Heartland BancCorp Earns $5.3 Million, or $2.61 Per Diluted Share, in the Fourth Quarter of 2023; and a Record $19.5 Million, or $9.62 Per Diluted Share, for the Year; Declares Quarterly Cash Dividend of $0.759 Per Share

WHITEHALL, Ohio, Jan. 23, 2024 (GLOBE NEWSWIRE) — Heartland BancCorp (“Heartland” and “the Company”) (OTCQX: HLAN), parent company of Heartland Bank (“Bank”), today reported net income increased 5.2% to $5.3 million, or $2.61 per diluted share, in the fourth quarter of 2023, compared to $5.0 million, or $2.48 per diluted share, in the fourth quarter of 2022, and increased 7.2% compared to $4.9 million, or $2.43 per diluted share, in the preceding quarter. For the year 2023, net income increased 8.0% to a record $19.5 million, or $9.62 per diluted share, compared to $18.1 million, or $8.90 per diluted share, in 2022.

The company also announced that its board of directors declared a quarterly cash dividend of $0.759 per share. The dividend will be payable April 10, 2024, to shareholders of record as of March 25, 2024. Heartland has paid regular quarterly cash dividends since 1993.

“Heartland produced strong net income for the fourth quarter, and record earnings for the year, as we continue to selectively grow the loan portfolio while maintaining a strong deposit base,” stated G. Scott McComb, Chairman, President and Chief Executive Officer. “As in previous quarters, we continued to remain selective on the loans we added during the quarter, while adhering to disciplined loan pricing. The result was tempered loan growth during the fourth quarter of 1.8%, and newly funded loans had a weighted rate of 8.22%, up approximately 37 basis points from the prior quarter. Additionally, we have been successful at growing new deposit accounts, up 4.0% over the prior quarter end, while also maintaining core deposit balances. With solid revenue generation and stable credit quality metrics, we are well positioned for the year ahead.”

“We continue to see excellent growth in our Columbus and Greater Cincinnati markets and look for ways to expand our market outreach to these MSAs as well as surrounding areas,” McComb continued. “During the preceding quarter, we opened our 20th Heartland Bank branch in Delaware County, and our brand of community banking is already being well received in this thriving county just north of Columbus. Our focus for 2024 will be to capture additional market share in our established Columbus and Greater Cincinnati markets while continuing to work on improving operating efficiencies across the Company.”

Fourth Quarter 2023 Financial Highlights (at or for the three months ended December 31, 2023)

• Net income was $5.3 million, or $2.61 per diluted share, compared to $5.0 million, or $2.48 per diluted share, in the fourth quarter of 2022.
• Provision for credit losses was $550,000, compared to $480,000 for the fourth quarter a year ago.
• Net interest margin was 3.49%, compared to 3.52% in the preceding quarter and 4.13% in the fourth quarter a year ago.
• Fourth quarter revenues (net interest income plus noninterest income) increased 1.6% to $18.6 million, compared to $18.3 million in the fourth quarter a year ago.
• Annualized return on average assets was 1.13%, compared to 1.23% in the fourth quarter of 2022.
• Annualized return on average tangible common equity was 15.05%, compared to 15.63% in the fourth quarter a year ago.
• Net loans increased $27.6 million during the quarter, or 1.8%, to $1.53 billion at December 31, 2023, compared to $1.50 billion three months earlier.
• Total deposits increased $63.3 million during the quarter, or 4.0%, to $1.64 billion at December 31, 2023, compared to $1.58 billion three months earlier.
• Credit quality remains pristine, with nonperforming loans to gross loans of 0.13% and nonperforming assets to total assets of 0.11%, at December 31, 2023.
• Tangible book value increased 14.0% to $74.23 per share, compared to $65.09 per share a year ago.
• Declared a quarterly cash dividend of $0.759 per share.

2023 Full Year Financial Highlights (at or for the twelve months ended December 31, 2023)

• Net income for 2023 increased 8.0% to $19.5 million, compared to $18.1 million in 2022.
• Net interest margin was 3.62% for the year, compared to 4.03% for 2022.
• Total revenues increased 7.5% to $73.5 million in 2023, compared to $68.4 million in 2022.
• Annualized return on average assets was 1.09% for 2023, compared to 1.20% for 2022.
• Annualized return on average tangible equity was 14.15% for 2023, compared to 13.60% for 2022.
• Net loans increased $143.4 million, or 10.3%, year-over-year to $1.53 billion.
• Total deposits increased 12.8% to $1.64 billion, compared to $1.46 billion a year ago.

Balance Sheet Review

Assets

Total assets increased 13.2% to $1.88 billion at December 31, 2023, compared to $1.66 billion a year earlier, and increased 2.6% compared to $1.83 billion three months earlier. Heartland’s loan-to-deposit ratio was 93.2% at December 31, 2023, compared to 95.2% at September 30, 2023, and 95.3% at December 31, 2022.

Securities increased 38.5% to $211.1 million at December 31, 2023, compared to $152.5 million a year earlier, and increased 17.4% compared to $179.8 million three months earlier. Securities comprise 11.2% of total assets at December 31, 2023, compared to 9.8% three months prior and 9.2% a year ago.

Average earning assets increased to $1.75 billion in the fourth quarter of 2023, compared to $1.72 billion in the third quarter of 2023, and $1.52 billion in the fourth quarter a year ago. The average yield on interest-earning assets was 5.71% in the fourth quarter of 2023, up 12 basis points from 5.59% in the preceding quarter, and up 80 basis points from 4.91% in the fourth quarter a year ago.

Loan Portfolio

“We continued to moderate loan growth during the quarter, resulting in net loans increasing 1.8% over the prior quarter end, with average loans increasing 1.5% compared to the prior quarter,” said Ben Babcanec, EVP and Chief Operating Officer. “While loan demand has been strong, we remain disciplined with loan pricing which is resulting in slower growth.”

Net loans were $1.53 billion at December 31, 2023, compared to $1.50 billion at September 30, 2023, and a 10.3% increase compared to $1.39 billion at December 31, 2022. Commercial loans increased 6.1% from year ago levels to $172.7 million, and comprise 11.1% of the total loan portfolio at December 31, 2023. Owner occupied commercial real estate loans (CRE) decreased 9.2% to $296.0 million at December 31, 2023, compared to a year ago, and comprise 19.1% of the total loan portfolio. Nonowner occupied CRE loans increased 28.0% to $501.1 million, compared to a year ago, and comprise 32.3% of the total loan portfolio at December 31, 2023. 1-4 family residential real estate loans increased 10.2% from year-ago levels to $508.8 million and represent 32.8% of total loans. Home equity loans increased 16.1% from year-ago levels to $51.7 million and represent 3.3% of total loans, while consumer loans increased 4.0% from year-ago levels to $19.0 million and represent 1.2% of the total loan portfolio at December 31, 2023.

Deposits

Total deposits were $1.64 billion at December 31, 2023, a 4.0% increase, compared to $1.58 billion at September 30, 2023, and a $186.0 million, or 12.8% increase, compared to $1.46 billion at December 31, 2022. “Average deposits increased $23.8 million, or 1.5%, to $1.62 billion in the fourth quarter of 2023 compared to the preceding quarter, with the growth in DDA, money market and CD accounts,” said Babcanec. “Average demand deposits increased $3.6 million during the quarter, which is helping to improve our funding mix.”

At December 31, 2023, noninterest bearing demand deposit accounts decreased 6.8% compared to a year ago and represented 29.7% of total deposits; savings, NOW and money market accounts increased 16.7% compared to a year ago and represented 43.3% of total deposits; and CDs increased 37.0% compared to a year ago and comprised 27.0% of total deposits. The average cost of deposits was 2.21% in the fourth quarter of 2023, compared to 2.05% in the third quarter of 2023 and 0.70% in the fourth quarter of 2022.

Shareholders’ Equity

Shareholders’ equity increased 8.6% to $162.5 million at December 31, 2023, compared to $149.6 million three months earlier and increased 12.9% compared to $143.9 million a year earlier. At December 31, 2023, Heartland’s tangible book value was $74.23 per share compared to $67.78 at September 30, 2023, and $65.09 at December 31, 2022.

Heartland continues to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” with tangible equity to tangible assets of 8.00% at December 31, 2023, compared to 7.50% at September 30, 2023, and 7.92% at December 31, 2022.

Liquidity

Heartland had ample sources of available liquidity as of December 31, 2023, including a $220 million line of credit at the Federal Home Loan Bank, as well as additional credit lines of $120 million. Nearly 67% of Heartland’s client deposit balances were FDIC insured or collateralized as of December 31, 2023.

Operating Results

In the fourth quarter of 2023, Heartland generated a ROAA of 1.13% and a ROATCE of 15.05%, compared to 1.07% and 14.01%, respectively, in the third quarter of 2023 and 1.23% and 15.63%, respectively, in the fourth quarter a year ago.

Net Interest Income/Net Interest Margin

Net interest income, before the provision for credit losses, decreased 2.8% to $15.4 million in the fourth quarter of 2023, compared to $15.8 million in the fourth quarter a year ago, and increased modestly compared to $15.3 million in the preceding quarter. For the year 2023, net interest income increased 7.1% to $61.0 million, compared to $57.0 million in 2022.

Total revenues (net interest income, before the provision for credit losses, plus noninterest income) were $18.6 million in the fourth quarter of 2023, a 1.6% increase compared to $18.3 million in the fourth quarter a year ago, and a modest increase compared to $18.5 million in the preceding quarter. For the year, total revenues increased 7.5% to $73.5 million, compared to $68.4 million a year earlier.

Heartland’s net interest margin was 3.49% in the fourth quarter of 2023, compared to 3.52% in the preceding quarter and 4.13% in the fourth quarter of 2022. “Our net interest margin is starting to stabilize, contracting three basis points during the fourth quarter, compared to the prior quarter. While deposit pricing pressures continue, the increase in average DDA balances helped to ease funding costs. Additionally, we continue to benefit from repricing loans at higher rates,” 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, 2023.^*

Provision for Credit Losses

Heartland recorded a $550,000 provision for credit losses in the fourth quarter of 2023, compared to a $500,000 provision for credit losses in the third quarter of 2023, and a $480,000 provision for credit losses in the fourth quarter of 2022.

Noninterest Income

Noninterest income increased 29.4% to $3.2 million in the fourth quarter of 2023, compared to $2.5 million in the fourth quarter a year ago, and was unchanged compared to the preceding quarter. Gains on sale of loans and originated mortgage servicing rights increased 236.7% to $734,000 in the fourth quarter of 2023, compared to $218,000 in the fourth quarter a year ago, and increased 3.7% compared to $708,000 in the preceding quarter. For the year 2023, noninterest income increased 9.3% to $12.4 million, compared to $11.4 million in 2022.

“Similar to the prior quarter, we experienced strong secondary loan activity during the fourth quarter, and we were successful with executing on swaps, with $497,000 in swap referral fee income during the fourth quarter, compared to $189,000 in swap referral fee income during the preceding quarter,” said Almendinger.

Noninterest Expense

Noninterest expenses were $11.6 million during the fourth quarter of 2023, a 2.9% decrease compared to $12.0 million in the preceding quarter, and a 1.1% decrease compared to $11.8 million in the fourth quarter a year ago. Salary and employee benefit expenses, the largest component of noninterest expense, were $7.4 million in the fourth quarter of 2023, which was unchanged compared to the preceding quarter and a modest decrease compared to $7.5 million in the fourth quarter of 2022. For the year, noninterest expense totaled $47.1 million, compared to $44.2 million in 2022.

“We have made a company-wide effort over the last few quarters to manage operating expenses, and we will continue this focus into 2024,” said Almendinger. “Salary and employee benefits were lower in part due to lower incentive compensation from muted loan growth. We also had a benefit of approximately $200,000 recognized through other expenses.”

The efficiency ratio for the fourth quarter of 2023 was 62.5%, compared to 64.7% for the preceding quarter and 64.2% for the fourth quarter of 2022.

Income Tax Provision

In the fourth quarter of 2023, Heartland recorded $1.1 million in state and federal income tax expense for an effective tax rate of 17.7%, compared to $1.1 million, or 18.1%, in the third quarter of 2023 and $1.0 million, or 17.2%, in the fourth quarter a year ago.

Credit Quality

“Our overall credit quality metrics continue to remain stable. We are seeing minimal signs of stress in the loan portfolio, and we hold strong collateral positions with all our loans,” said McComb.

Beginning January 1, 2023, Heartland began accounting for credit losses under CECL which replaced the former “incurred loss” model for recognizing credit losses with an “expected loss” model.

___________________________

*As of September 30, 2023, the Dow Jones U.S. MicroCap Bank Index tracked 177 banks with total common market capitalization under $250 million for the following ratios: NIM* of 3.26%.

At December 31, 2023, the allowance for credit losses plus unfunded commitment liability (ACL + UCL) was $19.4 million, or 1.25% of total loans, compared to $19.2 million, or 1.26% of total loans, at September 30, 2023, and $16.6 million, or 1.18% of total loans, a year ago. As of December 31, 2023, the ACL represented 1,106% of nonaccrual loans, compared to 883% three months earlier and 2,370% one year earlier.

Nonaccrual loans were $1.6 million at December 31, 2023, compared to $1.9 million at September 30, 2023, and $700,000 at December 31, 2022. At December 31, 2023, nonaccrual loans totaled 10 loans with an average balance of approximately $162,000. There were $468,000 in loans past due 90 days and still accruing at December 31, 2023, compared to $146,000 at September 30, 2023, and $309,000 at December 31, 2022. Net loan charge-offs totaled $318,000 at December 31, 2023, compared to $47,000 in net loan charge-offs at September 30, 2023, and $118,000 in net loan charge-offs at December 31, 2022. The increase in net loan charge-offs during the quarter was related to one PPP loan.

There was $10,000 in other real estate owned and other nonperforming assets on the books at December 31, 2023, compared to zero at September 30, 2023, and $5,000 at December 31, 2022. Nonperforming assets (NPAs), consisting of nonperforming loans and loans past due 90 days or more, were $2.1 million, or 0.11% of total assets, at December 31, 2023, which was unchanged compared to September 30, 2023. NPAs were $1.0 million, or 0.06% of total assets, at December 31, 2022.

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 June of 2023, Heartland was ranked #119 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, 2022.

During the first quarter of 2023, Heartland was ranked 36^th 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.

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) Heartland’s plans, objectives, expectations and intentions and other statements contained in this press release that are not historical facts; and (ii) 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; and (6) 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.