Whitehall, OH – January 19, 2021 – Heartland BancCorp (“Heartland” and “the company”) (OTCQX: HLAN) today reported record earnings for the fourth quarter of 2020. Net income increased 89.0% to $5.8 million, or $2.87 per diluted share in the fourth quarter of 2020, compared to $3.1 million, or $1.52 per diluted share in the preceding quarter, and increased 67.2% compared to $3.4 million, or $1.67 per diluted share in the fourth quarter of 2019. For the year 2020, net income increased 11.9% to a record $14.8 million, or $7.33 per diluted share, compared to $13.2 million, or $6.45 per diluted
share in 2019.
The company also announced its board of directors increased its quarterly cash dividend by 10% to $0.627 per share. The dividend will be payable April 10, 2021, to shareholders of record as of March 25, 2020. Heartland has paid regular quarterly cash dividends since 1993.
“Our record results for both the fourth quarter and the year were highlighted by higher mortgage loan production as a result of the historically low interest rate environment, strong PPP loans generated during the year and the successful integration of our acquisition of Victory Community Bank,” stated G. Scott McComb, Chairman, President and Chief Executive Officer. “Our operating results benefitted from the larger scale and reach of the combined company, with
double digit loan and deposit growth year‐over‐year, and an annualized return on average assets of 1.50% and an annualized return on average equity of 16.57% for the fourth quarter. I am extremely proud of our team of bankers who under very difficult circumstances rose to the challenge to meet the needs of our client and communities.”
Fourth Quarter Financial Highlights (at or for the period ended December 31, 2020)
- Net income increased 67.2% to $5.8 million, compared to $3.4 million in the fourth quarter a year ago.
- Earnings per diluted share were $2.87, compared to $1.67 in the fourth quarter a year ago.
- Provision for loan losses was $750,000, compared to $375,000 in the fourth quarter a year ago.
- Net interest margin was 3.50%, compared to 3.38% in the preceding quarter, and 3.87% in the fourth quarter a year ago.
- Total revenues (net interest income plus noninterest income) increased 37.1% to $17.2 million, compared to $12.6 million in the fourth quarter a year ago.
- Noninterest income increased 110.8% to $4.8 million, compared to $2.3 million in the fourth quarter a year ago.
- Annualized return on average assets was 1.50%, compared to 1.21% in the fourth quarter a year ago.
- Annualized return on average equity was 16.57%, compared to 10.75% in the fourth quarter a year ago.
- Total assets increased 38.8% to $1.55 billion, compared to $1.11 billion a year ago.
- Net loans increased 26.4% to $1.13 billion, compared to $890.9 million a year ago.
- Noninterest bearing demand deposits increased 66.7% to $426.8 million, compared to $256.0 million a year ago.
- Total deposits increased 39.0% to $1.31 billion, compared to $944.2 million a year ago.
- Tangible book value per share was $63.87 per share, compared to $62.49 per share a year ago.
- Increased its quarterly cash dividend to $0.627 per share.
Heartland has implemented several pandemic preparations to assist its clients with their financial needs, and remains committed to helping its borrowers who have been affected by the declining economic activity. The sectors that have been most heavily impacted in our loan portfolio include hospitality and food services, healthcare, manufacturing, and retail trade loans.
Heartland continues to offer payment and financial relief programs for borrowers impacted by the pandemic. These programs include loan payment deferrals or interest‐only payments for up to 90 days. Deferred loans are re‐evaluated at the end of the initial deferral period and will either return to the original loan terms or may be eligible for an additional deferral period for up to 90 days. Heartland has deferred payment on 29 loans totaling $51.9 million at December 31, 2020, which includes 13 loans totaling $28.0 million that had received a second deferral. Of the $51.9 million in loans on deferral at December 31, 2020, $44.5 million are for businesses within the accommodation & food industry, $3.8 million are businesses in the RE rental and leasing sector, $2.7 million are in manufacturing and $200,000 are in retail trade.
Paycheck Protection Program
During the second and third quarters of 2020, Heartland originated 1,075 Paycheck Protection Program (“PPP”) loans, for a total of $129 million in PPP loans, and generated total PPP loan fees receivable of approximately $4.9 million. “As of December 31, 2020, we have 517 forgiveness applications outstanding with the SBA and received payment from the SBA for 157 borrowers totaling $28.0 million. Approximately $764,000 of the income recognized during the fourth quarter was related to recognizing origination fees for PPP loan payoffs,” said McComb.
Subordinated Notes Offering
On May 15, 2020, Heartland completed its private placement of $25 million of 5.0% fixed‐to‐floating rate subordinated notes due 2030 (the “Notes”) to certain qualified institutional buyers and accredited investors, including the exchange of approximately $5.4 million of the Company’s subordinated promissory notes due 2025. The Notes have been structured to qualify as Tier 2 capital for Heartland for regulatory capital purposes. Heartland intends to use the net proceeds of the offering for general corporate operating purposes, including repaying indebtedness, to support organic growth and to fund potential acquisitions.
Victory Community Bank Acquisition
On April 7, 2020, Heartland completed the acquisition of Victory Community Bank. At closing, Victory Community Bank had three banking locations in Boone, Kenton, and Campbell counties in Kentucky. Pursuant to previously announced terms, Victory Mortgage Holding, Inc. (formerly known as Victory Bancorp, Inc.) (as the sole shareholder of Victory Community Bank) received 58,934 shares of Heartland common stock and approximately $35.5 million in cash.
The closed acquisition added approximately $238.3 million in assets, $149.9 million in deposits and $120.2 million in loans to Heartland Bank. Victory Community Bank’s former sister company, Victory Mortgage, LLC, which is affiliated with Fischer Homes, has mortgage lending offices in Louisville, Columbus, Indianapolis, and Atlanta. As part of the merger, Victory Mortgage, LLC entered into a cooperation agreement with Heartland Bank for certain products and services to be provided to Heartland Bank post‐closing.
Balance Sheet Review
“The Victory Community Bank acquisition contributed meaningfully to loan growth year‐over‐year, primarily in the 1‐4 family loan segment,” said Carrie Almendinger, EVP and Chief Financial Officer. Net loans increased to $1.13 billion at December 31, 2020, a 26.4% increase compared to $890.9 million at December 31, 2019, and a modest decrease compared to $1.17 billion at September 30, 2020. Owner occupied commercial real estate loans (CRE) increased 1% to $240.2 million at December 31, 2020, compared to a year ago, and comprise 21.3% of the total loan portfolio. Non‐owner occupied CRE loans increased 10.7% to $307.1 million, compared to a year ago, and comprise 26.9% of the total loan portfolio at December 31, 2020. At December 31, 2020, 1‐4 family residential real estate loans were up 41.2% from year ago levels to $327.6 million and represent 28.7% of total loans. Commercial loans were up 96.8% from year ago levels to $216.1 million, and comprise 18.9% of the total loan portfolio at December 31, 2020. Home equity loans increased 22.0% from year ago levels to $38.2 million and represent 3.1% of total loans at December 31, 2020. Consumer loans increased 3.1% from year ago levels to $11.3 million and represent 1.0% of the total loan portfolio at December 31, 2020.
Total deposits increased 39.0% to $1.31 billion at December 31, 2020, compared to $944.2 million a year earlier and increased 2.0% compared to $1.29 billion three months earlier. Deposit growth for the year was reflective of the Victory Community Bank acquisition, while federal programs such as the PPP and stimulus checks also boosted demand deposit balances. At December 31, 2020, noninterest bearing demand deposit accounts increased 66.7% compared to a year ago and represented 32.5% of total deposits, savings, NOW and money market accounts increased 48.3% compared to a year
ago and represented 40.3% of total deposits, and CDs increased 7.7% compared to a year ago and comprised 27.2% of
Total assets increased 38.8% to $1.55 billion at December 31, 2020, compared to $1.11 billion a year earlier, and increased 1.9% compared to $1.52 billion three months earlier. The year‐over‐year increase is largely due to the Victory Community Bank acquisition and PPP loans. Excluding these items, total assets increased 8.4% year‐over‐year. Shareholders’ equity increased 9.7% to $140.9 million at December 31, 2020, compared to $128.4 million a year earlier. On December 31, 2020, Heartland’s tangible book value was $63.87 per share, compared to $62.49 one year earlier.
Heartland’s net interest margin was 3.50% in the fourth quarter of 2020, compared to 3.38% in the preceding quarter and 3.87% in the fourth quarter of 2019. “Positive tailwinds relating to PPP loan forgiveness and liability repricing were offset slightly by the negative impacts of excess liquidity, leading to a modest net interest margin expansion during the fourth quarter,” said Almendinger. For the year, the net interest margin was 3.63%, compared to 3.94% in 2019. Excluding PPP loans, net interest margin was 3.49% for the fourth quarter and 3.71% for all of 2020.
Total revenues (net interest income before the provision for loan losses, plus noninterest income) increased 37.1% to $17.2 million in the fourth quarter, compared to $12.6 million in the fourth quarter a year ago, and increased 10.1% from $15.7 million in the preceding quarter. For the year, total revenues increased 25.3% to $60.5 million, compared to $48.2 million in 2019.
Net interest income, before the provision for loan losses, increased 20.9% to $12.4 million in the fourth quarter of 2020, compared to $10.3 million in the fourth quarter a year ago, and increased 4.6% compared to $11.9 million in the preceding quarter. For the year, net interest income before the provision for loan losses increased 14.8% to $46.4 million, compared to $40.4 million in 2019.
Heartland’s noninterest income increased 110.8% to $4.8 million in the fourth quarter, compared to $2.3 million in the fourth quarter a year ago, and increased 27.6% compared to $3.8 million in the preceding quarter. The net gain and commission on sales and servicing of loans increased 266.4% to $2.8 million in the fourth quarter of 2020, compared to $766,000 in the fourth quarter a year ago, and increased 38.3% compared to $2.0 million in the preceding. Sustained low long‐term mortgage rates continued to attract mortgage refinancing, and produced higher loan sales. For the year,
noninterest income increased 79.7% to $14.1 million from $7.8 million in 2019. Fourth quarter noninterest expenses totaled $9.4 million, which was unchanged compared to the preceding quarter. In the fourth quarter a year ago, noninterest expense was $8.0 million. Salary and employee benefit expenses were $5.7 million for the fourth quarter compared to $5.6 million in the third quarter of 2020, and $4.8 million in the fourth quarter a year ago.
For the year, noninterest expense increased to $36.1 million, from $30.6 million in 2019. The year‐over‐year increase was due to $1.3 million in acquisition costs related to the acquisition of Victory Community Bank that closed in April 2020, in addition to Heartland’s organic expansion, including its new Upper Arlington branch, and investments in new technology. The efficiency ratio for the fourth quarter of 2020 was 55.1%, compared to 60.3% for the preceding quarter and 63.6% for the fourth quarter of 2019.
“The provision for loan losses during the quarter primarily reflects our current assessment of risks associated with the COVID‐19 pandemic, as well as the higher provisions taken during the second and third quarters of the year 2020,” said McComb. Heartland booked a $750,000 provision for loan losses in the fourth quarter, compared to a $2.6 million provision in the preceding quarter and a $375,000 provision for loan losses in the fourth quarter a year ago. For the year, Heartland’s loan loss provision totaled $6.4 million, compared to $1.5 million in 2019.
At December 31, 2020, the allowance for loan losses (ALLL) increased to $14.1 million, or 1.24% of total loans, compared to $13.8 million, or 1.17% of total loans at September 30, 2020, and $8.8 million, or 0.97% of total loans a year ago. Excluding PPP loans, the ALLL was 1.36% of total loans at December 31, 2020 and 1.31% of total loans at September 30, 2020. As of December 31, 2020, the ALLL represented 476.5% of nonaccrual loans, compared to 329.3% three months earlier and 471.9% one year earlier.
Nonaccrual loans decreased 29.2% during the quarter to $3.0 million at December 31, 2020, compared to $4.2 million at September 30, 2020 and increased compared to $1.9 million at December 31, 2019. There were no loans past due 90 days and still accruing at December 31, 2020. This compared to $132,000 in loans past due 90 days at September 30, 2020, and $491,000 in loans past due 90 days at December 31, 2019.
Heartland’s performing restructured loans that were not included in nonaccrual loans were $285,000 at December 31, 2020, which was unchanged compared to the preceding quarter end. 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 (OREO) and other non‐performing assets on the books at December 31, 2020, and at September 30, 2020, and none reported at December 31, 2019. Non‐performing assets (NPAs), consisting of non‐performing loans and loans past due 90 days or more, were $3.0 million, or 0.19% of total assets inclusive of PPP loans, at December 31, 2020, compared to $4.3 million, or 0.29% of total assets, at September 30, 2020 and $2.3 million, or 0.21% of total assets at December 31, 2019. NPAs, consisting of non‐performing loans and loans past due 90 days or more, were 0.21% of total assets excluding PPP loans, at December 31, 2020.
Heartland recorded net loan charge offs of $420,000 in the fourth quarter of 2020. This compares to net loan recoveries of $141,000 in the third quarter of 2020 and net loan charge offs of $142,000 in the fourth quarter a year ago.
About Heartland BancCorp
Heartland BancCorp is a registered Ohio bank holding company and the parent of Heartland Bank, which operates 19 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 May of 2020, Heartland was ranked #58 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, 2019. In September of 2019, Heartland stock uplisted to the OTCQX® Best Market after previously trading on the OTCQB® Venture Market.
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) the businesses of Heartland Bank and Victory Community Bank may not be combined successfully, or such combination may take longer, be more difficult, time‐consuming or costly to accomplish than expected, and the expected growth opportunities or cost savings from the merger may not be fully realized or may take longer to realize than expected;; (3) legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which Heartland is engaged; (4) changes in the interest rate environment may adversely affect net interest income; (5) results may be adversely affected by continued diversification of assets and adverse changes to credit quality; (6) 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.