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
__________
__________
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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®