Heartland BancCorp Earns $2.9 Million in First Quarter 2020; Declares Quarterly Cash Dividend of $0.57 per Share; Announces COVID-19 Preparations

WHITEHALL, Ohio, April 28, 2020 (GLOBE NEWSWIRE) -- Heartland BancCorp ("the company," and "the bank") HLAN, today reported first quarter 2020 net income of $2.9 million, or $1.43 per diluted share. This compares to net income of $3.4 million, or $1.67 per diluted share, in the fourth quarter of 2019, and $3.0 million, or $1.45 per diluted share, in the first quarter of 2019. 

The company also announced its board of directors declared a quarterly cash dividend of $0.57 per share. The dividend will be payable July 10, 2020, to shareholders of record as of June 25, 2020. Heartland has paid regular quarterly cash dividends since 1993.

"Our first quarter operating results were highlighted by strong net interest income, robust organic balance sheet expansion and a completed digital solutions conversion. Additionally, we closed on our first acquisition earlier this month and started up the Small Business Administration ("SBA") Paycheck Protection Program ("PPP"). While the underlying results were solid, they were overshadowed by the COVID-19 pandemic that has affected our communities. I think it speaks volumes about the quality and depth of our team to have successfully executed all of these projects during a time like this," stated G. Scott McComb, Chairman and Chief Executive Officer. "Our primary concern is for the health and safety of our associates, clients and communities. At Heartland, we are here as a source of strength for our clients as we navigate through this unprecedented time."

COVID-19 Response

"Heartland Bank has implemented several new COVID-19 pandemic preparations to assist our clients with their financial needs during this challenging time," said Brian T. Mauntel, President and Chief Operating Officer. "In early March, we established a pandemic team comprised of executives and senior managers who are monitoring daily operations during the COVID-19 pandemic. To protect our associates and clients, we began restricting lobby activities at all branches to appointment only and encouraged the use of drive-up services and ATM machines, mobile banking and call center operations, well before Ohio's mandated Shelter-in-Place order went into effect. Our loan officers reached out to borrowers that have been affected by declining economic activity, offering assistance with payment deferrals and interest only payment options, and we were early to help our small business borrowers navigate the SBA's Paycheck Protection Program. We will continue to actively assist clients with all of their financial needs."

On March 26, 2020, the state of Ohio announced Shelter-in-Place orders for all of its residents, resulting in the closing of businesses or a substantial reduction in business activity. The sectors that have been most heavily impacted include hospitality and food services, healthcare, manufacturing and retail trade.

On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") providing economic relief for the country, including the $349 billion Small Business Administration Paycheck Protection Program to fund short-term loans for small businesses. The funds allocated to the PPP from the CARES Act had been fully allocated as of April 16, 2020, and Congress recently approved a second round of funding for the PPP. Heartland began taking loan applications from its small business clients immediately after the program was up and running, and as of April 26, 2020 had 546 approved PPP loans for $105 million.

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 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.

At December 31, 2019, Victory Community Bank had total assets of $181 million, a loan portfolio of $147 million, and a deposit base of $137 million. Its 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 entered into a cooperation agreement with Heartland Bank for certain products and services to be provided to Heartland Bank post-closing.

"Earlier this month, we completed our acquisition of Victory Community Bank," said McComb. "This transaction expands Heartland's presence in the attractive Northern Kentucky and Cincinnati markets and represents a complementary fit. While costs associated with the acquisition integration will be higher than normal over the next few quarters, we anticipate expenses to return to more normalized levels near the end of the year. We expect this merger will result in significant benefits to our expanding group of associates, clients, communities and shareholders."

First Quarter Financial Highlights (at or for the period ended March 31, 2020)

• Net income was $2.9 million, compared to $3.0 million in the first quarter a year ago.
• Earnings per diluted share were $1.43 in the first quarter, compared to $1.45 in the first quarter a year ago.
• Net interest margin was 3.82%, compared to 3.87% in the preceding quarter and 4.04% in the first quarter a year ago.
• Total revenues (net interest income plus noninterest income) increased 11.6% to $12.8 million in the first quarter, from $11.5 million in the first quarter a year ago.
• Noninterest income increased 62.2% to $2.6 million, compared to $1.6 million the first quarter a year ago.
• Annualized return on average assets was 1.03%.
• Annualized return on average equity was 9.20%.
• Total assets increased 10.3% to $1.17 billion, compared to $1.06 billion a year earlier.
• Net loans increased 14.7% to $945.7 million from $824.3 million a year ago.
• Noninterest bearing demand deposits increased 3.4% to $255.7 million compared to a year ago.
• Total deposits increased 10.1% to $984.8 million from $894.9 million a year ago.
• Tangible book value per share increased 6.3% to $61.67 per share, from $57.99 per share one year earlier.
• Declared quarterly cash dividend of $0.57 per share.
• Heartland repurchased 21,635 shares of its common stock in the first quarter of 2020 at an average price of $56.93, leaving $3,766,926 available under the previously announced repurchase authorization.

Balance Sheet Review

Net loans increased 14.7% to $945.7 million at March 31, 2020, compared to $824.3 million at March 31, 2019, and increased 6.2% compared to $890.9 million at December 31, 2019. Owner occupied commercial real estate loans (CRE) increased 10.1% to $250.9 million at March 31, 2020, compared to a year ago and comprise 26.3% of the total loan portfolio. Non-owner occupied CRE loans increased 12.3% to $282.8 million compared to a year ago and comprise 29.6% of the total loan portfolio. 1-4 family residential real estate loans were up 17.2% from year ago levels to $244.8 million and represent 25.6% of total loans. Commercial loans were up 34.0% from year ago levels to $136.3 million, at March 31, 2020, and comprise 14.3% of the total loan portfolio. Home equity loans were flat from year ago levels at $30.2 million and represent 3.2% of total loans. Consumer loans decreased 10.0% from year ago levels to $10.2 million and represent 1.1% of the total loan portfolio.

Total deposits increased 10.1% to $984.8 million at March 31, 2020, compared to $894.9 million a year earlier and increased 4.3% compared to $944.2 million three months earlier. Noninterest bearing demand deposit accounts increased 3.4% compared to a year ago and represented 26.0% of total deposits, savings, NOW and money market accounts increased 20.0% compared to a year ago and represented 38.5% of total deposits and CDs increased 5.5% when compared to a year ago and comprised 35.5% of the total deposit portfolio, at March 31, 2020.

Total assets increased 10.3% to $1.17 billion at March 31, 2020, compared to $1.06 billion a year earlier. Shareholders' equity increased 7.0% to $126.8 million at March 31, 2020, compared to $118.5 million a year earlier. At March 31, 2020, Heartland's tangible book value increased 6.3% to $61.67 per share compared to $57.99 per share one year earlier.

Operating Results

Heartland's net interest margin was 3.82% in the first quarter of 2020, compared to 3.87% in the preceding quarter and 4.04% in the first quarter of 2019. "The net interest margin contracted marginally during the quarter as the recent sharp decline in interest rates did not occur until late in the quarter on March 20, 2020, and the full effect of the lower interest rate environment had not yet been realized at quarter end," said Carrie Almendinger, EVP and Chief Financial Officer. "We expect the net interest margin to continue to remain under pressure."

Net interest income before the provision for loan loss increased 3.4% to $10.2 million in the first quarter of 2020, compared to $9.9 million in the first quarter a year ago, and decreased compared to $10.3 million in the preceding quarter. 

Total revenues (net interest income before the provision for loan losses, plus noninterest income) increased 11.6% to $12.8 million in the first quarter, compared to $11.5 million in the first quarter a year ago, and increased 1.8% from $12.6 million in the preceding quarter.

Heartland's noninterest income increased 62.2% to $2.6 million in the first quarter, compared to $1.6 million in the first quarter a year ago, and increased 14.7% compared to $2.3 million in the preceding quarter. The TransCounty Title Agency acquisition contributed $475,000 to noninterest income during the first quarter of 2020, compared to $395,000 in the first quarter a year ago. 

First quarter noninterest expenses were $8.7 million, compared to $8.0 million in the preceding quarter and $7.5 million in the first quarter a year ago. The year-over-year increase was due to costs associated with Heartland's organic expansion, including its new Upper Arlington branch and investments in technology. The efficiency ratio for the first quarter of 2020 was 68.24%, compared to 63.60% for the preceding quarter and 62.17% for the first quarter of 2019.

Credit Quality

Nonaccrual loans totaled $2.4 million at March 31, 2020, compared to $1.9 million three months earlier and $2.0 million at March 31, 2019. There was $227,000 in loans past due 90 days and still accruing at March 31, 2020, compared to $491,000 at December 31, 2019, and $29,000 a year ago.

Performing restructured loans that were not included in nonaccrual loans at March 31, 2020, were $339,000, compared to $341,000 at the preceding quarter end. Borrowers who are in financial difficulty and who have been granted concessions that may include interest rate reductions, term extensions, or payment alterations are categorized as restructured loans. 

Heartland had no other real estate owned (OREO) and other non-performing assets on the books at March 31, 2020, December 31, 2019 or a year ago. Non-performing assets (NPAs), consisting of non-performing loans, and loans delinquent 90 days or more, were $2.6 million, or 0.22% of assets, at March 31, 2020, compared to $2.3 million, or 0.21% of total assets, three months earlier, and $2.1 million, or 0.19% of assets a year ago.

The first quarter provision for loan losses was $500,000, compared to $375,000 in both the preceding quarter and the first quarter a year ago. In April following the quarterly analysis of the allowance for loan losses ("ALLL"), Management and the Board decided to increase the ALLL by $850,000 and to further review the allocation on a monthly basis moving forward. At March 31, 2020, the ALLL increased to $9.3 million, or 0.97% of total loans compared to $8.8 million, or 0.97% of total loans at December 31, 2019, and $7.7 million, or 0.93% of total loans a year ago. As of March 31, 2020, the allowance for loan losses represented 385.4% of nonaccrual loans compared to 471.9% three months earlier, and 377.5% one year earlier. Heartland recorded net loan charge-offs of $11,000 in the first quarter. This compares to net loan charge offs of $142,000 in the fourth quarter of 2019 and $223,000 in the first 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 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 2019, Heartland was ranked #44 on the American Banker Magazine's list of Top 200 Publicly Traded Community Banks and Thrifts based on three-year average return on equity ("ROE") as of 12/31/18. 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 Bank'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; (3) the expected growth opportunities or cost savings from the merger may not be fully realized or may take longer to realize than expected; (4) deposit attrition, operating costs, customer losses and business disruption following the merger, including adverse effects on relationships with employees, may be greater than expected; (5) legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which Heartland and Victory are engaged; (6) changes in the interest rate environment may adversely affect net interest income; (7) results may be adversely affected by continued diversification of assets and adverse changes to credit quality; (8) competition from other financial services companies in Heartland Bank's, Victory Community Bank's and Victory Mortgage's markets could adversely affect operations; (9) the impact of the coronavirus (COVID-19) pandemic on the employees and customers of Heartland Bank, as well as the resulting effect on the business, financial condition and results of operations on Heartland Bank; and (10) the economy could experience a slowdown that 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.