Heartland BancCorp Earns $3.1 Million, or $1.52 per Diluted Share, in Third Quarter 2020, Declares Quarterly Cash Dividend of $0.57 per Share

WHITEHALL, Ohio, Oct. 20, 2020 (GLOBE NEWSWIRE) -- Heartland BancCorp ("Heartland" and "the company") HLAN today reported third quarter 2020 net income of $3.1 million, or $1.52 per diluted share, compared to net income of $3.0 million, or $1.52 per diluted share, in the second quarter of 2020, and $3.6 million, or $1.77 per diluted share, in the third quarter of 2019.   There were no acquisition-related expenses in the third quarter of 2020, compared to $1.3 million in acquisition-related expenses in the preceding quarter and no acquisition expenses in the third quarter a year ago. In the first nine months of 2020, net income was $9.0 million, or $4.46 per diluted share, compared to $9.7 million, or $4.77 per diluted share, in the first nine months 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 January 10, 2021, to shareholders of record as of December 25, 2020. Heartland has paid regular quarterly cash dividends since 1993.

"Heartland's third quarter operating results were highlighted by record revenue generation fueled by strong mortgage banking operations and solid core deposit growth," stated G. Scott McComb, Chairman, President and Chief Executive Officer. "In addition to organic growth, our acquisition of Victory Community Bank in April is starting to produce meaningful results. The acquisition had a dramatic impact on our operating results for the third quarter, substantially increasing the scale and reach of the company and providing tremendous opportunity for future revenue growth. We recently integrated the two banks at the end of the third quarter and believe our larger branching network will allow us to better serve our new and existing clients."

Third Quarter Financial Highlights (at or for the period ended September 30, 2020)

• Net income was $3.1 million, compared to $3.6 million in the third quarter a year ago.
• Earnings per diluted share were $1.52, compared to $1.77 in the third quarter a year ago.
• Provision for loan losses was $2.6 million, compared to $375,000 in the third quarter a year ago.
• Net interest margin was 3.38%, compared to 3.78% in the preceding quarter and 3.90% in the third quarter a year ago.
• Total revenues (net interest income plus noninterest income) increased 26.7% to $15.7 million, compared to $12.4 million in the third quarter a year ago.
• Noninterest income increased 87.3% to $3.8 million, compared to $2.0 million in the third quarter a year ago.
• Annualized return on average assets was 0.80%, compared to 1.28% in the third quarter a year ago.
• Annualized return on average equity was 9.01%, compared to 11.56% in the third quarter a year ago.
• Total assets increased 33.5% to $1.52 billion, compared to $1.14 billion a year ago.
• Net loans increased 33.5% to $1.17 billion, compared to $875.6 million a year ago.
• Noninterest bearing demand deposits increased 46.9% to $387.1 million, compared to $263.6 million a year ago.
• Total deposits increased 32.0% to $1.29 billion, compared to $975.4 million a year ago.
• Tangible book value per share was $61.31 per share, which is unchanged compared to a year ago.
• Declared a quarterly cash dividend of $0.57 per share.

COVID-19 Response

"Our primary concern during this pandemic remains for the health and safety of our associates and clients," continued McComb.   "In March, we implemented several pandemic preparations to assist our clients with their financial needs, and we remain committed to helping our 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 is continuing to offer payment and financial relief programs for borrowers impacted by the pandemic. These programs include initial 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 had deferred payment or waived interest on 539 loans totaling $225 million through September 30, 2020, which included 25 loans totaling $18.5 million that have received a second deferral. As of September 30, 2020, approximately 77% of these loans totaling $172 million have resumed payment.

"As the economy continues to normalize, we are seeing clients come off deferral, and credit quality projections continue to improve from earlier COVID-19 effect projections," said McComb.

Paycheck Protection Program

During the third and second 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 $4.8 million. These fees are currently deferred and will be realized over the life of the loan or will be recognized in proportion to the amount of the loan when forgiven by the Small Business Administration ("SBA"). "We are now starting to process applications for PPP loan forgiveness for clients," said McComb.   "Unearned PPP loan fees, net of unearned PPP costs, are $2.1 million based on current loan forgiveness expectations, and we expect the timing of the loan forgiveness to benefit fourth quarter 2020 and first quarter 2021 operating results."

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 $1.17 billion at September 30, 2020, a 33.5% increase compared to $875.6 million at September 30, 2019, and a modest decrease compared to $1.18 billion at June 30, 2020. Owner occupied commercial real estate loans (CRE) decreased modestly to $239.6 million at September 30, 2020, a 0.7% decrease compared to a year ago, and comprise 20.3% of the total loan portfolio. Non-owner occupied CRE loans increased 5.9% to $289.1 million, compared to a year ago, and comprise 24.4% of the total loan portfolio at September 30, 2020. At September 30, 2020, 1-4 family residential real estate loans were up 61.8% from year ago levels to $358.6 million and represent 30.3% of total loans. Commercial loans were up 131.3% from year ago levels to $244.1 million, and comprise 20.6% of the total loan portfolio at September 30, 2020. Home equity loans increased 29.5% from year ago levels to $40.5 million and represent 3.4% of total loans at September 30, 2020. Consumer loans decreased 5.0% from year ago levels to $10.9 million and represent less than 1% of the total loan portfolio at September 30, 2020.

Total deposits increased 32.0% to $1.29 billion at September 30, 2020, compared to $975.4 million a year earlier and increased less than 1% compared to $1.28 billion three months earlier. At September 30, 2020, noninterest bearing demand deposit accounts increased 46.9% compared to a year ago and represented 30.1% of total deposits, savings, NOW and money market accounts increased 44.1% compared to a year ago and represented 39.4% of total deposits, and CDs increased 9.3% compared to a year ago and comprised 30.6% of total deposits.

Total assets increased 33.5% to $1.52 billion at September 30, 2020, compared to $1.14 billion a year earlier, and increased modestly compared to $1.51 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 5% year-over-year. Shareholders' equity increased 7.8% to $135.8 million at September 30, 2020, compared to $126.0 million a year earlier.   At September 30, 2020, Heartland's tangible book value was $61.31 per share, which was unchanged compared to one year earlier.

Operating Results

Heartland's net interest margin was 3.38% in the third quarter of 2020, compared to 3.78% in the preceding quarter and 3.90% in the third quarter of 2019. "The addition of PPP loans that carry a low interest rate, combined with a large liquidity position fueled in part by strong deposit growth, impacted third quarter net interest margin," said Almendinger. In the first nine months of 2020, the net interest margin was 3.65%, compared to 3.93% in the first nine months of 2019.   Excluding PPP loans, net interest margin was 3.61% for the third quarter and 3.79% for the first nine months of 2020.  

Total revenues (net interest income before the provision for loan losses, plus noninterest income) increased 26.7% to $15.7 million in the third quarter, compared to $12.4 million in the third quarter a year ago, and increased 6.0% from $14.8 million in the preceding quarter. In the first nine months of 2020, total revenues increased 21.2% to $43.2 million, compared to $35.7 million in the first nine months of 2019.

Net interest income before the provision for loan loss increased 15.0% to $11.9 million in the third quarter of 2020, compared to $10.4 million in the third quarter a year ago, and increased modestly compared to $11.8 million in the preceding quarter.

Heartland's noninterest income increased 87.3% to $3.8 million in the third quarter, compared to $2.0 million in the third quarter a year ago, and increased 27.9% compared to $2.9 million in the preceding quarter. The net gain and commission on sales and servicing of loans increased 517.0% to $1.5 million in the third quarter of 2020, compared to $243,000 in the third quarter a year ago, and increased 53.4% compared to $979,000 million in the preceding quarter. In the first nine months of 2020, noninterest income increased 67.0% to $9.3 million from $5.6 million in the first nine months of 2019.

Third quarter noninterest expenses totaled $9.4 million, compared to $8.6 million in the preceding quarter and $7.6 million in the third quarter a year ago. There was no acquisition-related expense impacting noninterest expense for the third quarter of 2020 from Heartland's acquisition of Victory Community Bank. This compares to $1.3 million in acquisition expense in the second quarter of 2020 and no acquisition expense in the third quarter a year ago. Salary and employee benefit expenses were $5.6 million for the third quarter compared to $3.7 million in the second quarter of 2020, and $4.7 million in the third quarter a year ago. In the second quarter of 2020, the decrease in salaries and employee benefits costs related to the deferral of $2.0 million in loan origination costs associated with the PPP loans. The deferred expenses will be recognized when PPP loans are forgiven by the SBA or over the life of the loans.

In the first nine months of 2020, noninterest expense increased to $26.7 million, from $22.7 million in the first nine months of 2019. The year-over-year increase was due to the items mentioned above, costs associated with expansion into Northern Kentucky, in addition to Heartland's organic expansion, including its new Upper Arlington branch, and new investments in technology. The efficiency ratio for the second quarter of 2020 was 60.3%, compared to 57.9% for the preceding quarter and 61.3% for the third quarter of 2019.

Credit Quality

"We continue to build reserves based on loan growth, and also as a response to the COVID-19 economic disruption," said Almendinger. "As a result, we booked a $2.6 million loan loss provision in the third quarter, which is the same provision we recorded in the prior quarter, and significantly higher than in the third quarter a year ago." Heartland recorded a $375,000 provision for loan losses in the third quarter a year ago. For the first nine months of 2020, the provision totaled $5.6 million, compared to $1.1 million in the first nine months of 2019.

At September 30, 2020, the allowance for loan losses (ALLL) increased to $13.8 million, or 1.17% of total loans, compared to $11.1 million, or 0.93% of total loans at June 30, 2020, and $8.5 million, or 0.97% of total loans a year ago. Excluding PPP loans, the ALLL was 1.31% of total loans at September 30, 2020. As of September 30, 2020, the ALLL represented 329.3% of nonaccrual loans, compared to 301.8% three months earlier and 376.3% one year earlier.

Nonaccrual loans increased, partially due to the acquisition of Victory Community Bank, to $4.2 million at September 30, 2020, compared to $3.7 million at June 30, 2020, and $2.3 million at September 30, 2019. There were $132,000 in loans past due 90 days and still accruing at September 30, 2020. This compared to no loans past due 90 days at June 30, 2020, and $997,000 in loans past due 90 days at September 30, 2019.

Heartland's performing restructured loans that were not included in nonaccrual loans at June 30, 2020, were $334,000, compared to $338,000 at 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 September 30, 2020, compared to $316,000 at June 30, 2020, and none reported at September 30, 2019. Non-performing assets (NPAs), consisting of non-performing loans and loans past due 90 days or more, were $4.3 million, or 0.29% of total assets inclusive of PPP loans, at September 30, 2020, compared to $4.0 million, or 0.27% of total assets, at June 30, 2020 and $3.3 million, or 0.29% of total assets at September 30, 2019. NPAs, consisting of non-performing loans and loans past due 90 days or more, were 0.31% of total assets excluding PPP loans, at September 30, 2020.

Heartland recorded net loan recoveries of $141,000 in the third quarter of 2020. This compares to net loan charge offs of $682,000 in the second quarter of 2020 and net loan recoveries of $166,000 in the third 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 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.

Contact:
G. Scott McComb, Chairman, President & CEO 
Heartland BancCorp 614-337-4600