LAKE SHORE BANCORP, INC. Management's Discussion and Analysis of Financial Condition and Results
of Operations. (form 10-K)
Heartland BancCorp : Q2 2022 Earnings Release

Contact:

G. Scott McComb, Chairman, President & CEO

Heartland BancCorp 614-337-4600

Heartland BancCorp Earns $3.9 Million, or $1.94 Per Diluted Share, in the Second Quarter of 2022;

Declares Quarterly Cash Dividend of $0.69 per Share

Whitehall, OH – July 19, 2022 – Heartland BancCorp (“Heartland” and “the Company”) (OTCQX: HLAN), parent company of Heartland Bank (“Bank”), today reported net income of $3.9 million, or $1.94 per diluted share in the second quarter of 2022, compared to $4.2 million, or $2.06 per diluted share in the second quarter of 2021, and $4.0 million, or $1.99 per diluted share, in the preceding quarter. Results for the second quarter of 2022 reflect lower interest and fees on Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans compared to the prior quarter and the year ago quarter, due to slowing PPP loan forgiveness as the program nears its conclusion. In the first six months of 2022, net income was $8.0 million, or $3.93 per diluted share, compared to $8.8 million, or $4.35 per diluted share, in the first six months of 2021.

The company announced that its board of directors declared a quarterly cash dividend of $0.69 per share. The dividend will be payable October 11, 2022, to shareholders of record as of September 24, 2022. Heartland has paid regular quarterly cash dividends since 1993.

“The highlights of the second quarter included substantial growth in the loan portfolio and the resulting net interest margin expansion,” stated G. Scott McComb, Chairman, President and Chief Executive Officer. “We continue to benefit from our strong core deposit base to fund loan activity; as a result, the cost of funds has remained flat despite rising interest rates. Additionally, we made progress in building out our presence in the Cincinnati market during the quarter. We entered that market organically towards the end of the year, and our efforts are already paying off, contributing to second quarter loan growth and revenues. With our skilled banking teams in place, combined with strong economic factors in our greater Columbus, northern Kentucky and Cincinnati markets, we are well positioned for continued growth going forward.”

Second Quarter Financial Highlights (at or for the three months ended June 30, 2022)

  • Net income was $3.9 million, or $1.94 per diluted share, compared to $4.2 million, or $2.06 per diluted share, in the second quarter of 2021.
  • Provision for loan losses was $480,000, which was unchanged compared to the second quarter a year ago.
  • Net interest margin expanded nine basis points to 3.92%, compared to 3.83% in the preceding quarter and improved 54 basis points compared to 3.38% in the second quarter a year ago.
  • Second quarter revenues (net interest income plus noninterest income) increased 5.0% to $16.2 million, compared to $15.4 million in the second quarter a year ago.
  • Annualized return on average assets was 1.10%, compared to 1.09% in the second quarter of 2021.
  • Annualized return on average tangible common equity was 11.97%, compared to 12.84% in the second quarter a year ago.
  • Excluding Paycheck Protection Program (PPP) loans, gross loans increased 15.5% to $1.21 billion at June 30, 2022, compared to $1.05 billion a year ago.
  • Credit quality remains pristine, with nonperforming loans to gross loans of 0.12% and nonperforming assets to total assets of 0.10% at June 30, 2022.
  • Tangible book value was $64.06 per share, compared to $66.53 per share a year ago.
  • Declared a quarterly cash dividend of $0.69 per share.

HLAN 2Q22 Earnings Release

July 19, 2022

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Balance Sheet Review

Assets

Total assets decreased nominally to $1.50 billion at June 30, 2022, compared to $1.51 billion a year earlier, and increased 2.8% compared to $1.45 billion three months earlier. The slight decrease compared to the prior year was the due to both

  1. loan forgiveness and a reduction in excess liquidity, which offset core loan growth. Heartland’s loan-to-deposit ratio was 91.8% at June 30, 2022, compared to 90.6% at March 31, 2022, and 87.3% at June 30, 2021.

Liquidity levels continued to decline, with interest bearing deposits in other banks at $35.6 million, representing 2.5% of interest-earning assets as of June 30, 2022, compared to 8.0% at June 30, 2021.

Average earning assets were $1.35 billion in the second quarter of 2022 and in the first quarter of 2021, and $1.45 billion in the second quarter a year ago. The average yield on interest-earning assets was 4.17% in the second quarter of 2022, up 10 basis points from 4.07% in the preceding quarter and up 43 basis points from 3.74% in the second quarter a year ago.

Loan Portfolio

Over the course of the SBA PPP, Heartland originated 1,845 PPP loans, or $199.0 million in loans, and generated total PPP loan fees receivable of approximately $8.6 million. As of June 30, 2022, Heartland had received forgiveness from the SBA for $195.8 million. Approximately $132,000 of the income recognized during the second quarter of 2022 was related to recognizing origination fees for PPP loan payoffs or forgiveness, compared to $347,000 of income recognized during the first quarter of 2022, and $368,000 of income recognized during the second quarter of 2021. The balance of net unamortized PPP fees remaining to be recognized in fee income over the life of the associated loans, was $62,000 as of June 30, 2022.

“Core loan growth was robust during the second quarter, increasing 5.4% over the prior quarter end, or 21.6% annualized. We had great activity in the 1-4 family loan segment as well as in owner occupied CRE. Additionally, our loan pipeline remains strong, and we are replacing PPP loans with higher yielding loans, which is helping our net interest margin expand,” said Ben Babcanec, EVP and Chief Operating Officer.

The total loan portfolio increased substantially during the quarter, even with $5.7 million in PPP loan forgiveness during the quarter. Excluding PPP loans, gross loans increased 5.4% to $1.21 billion at June 30, 2022, compared to $1.15 billion at March 31, 2022, and increased 15.5% compared to $1.05 billion a year earlier. Including PPP loans, net loans were $1.20 billion at June 30, 2022, which was a 4.9% increase compared to $1.14 billion at March 31, 2022, and a 5.3% increase compared to $1.13 billion at June 30, 2021.

Commercial loans decreased 38.9% from year ago levels to $134.0 million, and comprise 11.1% of the total loan portfolio at June 30, 2022. The decrease was primarily due to the $99.7 million reduction in PPP loan balances compared to a year ago. Owner occupied commercial real estate loans (CRE) increased 11.2% to $306.5 million at June 30, 2022, compared to a year ago, and comprise 25.3% of the total loan portfolio. Non-owner occupied CRE loans increased 18.4% to $346.9 million, compared to a year ago, and comprise 28.6% of the total loan portfolio at June 30, 2022. 1-4 family residential real estate loans increased 17.7% from year ago levels to $370.4 million and represent 30.6% of total loans. Home equity loans increased 6.2% from year ago levels to $37.7 million and represent 3.1% of total loans, and consumer loans increased 53.5% from year ago levels to $15.3 million and represent 1.3% of the total loan portfolio at June 30, 2022.

HLAN 2Q22 Earnings Release

July 19, 2022

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Deposits

Total deposits were $1.30 billion at June 30, 2022, a 3.6% increase compared to $1.26 billion at March 31, 2022. Total deposits were unchanged compared to a year earlier, largely due to the reduction in CD’s as the Bank continues to focus on shifting its deposit mix to gathering and retaining low-cost deposits. “We were able to capitalize on our excess liquidity and improve our deposit mix, remaining focused on using low-cost deposits to fund new loan growth,” said Babcanec. At June 30, 2022, noninterest bearing demand deposit accounts increased 10.7% compared to a year ago and represented 37.6% of total deposits; savings, NOW and money market accounts increased 4.1% compared to a year ago and represented 46.6% of total deposits, and CDs decreased 24.7% compared to a year ago and comprised 15.9% of total deposits. The average cost of deposits was 0.16% in the second quarter of 2022, compared to 0.15% in the first quarter of 2022, and 0.27% in the second quarter of 2021.

Shareholders’ Equity

Shareholders’ equity was $141.9 million at June 30, 2022, compared to $147.7 million three months earlier and $146.5 million a year earlier. The decrease in shareholders’ equity during the current quarter was primarily due to a $8.5 million decrease in accumulated other comprehensive income related to an increase in the unrealized loss on available for sale securities reflecting the increase in market interest rates during the current quarter. At June 30, 2022, Heartland’s tangible book value was $64.06 per share, compared to $66.92 at March 31, 2022, and $66.53 at June 30, 2021.

Heartland continues to maintain capital levels in excess of the requirements to be categorized as “well-capitalized” with tangible equity to tangible assets of 8.68% at June 30, 2022, compared to 9.32% at March 31, 2022, and 8.89% at June 30, 2021.

Operating Results

In the second quarter of 2022, Heartland generated a ROAA of 1.10% and a ROAE of 10.87%, compared to 1.14% and 10.66%, respectively, in the first quarter of 2022 and 1.09% and 11.63%, respectively, in the second quarter a year ago.

Net Interest Income/Net Interest Margin

Net interest income, before the provision for loan losses, increased 7.6% to $13.2 million in the second quarter of 2022, compared to $12.2 million in the second quarter a year ago, and increased 2.9% compared to $12.8 million in the preceding quarter. Interest income benefitted from the amortization of PPP loan fees and the full recognition of the deferred PPP loan fees upon forgiveness by the SBA. During the second quarter of 2022, Heartland received $5.7 million in loan forgiveness through the SBA, compared to $18.7 million in loan forgiveness during the prior quarter, resulting in total net PPP fee income of $132,000 and $347,000, respectively. As of June 30, 2022, there was $62,000 of net deferred

  1. fee income remaining. In the first six months of 2022, net interest income increased 6.8% to $26.0 million, compared to $24.3 million in the first six months of 2021.

Total revenues (net interest income, before the provision for loan losses, plus noninterest income) was $16.2 million in the second quarter, a 5.0% increase compared to $15.4 million in the second quarter a year ago, and a nominal increase compared to $16.1 million in the preceding quarter. Year-to-date, total revenues increased 3.4% to $32.2 million, compared to $31.2 million in the same period a year earlier.

Heartland’s net interest margin expanded nine basis points to 3.92% in the second quarter of 2022, compared to 3.83% in the preceding quarter and improved by 54 basis points compared to 3.38% in the second quarter of 2021. “Our net interest margin for the quarter benefitted from strong net interest income generation, robust loan growth and rising interest rates. New core loans that carry a higher interest rate are replacing lower rate PPP loans, which is helping our net interest margin expand compared to a year ago,” said Carrie Almendinger, EVP, and Chief Financial Officer. “We believe

HLAN 2Q22 Earnings Release

July 19, 2022

Page 4

we are well positioned for additional interest rate increases, with a low-cost core deposit base and strong balance sheet liquidity to support continued loan demand.”

“Our strategy of patience in deploying excess liquidity in the investment portfolio is starting to benefit us as we continue to ladder into significantly higher yielding securities over the next few quarters,” said McComb.

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 March 31, 2022.*

Provision for Loan Losses

“We have a very solid risk management culture in place, and continue to make additions to the allowance for loan losses to reflect the steady level of new loan growth,” said McComb.

Heartland recorded a $480,000 provision for loan losses in the second quarter of 2022, which was the same amount recorded in both the preceding quarter and the year ago quarter.

Noninterest Income

Noninterest income decreased 4.9% to $3.0 million in the second quarter of 2022, compared to $3.2 million in the second quarter a year ago, and decreased 7.8% compared to $3.3 million in the preceding quarter. Gains on sale of loans, and originated mortgage servicing rights, decreased 46.5% to $431,000 in the second quarter of 2022, compared to $805,000 in the second quarter a year ago, and decreased 36.9% compared to $683,000 in the preceding quarter. In the first six months of 2022, noninterest income decreased 8.6% to $6.3 million, compared to $6.9 million in the first six months of 2021.

“The mortgage market continues to be strong for mortgage originations through the second quarter of 2022, although we’ve seen volumes make their way on to the balance sheet leading to lower gains on sale,” said Almendinger.

Noninterest Expense

Heartland’s second quarter noninterest expenses totaled $10.8 million, compared to $10.6 million in the preceding quarter and $9.8 million in the second quarter a year ago. Salary and employee benefit expenses, the largest component of noninterest expense, were $6.8 million in the second quarter of 2022, compared to $6.9 million in the first quarter of 2022 and $5.6 million in the second quarter of 2021. “The increase in noninterest expenses compared to the year ago quarter is primarily a result of our expansion into the Cincinnati market during the fourth quarter of 2021 and a $1.5 million reduction of deferred PPP loan costs from the second quarter of 2021,” said Almendinger. “By expanding into the Cincinnati market organically, with a seasoned leader who has been established in that market for years, we have begun to broaden our client base and our operations without a significant increase to operating expenses.” Year-to-date, noninterest expense totaled $21.4 million, compared to $19.4 million in the first six months of 2021.

The efficiency ratio for the second quarter of 2022 was 66.9%, compared to 65.9% for the preceding quarter and 63.6% for the second quarter of 2021.

Income Tax Provision

In the second quarter of 2022, Heartland recorded $933,000 in state and federal income tax expense for an effective tax rate of 19.2%, compared to $952,000, or 19.1% in the first quarter of 2022 and $942,000 or 18.4% in the second quarter a year ago.

*As of March 31, 2022, the Dow Jones U.S. MicroCap Bank Index tracked 155 banks with total common market capitalization under $250 million for the following ratios: NIM* of 3.17%.

HLAN 2Q22 Earnings Release

July 19, 2022

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Credit Quality

“We are beginning to step up our risk mitigation process due to inflation concerns and rising interest rates, and are implementing all the necessary procedures to ensure we are well positioned for all economic cycles,” said McComb.

At June 30, 2022, the allowance for loan losses (ALLL) was $15.9 million, or 1.32% of total loans, compared to $15.5 million, or 1.34% of total loans at March 31, 2022, and $13.9 million, or 1.21% of total loans a year ago. As of June 30, 2022, the ALLL represented 1,316.1% of nonaccrual loans, compared to 1,636.7% three months earlier and 488.1% one year earlier.

Nonaccrual loans were $1.2 million at June 30, 2022, compared to $944,000 at March 31, 2022, and decreased 57.4% when compared to $2.8 million at June 30, 2021. Heartland had net loan charge-offs of $5,000 at June 30, 2022. This compared to $5,000 in net loan recoveries at March 31, 2022, and $1.3 million in net loan charge-offs at June 30, 2021. There was $245,000 in loans past due 90 days and still accruing at June 30, 2022, compared to $383,000 at March 31, 2022, and $359,000 at June 30, 2021.

Heartland’s performing restructured loans, that were not included in nonaccrual loans, totaled $4.5 million at June 30, 2022, compared to $5.1 million at March 31, 2022. 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 and other non-performing assets on the books at June 30, 2022, unchanged from three months earlier and one year earlier. Non-performing assets (NPAs), consisting of non-performing loans and loans past due 90 days or more, was $1.5 million, or 0.10% of total assets inclusive of PPP loans, at June 30, 2022, compared to $1.3 million, or 0.09% of total assets, at March 31, 2022, and decreased 54.4% when compared to $3.2 million, or 0.21% of total assets a year ago.

About Heartland BancCorp

Heartland BancCorp is a registered Ohio bank holding company and the parent of Heartland Bank, which operates 18 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 2022, Heartland was ranked #112 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, 2021.

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

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Disclaimer

Heartland BancCorp published this content on 19 July 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 July 2022 20:13:04 UTC.

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All news about HEARTLAND BANCCORP

Sales 2022 65,8 M

Net income 2022 15,9 M

Net Debt 2022

P/E ratio 2022 11,5x
Yield 2022 3,05%
Capitalization 182 M
182 M
Capi. / Sales 2022 2,76x
Capi. / Sales 2023 2,53x
Nbr of Employees 192
Free-Float 100%

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Mean consensus OUTPERFORM
Number of Analysts 2
Last Close Price 90,40 $
Average target price 105,00 $
Spread / Average Target 16,2%

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