decreased 20.4% to $2.6 million in the first quarter of 2023, compared to $3.3 million in the first quarter a year ago, and increased 4.6% compared to $2.5 million in the preceding quarter.  Gains on sale of loans and originated mortgage servicing rights decreased 66.9% to $226,000 in the first quarter of 2023, compared to $683,000 in the first quarter a year ago, and increased 3.7% compared to $218,000 in the preceding quarter.  

“While mortgage originations continued to be strong through the first quarter of 2023, the shift to higher levels of on-balance sheet, adjustable rate mortgages led to lower gains on sale, however we began to see increased secondary activity at the end of the first quarter,” said Almendinger. 

Noninterest Expense

Heartland’s first quarter noninterest expenses were $11.8 million, which was unchanged compared to the preceding quarter and an 11.0% increase compared to $10.6 million in the first quarter a year ago.  Salary and employee benefit expenses, the largest component of noninterest expense, were $7.5 million in both the first quarter of 2023 and in the fourth quarter of 2022.  This compared to salary and employee benefits of $6.9 million in the first quarter of 2022.  Occupancy expense increased 7.3% compared to the year ago quarter due to the expansion into our permanent office space in Cincinnati. 

“We are making a concerted effort to keep operating expenses in check, and as a result, salary and employee benefit expense remained stable.  As we look to grow the team, our focus remains selective, as we are primarily looking to add new associates in revenue producing roles,” said Almendinger.

The efficiency ratio for the first quarter of 2023 was 65.5%, compared to 64.2% for the preceding quarter and 65.9% for the first quarter of 2022.  

Income Tax Provision

In the first quarter of 2023, Heartland recorded $992,000 in state and federal income tax expense for an effective tax rate of 18.2%, compared to $1.0 million, or 17.2%, in the fourth quarter of 2022 and $952,000, or 19.1%, in the first quarter a year ago. 

Credit Quality

“During the first quarter of 2023, we began accounting for credit losses under CECL. As a result of adopting this standard, we reserved a total of $632,000 through retained earnings, which resulted in a $500,000 tax-effected allocation from our capital position to the CECL transaction. This had no impact on our earnings for the first quarter,” said Almendinger.

At March 31, 2023, the allowance for loan losses (ALLL) was $16.6 million, or 1.13% of total loans, compared to $16.6 million, or 1.18% of total loans, at December 31, 2022, and $15.5 million, or 1.34% of total loans, a year ago.  As of March 31, 2023, the ALLL represented 1,460% of nonaccrual loans, compared to 2,370% three months earlier and 2,344% one year earlier. 

Nonaccrual loans were $1.1 million at March 31, 2023, compared to $700,000 at December 31, 2022, and $659,000 at March 31, 2022.  The increase in nonaccrual loans compared to the prior quarter end was primarily due to SBA insured PPP loans that have not received forgiveness moving from 90 days past due and still accruing category into nonaccrual loans.  There was $111,000 in loans past due 90 days and still accruing at March 31, 2023, compared to $309,000 at December 31, 2022, and $383,000 at March 31, 2022.  Net loan charge-offs totaled $19,000 at March 31, 2023, compared to $118,000 in net loan charge-offs at December 31, 2022, and $5,000 in net loan recoveries at March 31, 2022.

Heartland had zero performing restructured loans that were not included in nonaccrual loans at March 31, 2023, and at December 31, 2022.  This compared to $5.1 million in performing restructured loans at March 31, 2022. Borrowers who are in financial difficulty and who have been granted concessions including interest rate reductions, term extensions or payment alterations, are categorizes as restructured loans.  

There was $5,000 in other real estate owned and other non-performing assets on the books at March 31, 2023, unchanged from three months earlier and one year earlier.  Non-performing assets (NPAs), consisting of non-performing loans and loans past due 90 days or more, were $1.3 million, or 0.07% of total assets, at March 31, 2023, compared to $1.0 million, or 0.06% of total assets, at December 31, 2022, and $1.3 million, or 0.09% 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 19 full-service 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.

During the first quarter of 2023, Heartland BancCorp was ranked 36^th 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.

In May of 2022, Heartland was ranked #112 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, 2021.  

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.