1911-2011
Celebrating 100 Years of Community Banking
Heartland Banccorp
2011 annual report
To Our Shareholders, Customers, and Friends:
This year we set out to celebrate 100 years of community banking and what a celebration and successful year it was! We were
reassured of the dedication of our clients as they came to our branch birthday parties and Client Power Breakfasts. In September,
we commemorated the history of our institution and memorialized the people and events of the past 100 years by unveiling the
Heartland History Wall in the rotunda of the corporate office. Here you will see the founders of the Croton Banking Company,
our first location, and many other images of 100 years of Heartland. This year we were constantly reminded of the quality of our
people through our clients and shareholders, who were proud to point out and congratulate their Heartland Community Banker.
Most importantly we were reassured that community banking is here to stay in America and especially here in the heartland. This
coupled with the best earnings year ever for Heartland BancCorp solidifies our business model, and sets the stage for the next
century for Heartland. Thank you to all of our clients who made the effort to come to our celebrations and congratulations on your
Centennial!
Tiney M. McComb
Chairman & CEO
of Heartland BancCorp
Chairman of
Heartland Bank
Two thousand and eleven was a year of accomplishments for Heartland Bank and Heartland BancCorp. Heartland broke into the
top 100 community banks in the country, as listed by U.S. Banker Magazine, based on ROAE (Return On Average Equity), coming
in at #97 out of 7,500. This is an improvement over the 112th ranking the bank had in 2010. Heartland was recognized as one of
the top SBA lenders in Columbus, coming
in at #3 just behind a few national
competitors. We were also the first Central Ohio based bank to offer an iPhone and
Android mobile banking application, further showing our commitment to technology.
These honors and recognitions reflect the strength of your community bank, and the
dedication of the team members who make these accomplishments possible.
We were hard at work in the communities we serve once again this year through
many events and promotions. Our 4th Annual Money Matters Financial Summit
helped promote financial literacy while, at the same time, introducing consumers and
businesses alike to the community banking model. The bank was able to honor the
men and women of America’s Military by supporting the USO through the Gahanna
Freedom Festival. Over ten thousand people were in attendance at the fireworks
celebration, which would not have been possible without our involvement. The bank
sponsored several other events and festivals in the communities we serve further
demonstrating our local marketing efforts and volunteerism. I am particularly proud
of our Heartland Charity Golf Classic which in 2011 reached a collective $250,000 of
funds raised and deployed to local charities for the development of children.
The Regulation Overhaul through the Dodd Frank Wall Street Reform Act continues
to impact the industry and change the way banks do business with their clients.
While many of the provisions of the Act do not effect community banking, others do
and their impacts are yet to be determined. The changes in FDIC insurance premium
calculations have had a positive effect on banks who are not highly leveraged and fund their balance sheets with local deposits. At the same time other provisions as well as
regulatory interpretation of these new rules will have an effect on the industry. While the economy has not performed at optimum levels, we have made the commitment to
stand behind our clients. Many businesses are still adjusting to the “New Economy” and we have been right there with them with education and advice to make sure they can
rightly size their enterprise for success in this harsh and changing environment.
The 2011 Unveiling of Our History Wall
Our outlook for the coming year and the economy is more positive than in the immediate past and we indeed hope that the Nation can get back on track and address some of
the key issues that caused the events of the past few years. Now here are the financial highlights of 2011.
Tiney and Scott McComb
at the 2011 Heartland
Charity Golf Classic.
Offering our support along side
Offering our support along side
the USO at the 2011 Gahanna
the USO at the 2011 Gahanna
Freedom Festival.
Freedom Festival.
Scott McComb handing off the
Scott McComb handing off the
mic at the 4th Annual Money
mic at the 4th Annual Money
Matters Financial Summit.
Matters Financial Summit.
Heartland BancCorp
consolidated Balance Sheets
december 31, 2011 and 2010
Assets
Cash and cash equivalents
Available-for-sale securities
Held-to-maturity securities
Loans, net of allowance for loan losses of
$4,016,082 and $3,871,640 at
December 31, 2011 and 2010, respectively
Premises and equipment
Federal Reserve and Federal Home Loan Bank stock
Foreclosed assets held for sale
Interest receivable
Goodwill
Prepaid FDIC insurance premium
Other
Total assets
2011
__________
2010
__________
$ 25,478,749
130,740,499
8,522,755
$ 7,825,727
115,223,173
5,756,962
387,390,610
10,033,014
1,230,650
2,029,957
1,866,830
417,353
1,305,828
2,022,439
__________
387,867,015
9,479,273
1,230,450
2,615,688
1,804,636
417,353
1,770,653
2,756,864
__________
$ 571,038,684
__________
__________
$ 536,747,794
__________
__________
Liabilities and Shareholders’ Equity
liabilities
Deposits
Demand
Savings, NOW and money market
Time
Total deposits
Short-term borrowings
Long-term debt
Interest payable and other liabilities
Total liabilities
$ 62,561,713
173,901,359
252,815,732
__________
$ 50,519,453
159,720,953
251,484,773
__________
489,278,804
__________
461,725,179
__________
24,725,158
3,093,000
3,186,227
__________
23,500,430
3,093,000
3,185,929
__________
520,283,189
__________
491,504,538
__________
Shareholders’ equity
Common stock, without par value; authorized
5,000,000 shares; issued 2011 - 1,537,832 shares,
2010 - 1,535,832 shares
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
23,071,097
24,370,699
3,313,699
__________
50,755,495
__________
23,047,347
21,282,467
913,442
__________
45,243,256
__________
Total liabilities and shareholders’ equity
$ 571,038,684
__________
__________
$ 536,747,794
__________
__________
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Heartland BancCorp
consolidated Statements of Income
Years ended december 31, 2011 and 2010
Interest Income
Loans
Securities
Taxable
Tax-exempt
Other
Federal funds sold
Total interest income
Interest Expense
Deposits
Borrowings
Total interest expense
Net Interest Income
__________
2011
2010
__________
$ 22,823,350
$ 23,893,785
2,284,007
1,677,482
36,849
112
__________
2,676,959
1,394,671
44,540
161
__________
26,821,800
__________
28,010,116
__________
5,305,838
388,194
__________
7,244,675
382,357
__________
5,694,032
__________
7,627,032
__________
21,127,768
20,383,084
Provision for Loan Losses
2,589,000
__________
1,921,000
__________
Net Interest Income After Provision for
Loan Losses
Noninterest Income
Service charges
Net gains and commissions on loan sales
Net realized gains on sales of
available-for-sale securities
Net realized (losses) gains on sales of
foreclosed assets
Gains on sale of premises and equipment
Other
Total noninterest income
Noninterest Expense
Salaries and employee benefits
Net occupancy and equipment expense
Data processing fees
Professional fees
Marketing expense
Printing and office supplies
State franchise taxes
FDIC Insurance premiums
Other
Total noninterest expense
Income Before Income Tax
Provision for Income Taxes
Net Income
Basic Earnings Per Share
Diluted Earnings Per Share
18,538,768
__________
18,462,084
__________
2,119,528
52,746
2,287,251
99,020
10,265
274,350
37,117
93,446
713,915
__________
(373,261)
-
445,295
__________
3,027,017
__________
2,732,655
__________
8,297,596
1,612,633
806,668
621,853
394,054
207,272
550,335
493,000
1,666,890
__________
8,030,257
1,828,933
754,310
616,568
407,902
220,232
539,393
908,756
1,565,490
__________
14,650,301
__________
14,871,841
__________
6,915,484
1,846,799
__________
6,322,898
1,753,258
__________
$ 5,068,685
__________
__________
$ 4,569,640
__________
__________
$ 3.30
__________
__________
$ 2 .98
__________
__________
$ 3.27
__________
__________
$ 2 .96
__________
__________
Since 1911
Heartland Locations
corporate oFFIce
850 North Hamilton Road
Gahanna, Ohio 43230
(614) 337-4600
coluMBuS
CAPITOL SQUARE
65 East State Street
Columbus, Ohio 43215
(614) 416-0244
croton
12 North Main Street
Croton, Ohio 43013
(740) 893-2191
duBlIn
6500 Frantz Road
Dublin, Ohio 43017
(614) 798-8818
FrIendSHIp VIllaGe oF duBlIn
6000 Riverside Drive
Dublin, Ohio 43017
(614) 923-0575
GaHanna
850 North Hamilton Road
Gahanna, Ohio 43230
(614) 337-4605
GaHanna
NORTH STYGLER ROAD
67 North Stygler Road
Gahanna, Ohio 43230
(614) 475-7024
GroVe cItY
2365 Old Stringtown Road
Grove City, Ohio 43123
(614) 875-1884
JoHnStoWn
730 West Coshocton Street
Johnstown, Ohio 43031
(740) 967-6500
neWarK
6 North Park Place
Newark, Ohio 43055
(740) 349-7888
reYnoldSBurG
6887 East Main Street
Reynoldsburg, Ohio 43068
(614) 416-0400
WeSt coluMBuS
130 North Wilson Road
Columbus, Ohio 43204
(614) 351-2100
WeSterVIlle
450 South State Street
Westerville, Ohio 43081
(614) 839-2265
[ 2011 Financial Review ]
2011 will undoubtedly be remembered as another year of challenge and opportunity for Heartland BancCorp as well as the banking industry. The economy and its ongoing impact
on interest rates and record levels of unemployment continued to negatively impact consumer confidence and ultimately lower levels of business spending and investment. With
these factors in mind we are pleased to report that we achieved record earnings for 2011, our 100th anniversary year. Net income for 2011 increased 11% to $5.1 million or $3.27
per share compared to earnings of $4.6 million or $2.96 per share for 2010. Earnings in 2011 reflect higher net interest income and lower non-interest expense. The primary source
of Heartland BancCorp’s revenue is net interest income from its investment and loan portfolios less its cost of deposits and borrowings. Net interest income before provision for
loan loss for 2011 grew 4% to $21.1 million compared to $20.4 million for 2010. Provision for loan loss of $2.6 million for 2011 compared to $1.9 million for 2010. The higher
provision expense was used to increase the allowance for loan loss in 2011, and provided for a higher level of loan charge-offs. Higher net interest income for 2011 resulted from
the combined effect of a 26% decline in the Bank’s cost of funds less a 7% drop in the yield on earning assets. Lower funding cost resulted from a positive shift in deposit mix to
lower cost non-interest bearing transaction and money market accounts that increased by 24% and 9% respectively, while higher cost certificate of deposit accounts grew less
than 1% compared to the prior year. This increase in transaction and money market accounts enabled Heartland Bank to experience lower funding cost, resulting in higher net
interest income. These favorable contributors to net interest income were partially offset by a reduction in asset yields, as loans continued to re-price at lower interest rates in effect
throughout the year, and lower yielding investment portfolio balances increased to compensate for sluggish loan demand.
Total non-interest income of $3 million in 2011 compares to $2.7 million for 2010, an increase of 11%. Income from the sale of alternative investment products increased to $247
thousand, up 92% over 2010. Partially offsetting this increase were lower levels of loan origination fees and a reduction of fees for services provided on deposit accounts which
declined $168 thousand or 7% in 2011. The reduction in deposit fees resulted from the full year impact from implementation of Regulation E changes during the third quarter of
2010. Regulation E restricts banking institutions from charging overdraft fees on ATM and debit card transactions absent a customer’s opt-in to overdraft coverage.
Non-interest or operating expense of $14.7 million in 2011 declined by $221 thousand or 1% from non-interest expense of $14.9 million in 2010. Operating expense and earnings
for 2011 have been positively impacted by lower FDIC insurance expense. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 resulted in significant statutory
changes to the FDIC deposit insurance assessment program. It required that the FDIC redefine the deposit insurance assessment base used to calculate deposit insurance assessments
for all insured depository institutions. As a result, FDIC insurance expense totaled $493 thousand in 2011 compared to $909 thousand in 2010, a decline of 46%. Operating expense
increased $194 thousand or 1% excluding the year-over-year decline in FDIC expense.
Total assets outstanding increased 6% to $571 million at year-end 2011, an increase of $34 million from assets of $537 million at the end of 2010. Loan and deposit volumes have
been influenced significantly during 2011 and 2010 by overall economic factors including market interest rates, consumer confidence, low unemployment rate, lower levels of
business and consumer spending as well as changes in regulations on banking institutions. We continued to implement initiatives to enhance our loan quality and grow our retail
deposit relationships while improving productivity during 2011. Net loans outstanding declined slightly to $387.4 million, from $387.9 million at the end of 2010. The decline in loan
balances resulted from continued weak demand and a higher level of loan prepayments in both the commercial and retail lending sectors. Deposits increased 6% to $489 million
at December 31, 2011. A key element of Heartland’s deposit strategy was focused on growing our transaction account deposit base while continuing to reduce our dependence on
public funds and larger non-core certificate of deposit accounts throughout 2011.
Total shareholders’ equity remained strong, growing 12% to $50.8 million from $45.2 million at year-end 2010. Based upon shares outstanding, the book value of Shareholders’
equity increased from $29.40 at year-end 2010 to $33.00 per share at December 31, 2011. Among the financial strengths of Heartland BancCorp is our capital position, which
exceeds regulatory guidelines and compares favorably to our peers and other Ohio based banks. Tier1 leverage, Tier 1 Risk based and Total Risk Based Capital ratios were 8.9%,
13.3%, and 14.4% respectively as of December 31, 2011. Regulatory requirements for a well-capitalized bank are 5%, 6%, and 10% for Tier 1 Leverage; Tier1 Risk based and Total
Risk Based Capital Ratios respectively. In 2011, Heartland BancCorp paid a dividend of $1.28 per share, representing a yield of 4.80% on the average market price of $26.81 per
share. Dividends paid resulted in a dividend payout ratio of 39% for 2011.
As we look beyond 2011 to the beginning of our second century, we are committed to maintaining our conservative culture and risk management practices that throughout our history
have allowed us to perform well through many economic cycles. In response to the current economic challenges of higher credit losses, weak loan demand, declining fee income,
and low interest rates, we remain focused on building long-term relationships with our clients, controlling expenses, managing risks, and enriching the knowledge of our employees
through training. Heartland’s long-term strategic plans are grounded in the fundamental principles of banking, including a strong balance sheet with active lending growth, attention
to risk management, and continued emphasis on delivering consistently superior client service while supporting the communities in which you, our clients and shareholders, work and
live. I would like to thank all of our Heartland employees, the Board of Directors, Ambassadors, our loyal stockholders, and clients for your investment, patronage, and relationship. I
would encourage you to spread the good word of Heartland to your friends and family as it would mean a great deal to all of us.
Best personal regards,
Tiney M. McComb
Chairman and CEO
Golfers warm up before the start of the
2011 Heartland Charity Golf Classic.
Honoring our men and women of
America’s Military at the Gahanna
Freedom Festival.
Enjoying the evening at
Holiday Lights 2011
Heartland BancCorp is a registered Ohio Bank Holding company and the parent of Heartland Bank, which operates eleven full-service banking offices. Alternative investment services are provided through Infinex Financial Group. 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 over-the-counter (OTC) Bulletin Board Service under the symbol HLAN. Heartland Banccorp and Bank directors
Heartland Bank Senior Management
I. Robert Amerine
Chairman, ISCO, Inc.
Arthur G.H. Bing M.D.
Plastic & Reconstructive Surgeon
Tiney M. McComb
Chairman
G. Scott McComb
President and CEO
William A. Dodson, Jr.
EVP/Community Relations Director, Rhema Christian
Center
Jay B. Eggspuehler, Esq.
Wiles, Boyle, Burkholder & Bringardner Co., L.P.A.
Jodi L Garrison, CPA
Partner, Hirth, Norris & Garrsion, LLP
John R. Haines
Retired, John R. Haines Insurance Agency
David C. Kotary
Principal, Brower Insurance Agency, LLC
Gerald K. McClain
President, The Jerry McClain Company, Inc.
G. Scott McComb
President & CEO, Heartland Bank
Tiney M. McComb
Chairman & CEO, Heartland BancCorp
directors emeritus
Jack J. Eggspuehler
President, Aerosafe, Inc.
Cheryl C. Poulton
President, Tech International
Heartland Banccorp officers
Tiney M. McComb
Chairman & CEO
G. Scott McComb
Vice Chairman & President
I. Robert Amerine
Secretary
George R. Smith
Executive Vice President, Chief Financial Officer
George R. Smith
Executive Vice President, Chief Financial Officer
David P. Curby
Senior Vice President, Mortgage Lending
Robert F. Halley
Senior Vice President, Commercial Relationship
Manager
Steven C. Hines
Senior Vice President, Commercial Banking
Management
Donna J. Holycross
Vice President, Director of Marketing
Cheryl L. Krouse
Vice President, Retail Administration Manager
Mark A. Matthews
Vice President, Credit Review
Linda E. Miller
Vice President, Corporate Secretary
Edmund W. Smallwood, Jr.
Vice President, Retail Sales Administrative Officer
Stephanie W. Toalston
Vice President, Director of Human Resources
Jennifer L. Eckert
Assistant Vice President, Compliance Officer
Heartland Investment Services
Mark Posey
Investment Representative
Jason Ellinger
Investment Representative
Member FDIC
heartlandbank.com
Central Ohio’s Community Bank®