Heartland BancCorp
Annual Report 2012

Plain-text annual report

Heartland BancCorp Ranked 97th Best Community Bank in the Nation American Banker Magazine Top 200 Community Banks New office built to better serve the Newark community. In loving memory of Tiney M. McComb, Founder Former Chairman, President and CEO 1943 - 2012 Heartland Banccorp 2012 annual report To Our Shareholders, Customers, and Friends: The year 2012 will be remembered in the archives of Heartland Bank due to the wide ranging magnitude of continued success and personal loss. The bank performed well, despite an underperforming economy overall. Growth in loans and deposits were a challenge and credit quality overall continues to reflect the slow economic recovery. Upgrading our systems and facilities was again a focus for the management team to foster the best delivery of our products and services. The bank was recognized for its ongoing commitment to provide consumers and businesses with the right advice and counsel which has become a hallmark of our brand. With the loss of our founder, Tiney M. McComb, the bank and the Central Ohio Community lost one its greatest entrepreneurs and the Heartland Family lost a good friend. Earnings for the year were strong, despite the subdued Ohio economy. Protecting the net interest margin in preparation for future rises in interest rates and a focus on credit quality resulted in slower loan growth than in past years. While opportunities were available for significant loan growth, our pricing strategies were focused on preserving the bank’s net interest margin and protecting our asset liability position. Controlled growth with quality opportunities remained the focal point of the loan portfolio with the consumer mortgage portfolio growing 13%. G. Scott McComb Chairman, President & CEO of Heartland BancCorp & Heartland Bank A significant investment was made in our Licking County market with the construction of a new branch office at the corner of Locust and 4th Streets in Downtown Newark to replace the branch that had been “on the Courthouse Square” for over 18 years. The new location is highly visible in the gateway to Downtown Newark and features two drive-thru lanes, a drive-thru ATM, and the Georgian architecture that clients have come to know and recognize. Special thanks to Board member Jerry McClain, who, without his leadership, the project would not have been possible. We honored Jerry and the McClain Family for their continued dedication to the Downtown Newark community with the installation and dedication of a clock tower from the renowned Verdin Clock Company of Cincinnati. Our Internet banking, mobile apps, ATM network and transaction security were also projects that were completed in 2012. Investing in these systems is paramount to building a strong base to acquire a new generation of banking clients. This will allow Heartland to bridge the distance between our strategically located offices with more self-service opportunities. Cyber security is a focus in the banking industry and we remain committed to staying ahead of the issues that plague online transactions and commerce through risk mitigation strategies. Heartland was awarded the Ethical Enterprising Award for Character Ethics in Business from the Central Ohio Better Business Bureau. This prestigious award has only been given to one other financial institution in its history. For an institution to be given this award during these trying times speaks volumes about how Heartland stands behind its clients and continues to operate with integrity, while the industry at large has not. You should be proud of the quality and excellence that is demonstrated each day from our caring and well trained employees who continue to practice sound banking principles. In April 2012, we lost our Founder and Chairman Tiney M. McComb to cancer. With the help of good friends and clients, Tiney organized Heartland BancCorp and purchased the Croton Bank Company in 1988. He built this institution on quality service, competitive products, community banking principles, and a work ethic to go the extra mile for clients and to become their partner as well as their bank. While Tiney is no longer with us, his Heartland Spirit lives on in our business practices, employees shared values, and community involvement. He built Central Ohio’s premiere community bank, one that is known throughout Ohio for its excellence and dedication to its clients, shareholders, and associates alike. Newark Office Grand Opening with dedication to Jerry McClain Thanks to our associates, clients and shareholders for helping us with another great year. 2012 Spotlight Series - Spotlight on Business Insurance Scott McComb accepting the 2012 Torch Award Heartland Bank iPad app and mobile browser went live in 2012 2012 Financial Review Financial Summary: This past year marked an unequaled period of performance, in which Heartland BancCorp earned record levels of net income and earnings per common share. Net income in 2012 was $6.7 million, an improvement of 32% from $5.1 million in 2011. Diluted earnings per common share were $4.32, an increase of $1.05 or 32% from $3.27 per share in the prior year. Net Income for each of years 2012 and 2011 represents record levels when compared to prior years results. Heartland BancCorp’s financial performance in 2012 reflects both the strengths of our company and the challenges we face in this unprecedented economic environment. We ended the year with strong liquidity and exceeded all levels of regulatory capital requirements. Capital levels were further strengthened during 2012 as the result of these higher earnings. Even though the economy improved slightly during the 4th quarter of 2012 continued low interest rates pushed down net interest income while new banking regulations have resulted in lower levels of non interest or fee income from providing basic banking services and higher compliance cost. Overview of Operations: Net interest income (before provision for loan loss) for the year ended December 31, 2012 was $21.7 million up 3% or $609 thousand compared to 2011. Interest income of $26.0 million for 2012 declined $831 thousand or 3% while interest expense on deposits and borrowings declined $1.4 million or 25% in 2012 compared to 2011. Lower interest income during 2012 reflects the continued macroeconomic operating environment that has artificially sustained low interest rates, high levels of unemployment and an overall soft housing market. The 25% decline in interest expense in 2012 compared to 2011 results from changing our deposit mix to a higher level of transaction accounts resulting in lower cost deposits coupled with favorable deposit pricing in a declining interest rate environment reducing both deposit and borrowing costs. The expectation of a continued negative economic outlook and the elevated level of nonaccrual loans, combined with the need to establish reserves for new loans, led Heartland BancCorp to record a provision for loan loss of $3.386 million in 2012. That addition to our allowance for loan loss, less the $1.976 million of net loan charge-offs resulted in a net increase of $1.410 million to the allowance which ended the year at $5.426 million. The allowance as a % of loans outstanding was 1.35% at the end of 2012 which was an increase of 31% from 1.03% at the end of 2011. Net interest income after provision for loan loss totaled $18.4 million down $188 thousand or 1% in 2012 compared to 2011 as a result of the combined factors noted above. Non-Interest Income rose to $5.4 million for 2012 representing an increase of $2.4 million or 78% compared to 2011. The higher level of non-interest income in 2012 was due to the receipt of $2.0 million of net key man life insurance proceeds from the loss of Heartland BancCorp’s Chairman during 2012. Excluding the life insurance income, non- interest income for 2012 increased by $368 thousand or 12% due primarily to net gains realized on the sale of available for sale investment securities from the Bank’s investment portfolio. Non-Interest expense was $15.5 million for 2012 up $855 thousand or 6% over non-interest expense of $14.7 million in the prior year. Total salary and employee benefit expense increased $206 thousand or 2.5% in 2012 compared to 2011. Higher occupancy and equipment expense coupled with higher legal and collection fees increased 2012 non-interest expense by $172 thousand and $133 thousand respectively. Financial Condition: Total assets increased slightly ending 2012 at $578.6 million up $7.6 million or 1% year over year. Net loans outstanding as of December 31, 2012 were $395.6 million up $8.2 million or 2% from $387.4 million at December 31, 2011. The increase in loans during 2012 resulted from an increase in Commercial (non-real estate) loans totaling $6.2 million and Residential (single family) real estate loans which increased $11.4 million in 2012. Partially offsetting the increase in Commercial and Residential Real Estate loans was a year-over- year 3% or $6.8 million decline in Commercial Real Estate loans and an 8% or $1.2 million decline in consumer loans. The low interest rates, especially in the area of residential real estate loans, have driven a higher level of refinance and purchase activity during 2012 compared to 2011. Heartland’s funding requirements are mainly generated by deposits while borrowings have historically been maintained at insignificant levels. Total deposits at December 31, 2012 were $487 million, down slightly from $489 million for the same time in 2012. A key element of Heartland’s deposit strategy continues to be focused on growing commercial and retail transaction accounts as a percent of our total deposits and borrowings. Shareholders’ Equity: Total shareholders’ equity remained strong, growing 10% to $55.7 million from $50.8 million at year-end 2011. Based upon shares outstanding, the book value of Shareholders’ equity increased from $33.00 at year-end 2011 to $36.15 per share at December 31, 2012. 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 9.5%, 14.1%, and 15.3% respectively as of December 31, 2012. Regulatory requirements for a well-capitalized bank are 5%, 6%, and 10% for Tier 1 Leverage; Tier 1 Risk based and Total Risk Based Capital Ratios respectively. In 2012, Heartland BancCorp paid a dividend of $1.29 per share, representing a yield of 4.72% on the average market price of $27.30 per share. Dividends paid resulted in a dividend payout ratio of 30% for 2012. Conclusion: I am especially pleased to share with you these strong financial results achieved in 2012. It is helpful to note that during the financial crisis that became known as the Great Recession, Heartland BancCorp never missed or reduced its dividend payment to our shareholders. Our earnings strength and stability is consistent with our vision to build a strong banking franchise that facilitates growth and prosperity for our clients, colleagues and communities thereby delivering attractive returns for our shareholders. Our goal is to build on this momentum as we embark upon this, our 102nd year of operations. Sincerely, G. Scott McComb Chairman, President & CEO 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. Insurance Services are provided through Heartland Insurance Services, LLC. 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. Dr. Ed Seifried enlightens guests with his 2012 Economic Forecast New Newark Office 2012 Power Breakfast - Getting the most out of your iPad! Heartland BancCorp Consolidated Balance Sheets December 31, 2012 and 2011 Assets Cash and cash equivalents Available-for-sale securities Held-to-maturity securities Loans, net of allowance for loan losses of $5,425,761 and $4,016,082 at December 31, 2012 and 2011, 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 2012 __________ 2011 __________ $ 22,196,209 133,165,503 6,865,393 $ 25,478,749 130,740,499 8,522,755 395,597,738 11,292,861 1,889,050 2,606,427 1,878,136 417,353 873,214 1,834,649 __________ 387,390,610 10,033,014 1,230,650 2,029,957 1,866,830 417,353 1,305,828 2,022,439 __________ $ 578,616,533 __________ __________ $ 571,038,684 __________ __________ 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 Shareholders’ Equity Common stock, without par value; authorized 5,000,000 shares; issued 2012- 1,541,507, 2011- 1,537,832 shares Retained earnings Accumulated other comprehensive income Total shareholders’ equity $ 74,237,342 183,228,633 229,579,340 __________ $ 62,561,713 173,901,359 252,815,732 __________ 487,045,315 __________ 489,278,804 __________ 29,897,750 3,093,000 2,855,547 __________ 24,725,158 3,093,000 3,186,227 __________ 522,891,612 __________ 520,283,189 __________ 23,131,730 29,086,743 3,506,448 __________ 55,724,921 __________ 23,071,097 24,370,699 3,313,699 __________ 50,755,495 __________ Total liabilities and shareholders’ equity $ 578,616,533 __________ __________ $ 571,038,684 __________ __________ s l a i c n a n i F d e t a d i l o s n o C Heartland BancCorp Consolidated Statements of Income Years Ended December 31, 2012 and 2011 Interest Income Loans Securities Taxable Tax-exempt Other Total interest income Interest Expense Deposits Borrowings Total interest expense Net Interest Income __________ 2012 2011 __________ $ 22,032,899 $ 22,823,350 2,129,644 1,786,602 41,400 __________ 2,284,007 1,677,482 36,961 __________ 25,990,545 __________ 26,821,800 __________ 3,900,074 353,244 __________ 5,305,838 388,194 __________ 4,253,318 __________ 5,694,032 __________ 21,737,227 21,127,768 Provision for Loan Losses 3,386,100 __________ 2,589,000 __________ Net Interest Income After Provision for Loan Losses Noninterest Income Service charges Net gains and commissions on loan sales Net realized gains on available-for-sale securities Net realized gains on sales of foreclosed assets (Loss) gain on sale of premises and equipment Benefit in excess of life insurance cash value 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 18,351,127 __________ 18,538,768 __________ 1,957,488 53,134 459,201 21,359 (5,568) 1,983,025 909,471 __________ 2,119,528 52,746 10,265 37,117 93,446 - 713,915 __________ 5,378,110 __________ 3,027,017 __________ 8,503,139 1,784,499 849,418 754,361 395,228 188,775 586,829 466,849 1,976,430 __________ 8,297,597 1,612,632 806,668 621,853 394,054 207,272 550,335 493,000 1,666,890 __________ 15,505,528 __________ 14,650,301 __________ 8,223,709 1,524,985 __________ 6,915,484 1,846,799 __________ $ 6,698,724 __________ __________ $ 5,068,685 __________ __________ $ 4.35 __________ __________ $ 3.30 __________ __________ $ 4.32 __________ __________ $ 3.27 __________ __________ 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 44 West Locust Street 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 Benjamin J. Babcanec Vice President, Retail Sales Manager William A. Daily, Jr. Vice President, Commercial Lending Manager Joseph A. Duffey Vice President, Director of Credit Administration Donna J. Holycross Vice President, Director of Marketing Linda E. Miller Vice President, Corporate Secretary Jennifer L. Eckert Assistant Vice President, Compliance Officer Ashley A. Trout Assistant Vice President, Branch Operations Manager Heartland Investment Services Mark J. Posey VP, Director of Investment Services Heartland Investment Executive, Infinex Heartland Insurance Services, LLC. Courtney L. Wagner Insurance Services Consultant Board of Directors As of December 31, 2012 (Not pictured: I. Robert Amerine) Heartland BancCorp and Bank Directors I. Robert Amerine Chairman, ISCO, Inc. Directors Emeritus Jack J. Eggspuehler President, Aerosafe, Inc. Arthur G.H. Bing M.D. Plastic & Reconstructive Surgeon 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 Senior Vice President, Brower Insurance Gerald K. McClain President, The Jerry McClain Company, Inc. G. Scott McComb Chairman, President and CEO Tiney M. McComb, Founder (Deceased) Former Chairman, President and CEO Robert C. Overs EVP & COO, Technical Rubber Company, Inc. Gary D. Paine Owner, Pilot Freight Services Richard A. Vincent President & CEO, Osteopathic Heritage Foundation and Osteopathic Heritage Foundation of Nelsonville Cheryl C. Poulton Executive Chairman, Tech International Heartland BancCorp Officers G. Scott McComb Chairman, President and CEO Jay B. Eggspuehler, Esq. Vice Chairman I. Robert Amerine Secretary George R. Smith Executive Vice President, Chief Financial Officer Heartland Bank Senior Management G. Scott McComb Chairman, President and CEO Steven C. Hines Executive Vice President, Chief Operating Officer George R. Smith Executive Vice President, Chief Financial Officer David P. Curby Senior Vice President, Mortgage Lending Stephanie W. Toalston Senior Vice President, Director of Human Resources Member FDIC heartlandbank.com Central Ohio’s Community Bank® 

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