Whitehall, OH – January 23, 2023 – Heartland BancCorp (“Heartland” and “the Company”) (OTCQX: HLAN), parent company of Heartland Bank (“Bank”), today reported net income of $5.0 million, or $2.48 per diluted share in the fourth quarter of 2022, which was unchanged compared to the fourth quarter of 2021, and a modest decrease compared to $5.1 million, or $2.50 per diluted share, in the preceding quarter. For the year 2022, net income was $18.1 million, or $8.90 per diluted share, compared to $18.6 million, or $9.17 per diluted share, in 2021.

The company also announced that its board of directors increased its quarterly cash dividend by 10% to $0.759 per share. The dividend will be payable April 10, 2023, to shareholders of record as of March 25, 2023. Heartland has paid regular quarterly cash dividends since 1993.

“2023 was a substantial year of growth for Heartland, and our operating results reflect the continued success of our relationship banking model,” stated G. Scott McComb, Chairman, President and Chief Executive Officer. “We accomplished record loan growth for the year, and more importantly, loan growth has really started to materialize across all lending segments. We have been able to capitalize on displacement within our markets by bringing on talented bankers and lending officers from other institutions, which is contributing to our success. Near the end of the fourth quarter, we opened our permanent office in Cincinnati, and we’ve been adding to our top-quality team as we continue to execute our Greater Cincinnati expansion strategy. Our brand of community banking is being well received in all of the markets that we serve, and we will continue in the year ahead to work to create value for our shareholders, our clients and our communities.”

Earlier this month, Heartland BancCorp 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.

Fourth Quarter 2022 Financial Highlights (at or for the three months ended December 31, 2022)

• Net income was $5.0 million, or $2.48 per diluted share, which was unchanged compared to the fourth quarter of 2021.
• Provision for loan losses was $480,000, which was unchanged compared to the fourth quarter a year ago.
• Net interest margin of 4.13%, compared to 4.20% in the preceding quarter and improved 27 basis points compared to 3.86% in the fourth quarter a year ago.
• Fourth quarter revenues (net interest income plus noninterest income) increased 6.4% to $18.3 million, compared to $17.2 million in the fourth quarter a year ago.
• Annualized return on average assets was 1.23%, compared to 1.36% in the fourth quarter of 2021.
• Annualized return on average tangible common equity was 15.63%, compared to 14.42% in the fourth quarter a year ago.
• Net loans increased $86.8 million during the quarter to $1.39 billion at December 31, 2022, compared to $1.30 billion three months earlier.
• Credit quality remains pristine, with nonperforming loans to gross loans of 0.07% and nonperforming assets to total assets of 0.06%, at December 31, 2022.
• Tangible book value was $65.09 per share, compared to $69.74 per share a year ago.
• Declared a quarterly cash dividend of $0.759 per share.

2022 Full Year Financial Highlights (at or for the twelve months ended December 31, 2022)

• Net income for 2022 was $18.1 million, compared to $18.6 million in 2021.
• Net interest margin was 4.03% for the year, compared to 3.56% for 2021.
• Total revenues increased 5.5% to $68.4 million in 2022, compared to $64.8 million in 2021.
• Annualized return on average assets was 1.20% for 2022, compared to 1.23% for 2021.
• Annualized return on average tangible equity was 13.60% for 2022, compared to 13.97% for 2021.
• Net loans increased a record $230.2 million, or 19.9% year-over-year to $1.39 billion.
• Noninterest bearing demand deposits increased 9.2% to $523.0 million, compared to $478.9 million a year ago.

Balance Sheet Review

Assets

Total assets increased 13.2% to $1.66 billion at December 31, 2022, compared to $1.47 billion a year earlier, and increased 5.6% compared to $1.58 billion three months earlier. Heartland’s loan-to-deposit ratio was 95.3% at December 31, 2022, compared to 96.4% at September 30, 2022, and 92.2% at December 31, 2021.

Excess liquidity levels continued to decline, with interest bearing deposits in other banks at $5.3 million, compared to $54.4 million a year earlier and was unchanged compared to three months earlier.

Average earning assets increased to $1.52 billion in the fourth quarter of 2022, compared to $1.44 billion in the third quarter of 2022, and $1.38 billion in the fourth quarter a year ago. The average yield on interest-earning assets was 4.91% in the fourth quarter of 2022, up 31 basis points from 4.60% in the preceding quarter and up 78 basis points from 4.13% in the fourth quarter a year ago.

Loan Portfolio

“Loan production was a highlight of the fourth quarter, increasing $86.8 million, or 6.7% over the prior quarter end, with great activity across nearly every loan segment, including commercial, 1-4 family loans, owner occupied CRE, non-owner occupied CRE, home equity and consumer loans,” said Ben Babcanec, EVP and Chief Operating Officer.

Net loans were $1.39 billion at December 31, 2022, which was an 6.7% increase compared to $1.30 billion at September 30, 2022, and a 19.9% increase compared to $1.16 billion at December 31, 2021. Commercial loans increased 5.5% from year ago levels to $162.7 million, and comprise 11.6% of the total loan portfolio at December 31, 2022. Owner occupied commercial real estate loans (CRE) increased 13.0% to $325.8 million at December 31, 2022, compared to a year ago, and comprise 23.2% of the total loan portfolio. Non-owner occupied CRE loans increased 9.1% to $391.5 million, compared to a year ago, and comprise 27.9% of the total loan portfolio at December 31, 2022. 1-4 family residential real estate loans increased 43.1% from year ago levels to $461.7 million and represent 32.9% of total loans. Home equity loans increased 22.8% from year ago levels to $44.5 million and represent 3.2% of total loans, and consumer loans increased 44.6% from year ago levels to $18.2 million and represent 1.3% of the total loan portfolio at December 31, 2022.

Deposits

Total deposits were $1.46 billion at December 31, 2022, a 7.9% increase compared to $1.35 billion at September 30, 2022, and a 16.0% increase compared to $1.26 billion at December 31, 2021. “We have been successful at growing deposit balances and, while we experienced some movement from savings accounts into time deposits during the fourth quarter, we remain focused on our deposit pricing,” said Babcanec. At December 31, 2022, noninterest bearing demand deposit accounts increased 9.2% compared to a year ago and represented 35.9% of total deposits; savings, NOW and money market accounts increased 3.5% compared to a year ago and represented 41.9% of total deposits, and CDs increased 72.1% compared to a year ago and comprised 22.2% of total deposits. The average cost of deposits was 0.70% in the fourth quarter of 2022, compared to 0.30% in the third quarter of 2022, and 0.17% in the fourth quarter of 2021.

Shareholders’ Equity

Shareholders’ equity was $143.9 million at December 31, 2022, compared to $139.5 million three months earlier and $153.2 million a year earlier. The decrease in shareholders’ equity compared to a year ago was primarily due to a $22.5 million decrease in accumulated other comprehensive income related to an increase in the unrealized loss on available for sale securities reflecting the increase in market interest rates during the year. At December 31, 2022, Heartland’s tangible book value was $65.09 per share, compared to $62.90 at September 30, 2022, and $69.74 at December 31, 2021.

Heartland continues to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” with tangible equity to tangible assets of 7.92% at December 31, 2022, compared to 8.09% at September 30, 2022, and 9.60% at December 31, 2021.

Operating Results
In the fourth quarter of 2022, Heartland generated a ROAA of 1.23% and a ROATCE of 15.63%, compared to 1.31% and 15.27%, respectively, in the third quarter of 2022 and 1.36% and 14.42%, respectively, in the fourth quarter a year ago.

Net Interest Income/Net Interest Margin

Net interest income, before the provision for loan losses, increased 18.0% to $15.8 million in the fourth quarter of 2022, compared to $13.4 million in the fourth quarter a year ago, and increased 4.1% compared to $15.2 million in the preceding quarter, which included a $490,000 recovery of nonaccrual interest on problem credits. Net interest income continued to benefit from higher yielding assets and the current rate environment. In addition, approximately $16,000 of the income recognized during the fourth quarter of 2022 was related to recognizing origination fees for PPP loan payoffs or forgiveness, compared to $30,000 recognized during the third quarter of 2022, and $846,000 recognized during the fourth quarter of 2021. For the year 2022, net interest income increased 12.8% to $57.0 million, compared to $50.5 million in 2021.

Total revenues (net interest income, before the provision for loan losses, plus noninterest income) was $18.3 million in the fourth quarter, a 6.4% increase compared to $17.2 million in the fourth quarter a year ago, and a 2.8% increase compared to $17.8 million in the preceding quarter. For the year 2022, total revenues increased 5.5% to $68.4 million, compared to $64.8 million in 2021.

Heartland’s net interest margin was 4.13% in the fourth quarter of 2022, compared to 4.20% in the preceding quarter and improved by 27 basis points compared to 3.86% in the fourth quarter of 2021. The preceding quarter net interest margin included the above-mentioned recovery. Excluding the recovery, net interest margin would have been 4.06% for the third quarter of 2022. “Our net interest margin for the fourth quarter benefitted from strong net interest income generation, robust loan growth and rising interest rates. New loans that carry a higher interest rate, and variable rate loans are repricing, which is helping our net interest margin expand compared to a year ago, although funding costs have begun to catch up” 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 September 30, 2022.*

*As of September 30, 2022, the Dow Jones U.S. MicroCap Bank Index tracked 154 banks with total common market capitalization under $250 million for the following ratios: NIM* of 3.70%.


Provision for Loan Losses

“We continue to make additions to the allowance for loan losses to reflect the steady level of new loan growth,” said McComb. “Overall credit quality remains strong, and we are well positioned for our conversion to the CECL loan loss methodology.”

Heartland recorded a $480,000 provision for loan losses in the fourth quarter of 2022, which was the same amount recorded in both the preceding quarter and the year ago quarter.

Noninterest Income

Noninterest income decreased 34.5% to $2.5 million in the fourth quarter of 2022, compared to $3.8 million in the fourth quarter a year ago, and decreased 4.9% compared to $2.6 million in the preceding quarter. Gains on sale of loans, and originated mortgage servicing rights, decreased 83.7% to $218,000 in the fourth quarter of 2022, compared to $1.3 million in the fourth quarter a year ago, and increased 16.6% compared to $187,000 in the preceding quarter. For the year 2022, noninterest income decreased 20.4% to $11.4 million, compared to $14.3 million in 2021.

“Mortgage origination continues to be strong through the fourth quarter of 2022, although we’ve seen a shift to increased volumes of on-balance sheet, adjustable rate mortgages, leading to lower gains on sale,” said Almendinger.

Noninterest Expense

Heartland’s fourth quarter noninterest expenses totaled $11.8 million, compared to $11.1 million in the preceding quarter and $10.4 million in the fourth quarter a year ago. Salary and employee benefit expenses, the largest component of noninterest expense, were $7.5 million in the fourth quarter of 2022, compared to $7.1 million in the preceding quarter and $6.5 million in the fourth quarter of 2021. “The increase in salary and employee benefit expense is largely due to variable compensation related to increased loan production. Occupancy expense increased modestly due to the build out of the permanent office space in Cincinnati,” said Almendinger. “By expanding into the Cincinnati market organically, with a seasoned leader who has been established in that market for years, we have begun to broaden our client base and look forward to continuing to leverage this investment for future growth.” For the year, noninterest expense totaled $44.2 million, compared to $39.7 million in 2021.

The efficiency ratio for the fourth quarter of 2022 was 64.2%, compared to 62.0% for the preceding quarter and 60.5% for the fourth quarter of 2021.

Income Tax Provision

In the fourth quarter of 2022, Heartland recorded $1.0 million in state and federal income tax expense for an effective tax rate of 17.2%, compared to $1.2 million, or 19.4% in the third quarter of 2022 and $1.3 million or 20.5% in the fourth quarter a year ago. For the year, Heartland recorded $4.2 million in state and federal income tax expense for an effective tax rate of 18.7%, compared to $4.6 million, or 19.7% in 2021.

Credit Quality
At December 31, 2022, the allowance for loan losses (ALLL) was $16.6 million, or 1.18% of total loans, compared to $16.2 million, or 1.23% of total loans at September 30, 2022, and $15.0 million, or 1.28% of total loans a year ago. As of December 31, 2022, the ALLL represented 2,370% of nonaccrual loans, compared to 2,322% three months earlier and 925% one year earlier.

Nonaccrual loans were $700,000 at December 31, 2022, compared to $699,000 at September 30, 2022, and decreased 56.7% when compared to $1.6 million at December 31, 2021. Heartland had net loan charge-offs of $118,000 at December 31, 2022. This compared to $176,000 in net loan charge-offs at September 30, 2022, and $133,000 in net loan recoveries at December 31, 2021. There was $309,000 in loans past due 90 days and still accruing at December 31, 2022, compared to $404,000 at September 30, 2022, and $16,000 at December 31, 2021.

Heartland had zero performing restructured loans that were not included in nonaccrual loans, at December 31, 2022. This compared to $3.1 million in performing restructured loans at September 30, 2022. Borrowers who are in financial difficulty, and who have been granted concessions, including interest rate reductions, term extensions, or payment alterations, are categorized as restructured loans.

There was $5,000 in other real estate owned and other non-performing assets on the books at December 31, 2022, 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, decreased 8.5% to $1.0 million, or 0.06% of total assets, at December 31, 2022, compared to $1.1 million, or 0.07% of total assets, at September 30, 2022, and decreased 38.1% when compared to $1.6 million, or 0.11% 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 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.

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 customers 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.