WHITEHALL, Ohio, July 27, 2020 (GLOBE NEWSWIRE) -- Heartland BancCorp (“Heartland” and “the company”) (OTCQX: HLAN) today reported second quarter 2020 net income of $3.0 million, or $1.52 per diluted share, compared to net income of $2.9 million, or $1.43 per diluted share, in the first quarter of 2020, and $3.2 million, or $1.55 per diluted share, in the second quarter of 2019.  There were $1.3 million in acquisition-related expenses in the second quarter of 2020, compared to no acquisition-related expenses in the preceding quarter or in the second quarter a year ago.  In the first six months of 2020, net income was $6.0 million, or $2.95 per diluted share, compared to $6.1 million, or $3.00 per diluted share, in the first six 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 October 10, 2020, to shareholders of record as of September 25, 2020.  Heartland has paid regular quarterly cash dividends since 1993.

“We generated record revenue growth in the second quarter, driven by balance sheet expansion, new client relationships and robust mortgage banking operations,” stated G. Scott McComb, Chairman and Chief Executive Officer.  “Complementing our solid organic operating growth compared to a year ago was our acquisition of Victory Community Bank in April, which meaningfully contributed to increased revenues.  We are focused on integrating the two banks and expect this merger will result in significant benefits to our expanding group of associates, clients and communities, as well as enhance shareholder value.”

COVID-19 Response

“Our primary concern during this pandemic remains for the health and safety of our clients and associates,” said Brian T. Mauntel, President and Chief Operating Officer.  “During the first and second quarters we implemented several new COVID-19 pandemic preparations to assist our clients with their financial needs.  While we have resumed most normal branch operations, we continue to encourage the use of drive-up services and ATM machines, mobile banking and call center operations.  We remain committed to helping our borrowers who have been affected by the declining economic activity, by offering assistance with payment deferrals and interest only payment options.  The sectors that have been most heavily impacted in our loan portfolio include hospitality and food services, healthcare, manufacturing and retail trade loans.” 

As of July 21, 2020, Heartland had provided 501 loan accommodations, totaling $238 million, to defer payments or make interest only payments for 90 days, in response to challenges for borrowers resulting from the impact of COVID-19.  As the initial 90-day accommodation period is beginning to end, 175 loans, totaling $88 million, have resumed payments as of July 21, 2020. 

Paycheck Protection Program

During the second quarter of 2020, Heartland originated 1,015 Paycheck Protection Program (“PPP”) loans, for a total of $127.5 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 expect customers to begin the process of requesting loan forgiveness during the third quarter and receipt of the loan funds from the SBA to begin taking place during the fourth quarter,” said Mauntel.  “Additionally, during the second quarter, we deferred direct salary and compensation expenses associated with the origination of the PPP loans totaling $2.0 million and will recognize this expense during the period in which the origination fee is recognized.” 

Second Quarter Financial Highlights (at or for the period ended June 30, 2020)

• Net income was $3.0 million, compared to $3.2 million in the second quarter a year ago.
• Earnings per diluted share were $1.52, compared to $1.55 in the second quarter a year ago.
• Provision for loan losses was $2.6 million, compared to $375,000 in the second quarter a year ago.
• Net interest margin was 3.78%, compared to 3.82% in the preceding quarter and 3.91% in the second quarter a year ago.
• Total revenues (net interest income plus noninterest income) increased 24.7% to $14.8 million, compared to $11.8 million in the second quarter a year ago.
• Noninterest income increased 50.4% to $2.9 million, compared to $2.0 million in the second quarter a year ago.
• Annualized return on average assets was 0.91%, compared to 1.17% in the second quarter a year ago.
• Annualized return on average equity was 9.40%, compared to 10.51% in the second quarter a year ago.
• Total assets increased 37.2% to $1.51 billion, compared to $1.10 billion a year ago.
• Net loans increased 37.4% to $1.18 billion, compared to $862.0 million a year ago.
• Noninterest bearing demand deposits increased 82.3% to $394.5 million, compared to $216.4 million a year ago.
• Total deposits increased 38.1% to $1.28 billion, compared to $925.9 million a year ago.
• Tangible book value per share was $60.19 per share, compared to $60.00 per share a year ago.
• Declared quarterly cash dividend of $0.57 per share.
• Heartland repurchased 68,977 shares of its common stock in the second quarter of 2020 at an average price of $54.55 pursuant to its previously announced repurchase authorization, resulting in a total repurchase of 90,612 shares at an average price of $55.12 per share.

Subordinated Notes Offering

On May 15, 2020, Heartland completed of 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 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, $183 million in deposits and $136 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

“While a majority of our loan growth in the second quarter is due to the recent acquisition of Victory Community Bank, organic loan growth remains strong, increasing $190 million, or 21.9% during the second quarter, inclusive of PPP loans,” said Carrie Almendinger, EVP and Chief Financial Officer.  Net loans increased to $1.18 billion at June 30, 2020, a 37.4% increase compared to $862.0 million at June 30, 2019, and a 25.2% increase compared to $945.7 million at March 31, 2020.  Owner occupied commercial real estate loans (CRE) increased to $250.1 million at June 30, 2020, an increase of 10.1% compared to a year ago, and comprise 20.9% of the total loan portfolio.  Non-owner occupied CRE loans increased modestly to $276.5 million, an increase of .9% compared to a year ago, and comprise 23.1% of the total loan portfolio at June 30, 2020.  At June 30, 2020, 1-4 family residential real estate loans were up 75.4% from year ago levels to $369.7 million and represent 30.9% of total loans.  Commercial loans were up 128.3% from year ago levels to $249.5 million, and comprise 20.9% of the total loan portfolio at June 30, 2020.  Home equity loans increased 5.4% from year ago levels to $38.9 million and represent 3.3% of total loans at June 30, 2020.  Consumer loans decreased 10.1% from year ago levels to $10.6 million and represent less than 1% of the total loan portfolio at June 30, 2020.

Total deposits increased 38.1% to $1.28 billion at June 30, 2020, compared to $925.9 million a year earlier and increased 29.9% compared to $984.8 million three months earlier.  At June 30, 2020, noninterest bearing demand deposit accounts increased 82.3% compared to a year ago and represented 30.8% of total deposits, savings, NOW and money market accounts increased 37.4% compared to a year ago and represented 36.3% of total deposits and CDs increased 13.0% compared to a year ago and comprised 32.8% of total deposits.

Total assets increased 37.2% to $1.51 billion at June 30, 2020, compared to $1.10 billion a year earlier and increased 28.6% compared to $1.17 billion three months earlier, in large part due to the Victory Community Bank acquisition.  Shareholders’ equity increased 8.7% to $133.3 million at June 30, 2020, compared to $122.6 million a year earlier.  At June 30, 2020, Heartland’s tangible book value was $60.19 per share compared to $60.00 per share one year earlier.

Operating Results

Heartland’s net interest margin was 3.78% in the second quarter of 2020, compared to 3.82% in the preceding quarter and 3.91% in the second quarter of 2019.  “The addition of PPP loans, combined with a large liquidity position fueled in part by strong deposit growth, impacted the net interest margin during the second quarter,” said Almendinger.  In the first six months of 2020, the net interest margin was 3.71%, compared to 3.93% in the first six months of 2019.  Excluding PPP loans, net interest margin was 3.90% for the second quarter and 3.80% for the first six months of 2020. Total revenues (net interest income before the provision for loan losses, plus noninterest income) increased 24.7% to $14.8 million in the second quarter, compared to $11.8 million in the second quarter a year ago, and increased 15.4% from $12.8 million in the preceding quarter. In the first six months of 2020, total revenues increased 18.3% to $27.6 million, compared to $23.3 million in the first six months of 2019.

Net interest income before the provision for loan loss increased 19.6% to $11.8 million in the second quarter of 2020, compared to $9.9 million in the second quarter a year ago, and increased 16.2% compared to $10.2 million in the preceding quarter. 

Noninterest income increased 50.4% to $2.9 million in the second quarter, compared to $2.0 million in the second quarter a year ago, and increased 12.6% compared to $2.6 million in the preceding quarter.  The net gain and commission on sales and servicing of loans totaled $1.3 million in the second quarter of 2020, compared to $1.2 million in the preceding quarter, and $383,000 in the second quarter a year ago.  In the first six months of 2020, noninterest income increased 55.8% to $5.5 million from $3.6 million in the first six months of 2019.

Heartland’s second quarter noninterest expenses totaled $8.6 million, compared to $8.7 million in the preceding quarter and $7.6 million in the second quarter a year ago.  Impacting noninterest expense for the second quarter of 2020 was $1.3 million in acquisition-related expense from Heartland’s acquisition of Victory Community Bank, which was offset by a 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 over the life of the loan or, in the case of PPP loans, when forgiven by the SBA.  Salary and employee benefit expenses were $3.6 million for the second quarter compared to $5.4 million in the first quarter of 2020, primarily from the deferred costs. 

In the first six months of 2020, noninterest expense increased to $17.3 million, from $15.0 million in the first six months a year ago.  The year-over-year increase was due to the items mentioned above, costs associated with 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 57.91%, compared to 68.24% for the preceding quarter and 63.92% for the second quarter of 2019.

Credit Quality

“While our asset quality at quarter end remained strong, we are being proactive in our approach to the COVID-19 pandemic and its impact on our local economy.  Consequently, we booked a $2.6 million loan loss provision, which is significantly higher than the provisions booked over the past few years,” said Almendinger.  Heartland recorded a $500,000 provision for loan losses in the preceding quarter and $375,000 the second quarter a year ago.  At June 30, 2020, the ALLL increased to $11.1 million, or 0.93% of total loans, compared to $9.3 million, or 0.97% of total loans at March 31, 2020, and $8.0 million, or 0.92% of total loans a year ago.  Excluding PPP loans, the ALLL was 1.04% of total loans at June 30, 2020.  As of June 30, 2020, the allowance for loan losses represented 239.1% of nonaccrual loans, compared to 385.4% three months earlier and 437.3% one year earlier. 

Due to the acquisition of Victory Community Bank, nonaccrual loans increased to $4.7 million at June 30, 2020, compared to $2.4 million at March 31, 2020 and $1.8 million at June 30, 2019.  There were no loans past due 90 days and still accruing at June 30, 2020. This compared to $227,000 in loans past due 90 days at March 31, 2020, and $253,000 in loans past due 90 days at June 30, 2019.

Heartland’s nonperforming restructured loans that were not included in nonaccrual loans at June 30, 2020, were $1.8 million, compared to $339,000 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 $316,000 in other real estate owned (OREO) and other non-performing assets on the books at June 30, 2020, with none reported at March 31, 2020 or June 30, 2019.  Non-performing assets (NPAs), consisting of non-performing loans and loans past due 90 days or more, were $5.0 million, or 0.33% of total assets inclusive of PPP loans, at June 30, 2020, compared to $2.6 million, or 0.22% of total assets, at March 31, 2020, and $2.1 million, or 0.19% of total assets, at June 30, 2019. NPAs, consisting of non-performing loans and loans past due 90 days or more, were 0.33% of total assets excluding PPP loans, at June 30, 2020.

Heartland recorded net loan charge-offs of $682,000 in the second quarter of 2020.  This compares to net loan charge offs of $11,000 in the first quarter of 2020 and $81,000 in the second 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.

Heartland BancCorp
Consolidated Balance Sheets
Assets		Jun. 30, 2020				Mar. 31, 2020				Jun. 30, 2019
	Cash and cash equivalents	$	89,617			$	19,681			$	26,482
	Interest bearing time deposits		274				-				0
	Available-for-sale securities		151,323				142,538				147,592
	Held-to-maturity securities, fair values of, $742,992, $742,640 and $1,551,817 respectively		741				741				1,548
	Commercial		249,503				135,938				109,311
	CRE (Owner occupied)		250,083				250,567				227,219
	CRE (Non Owner occupied)		276,496				282,778				273,996
	1-4 Family		369,740				244,743				210,755
	Home Equity		38,853				30,548				36,875
	Consumer		10,631				10,342				11,828
	Allowance for loan losses		(11,125	)			(9,257	)			(7,994	)
	Net Loans		1,184,181				945,659				861,990
	Premises and equipment		30,583				29,962				29,853
	Nonmarketable equity securities		5,601				4,457				4,431
	Foreclosed assets held for sale		316				-				-
	Interest receivable		7,702				5,401				4,579
	Goodwill		12,012				1,206				1,206
	Intangible Assets		1,406				906				409
	Deferred income taxes		600				600				1,433
	Life insurance assets		17,264				17,162				16,772
	Lease - Right of Use Asset		2,494				2,532				2,655
	Other		6,000				3,001				2,078
	Total assets	$	1,510,114			$	1,173,846			$	1,101,028
Liabilities and Shareholders' Equity
Liabilities
	Deposits
	Demand	$	394,488			$	255,695			$	216,392
	Saving, NOW and money market		464,807				379,145				338,178
	Time		419,498				349,976				371,337
	Total deposits		1,278,793				984,816				925,907
	Short-term borrowings		10,010				10,481				27,970
	Long-term debt		73,768				40,460				15,460
	Lease Liability		2,494				2,532				2,655
	Interest payable and other liabilities		11,723				8,783				6,410
	Total liabilities		1,376,788				1,047,072				978,402
Shareholders' Equity
	Common stock, without par value; authorized 5,000,000 shares; 2,082,657, 2,021,523 and 2,016,913 shares issued, respectively		59,879				56,439				55,526
	Retained earnings		74,524				72,619				65,885
	Accumulated other comprehensive income (expense)		3,917				(1,052	)			1,215
	Treasury stock at Cost, Common; 90,612, 21,635 and 0 shares held, respectively		(4,994	)			(1,232	)			-
	Total shareholders' equity		133,326				126,774				122,626
	Total liabilities and shareholders' equity	$	1,510,114			$	1,173,846			$	1,101,028
	Book value per share	$	66.93			$	63.39			$	60.80

Heartland BancCorp
Consolidated Statements of Income
		Three Months Ended									Six Months Ended
Interest Income		Jun. 30, 2020			Mar. 31, 2020			Jun. 30, 2019			Jun. 30, 2020			Jun. 30, 2019
	Loans	$	13,467		$	11,811		$	11,360		$	25,278		$	22,210
	Securities
	Taxable		429			500			746			929			1,487
	Tax-exempt		629			492			442			1,121			873
	Other		28			47			77			75			199
	Total interest income		14,553			12,850			12,625			27,403			24,769
Interest Expense
	Deposits		2,225			2,455			2,460			4,680			4,572
	Borrowings		495			209			274			704			451
	Total interest expense		2,720			2,664			2,734			5,384			5,023
Net Interest Income			11,833			10,186			9,891			22,019			19,746
Provision for Loan Losses			2,550			500			375			3,050			750
Net Interest Income After Provision for Loan Losses			9,283			9,686			9,516			18,969			18,996
Noninterest income
	Service charges		491			518			556			1,010			1,058
	Net gains and commissions on loan sales and servicing		1,310			1,188			383			2,498			781
	Title insurance income		307			260			307			568			486
	Increase in cash value of life insurance		102			105			108			207			217
	Other		726			535			598			1,260			1,016
	Total noninterest income		2,936			2,606			1,952			5,543			3,558
Noninterest Expense
	Salaries and employee benefits		3,647			5,447			4,380			9,095			9,003
	Net occupancy and equipment expense		1,226			1,083			981			2,309			1,943
	Data processing fees		538			430			387			968			753
	Professional fees		1,103			242			310			1,345			533
	Marketing expense		461			232			242			693			481
	Printing and office supplies		91			92			79			183			154
	State financial institution tax		256			256			205			512			410
	FDIC insurance premiums		92			3			73			95			100
	Other		1,138			944			913			2,082			1,662
	Total noninterest expense		8,552			8,729			7,570			17,282			15,039
Income before Income Tax			3,667			3,563			3,898			7,230			7,515
Provision for Income Taxes			626			644			737			1,270			1,387
Net Income		$	3,041		$	2,919		$	3,161		$	5,960		$	6,128
Basic Earnings Per Share		$	1.52		$	1.45		$	1.57		$	2.97		$	3.04
Diluted Earnings Per Share		$	1.52		$	1.43		$	1.55		$	2.95		$	3.00

ADDITIONAL FINANCIAL INFORMATION
(Dollars in thousands except per share amounts)(Unaudited)		Three Months Ended									Six Months Ended
		Jun. 30, 2020			Mar. 31, 2020			Jun. 30, 2019			Jun. 30, 2020		Jun. 30, 2019
Performance Ratios:
Return on average assets		0.91%			1.03%			1.17%			0.94%		1.14%
Return on average equity		9.40%			9.20%			10.51%			9.20%		10.32%
Return on average tangible common equity		10.00%			9.36%			10.66%			9.75%		10.46%
Net interest margin		3.78%			3.82%			3.91%			3.71%		3.93%
Efficiency ratio		57.91%			68.24%			63.92%			62.70%		64.53%
Asset Quality Ratios and Data:		As of or for the Three Months Ended
		Jun. 30, 2020			Mar. 31, 2020			Jun. 30, 2019
Nonaccrual loans		$	4,652		$	2,402		$	1,828
Loans past due 90 days and still accruing		-			227			253
Non-performing investment securities		-			-			-
OREO and other non-performing assets		316			-			-
Total non-performing assets		$	4,968		$	2,629		$	2,081
Non-performing assets to total assets		0.33%			0.22%			0.19%
Net charge-offs quarter ending		$	682		$	11		$	81
Allowance for loan loss		$	11,125		$	9,257		$	7,994
Nonaccrual loans		$	4,652		$	2,402		$	1,828
Allowance for loan loss to non accrual loans		239.14%			385.39%			437.31%
Allowance for loan losses to loans outstanding		0.93%			0.97%			0.92%
Restructured loans included in non-accrual		$	285		$	286		$	289
Performing restructured loans (RC-C)		$	1,750		$	339		$	344
Book Values:
Total shareholders' equity		$	133,326		$	126,774		$	122,626
Less: goodwill and intangible assets		13,418			2,112			1,615
Shareholders' equity less goodwill and intangible assets		$	119,908		$	124,662		$	121,011
Common shares outstanding		2,082,657			2,021,523			2,016,913
Less: treasury shares		(90,612)			(21,635)			-
Common shares as adjusted		1,992,045			1,999,888			2,016,913
Book value per common share		$	66.93		$	63.39		$	60.80
Tangible book value per common share		$	60.19		$	62.33		$	60.00

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

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