<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission File Number: 0-28442
-----------
Heartland Bancshares, Inc.
------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Illinois 37-1356594
- ------------------------ -------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
318 South Park Avenue, Herrin, Illinois 62948-3604
- ------------------------------------------ ---------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (618) 942-7373
----------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past ninety days:
Yes ____ No X
---
As of March 31, 1996, there were no shares of the registrant's Common
Stock, par value $0.01 per share, issued and outstanding.
Transitional small business disclosure format (check one):
Yes _____ No X
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Exhibit Index at Page ___
Page 1 of ___ Pages
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
------------------------------------------
OF HERRIN AND SUBSIDIARY
------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
Unaudited Audited
<S> <C> <C>
(In thousands)
ASSETS
------
Cash and cash equivalents
Interest-bearing $ 6,637 $ 3,562
Noninterest-bearing 1,664 1,682
Investment securities available-for-sale at estimated
market value 101 102
Investment securities held to maturity 8,621 9,120
Mortgage-backed and related securities available for
sale at estimated market value 3,010 7,335
Mortgage-backed and related securities held to maturity 4,896 3,128
Loans receivable, net 35,604 35,060
Investment required by law - Federal Home Loan Bank
stock, at cost 366 342
Property, equipment, and property held for investment, net 560 572
Accrued interest receivable 253 233
Prepaid expenses and other assets 58 18
Prepaid income taxes 108 127
Other assets 195 28
Real estate owned 61 --
------- -------
TOTAL ASSETS $62,134 $61,309
- ------------ ======= =======
LIABILITIES AND RETAINED EARNINGS
---------------------------------
Liabilities
- -----------
Deposits $56,396 $55,632
Accrued interest on deposits 62 66
Advances from borrowers for taxes and insurance 476 380
Other liabilities 31 49
Deferred tax liability 409 432
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Total Liabilities $57,374 $56,559
------------------ ------- -------
Commitments and Contingencies
- -----------------------------
Retained Earnings
- -----------------
Retained earnings $ 4,790 $ 4,733
Unrealized gain (loss) on securities
available for sale, net of tax (30) 17
------- -------
Total Retained Earnings $ 4,760 $ 4,750
----------------------- ------- -------
TOTAL LIABILITIES AND RETAINED EARNINGS $62,134 $61,309
- --------------------------------------- ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
------------------------------------------
OF HERRIN AND SUBSIDIARY
------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Ended
--------------------
March 31, March 31,
1996 1995
--------- ---------
(In thousands)
<S> <C> <C>
Interest Income
- ---------------
Interest on first mortgage loans $ 663 $ 548
Interest on other loans 28 14
Interest on investments, securities, and
deposits with banks 199 234
Interest on mortgage backed securities 132 173
------ -----
Total Interest Income $1,022 $ 969
---------------------
Interest Expense
- ----------------
Interest on deposits 698 616
------ -----
Net Interest Income $ 324 $ 353
- -------------------
Provision for Loan Losses -- --
- ------------------------- ------ -----
Net Interest Income After Provision for Loan Losses $ 324 $ 353
- --------------------------------------------------- ------ -----
Non-Interest Income
- -------------------
Initial service charges and other loan fees $ 21 $ 19
Gain on sale of investments 13 --
Other 42 39
------ -----
Total Non-Interest Income $ 76 $ 58
------------------------- ------ -----
Non-Interest Expense
- --------------------
Compensation to directors, officers, and employees $ 120 $ 128
Pension expense and other employee benefits 20 15
Office properties and equipment expense including depreciation 26 26
Advertising 9 10
Federal insurance premiums 31 31
Stationery, postage, and office supplies 14 18
Checking account expense 37 39
Service bureau expense 20 19
Other 38 36
Loss on sale of investments 3 --
------ -----
Total Non-Interest Expense $ 318 $ 322
-------------------------- ------ -----
Income Before Income Taxes $ 82 $ 89
- --------------------------
Income Tax Expense 25 26
------ -----
Net Income (Loss) $ 57 $ 63
- ----------------- ====== =====
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
------------------------------------------
OF HERRIN AND SUBSIDIARY
------------------------
CONSOLIDATED STATEMENT OF CHANGES IN RETAINED EARNINGS
------------------------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Retained Available
Earnings for Sale Total
-------- -------------- -------
<S> <C> <C> <C>
(In thousands)
Balance at December 31, 1995 $4,733 $ 17 $ 4,750
- ----------------------------
Net Income 57 -- 57
Change in unrealized gain (loss)
on securities available for sale -- (47) (47)
-------- ------- --------
Balance at March 31, 1996 $4,790 $ (30) $ 4,760
- ------------------------- ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
------------------------------------------
OF HERRIN AND SUBSIDIARY
------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Ended
----------------------
March 31, March 31,
1996 1995
---------- ----------
(In thousands)
<S> <C> <C>
Cash Flows From Operating Activities
- ------------------------------------
Net income $ 57 $ 63
------- -------
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation $ 12 $ 11
Discount accretion/premium amortization-securities (net) 8 --
Amortization of deferred loan origination fees (12) (12)
Provision for loan losses -- --
(Gain) loss on sale of investments (10) --
(Increase) decrease in accrued interest receivable (20) 11
(Increase) decrease in prepaid expenses (40) (28)
(Increase) decrease in prepaid income taxes 19 19
Increase (decrease) in deferred income taxes 7 7
(Increase) decrease in other assets (228) --
Increase (decrease) in accrued interest payable (5) 8
Increase (decrease) in other liabilities (17) (9)
------- -------
Total Adjustments $ (286) $ 7
----------------- ------- -------
Net Cash Provided (Used) by Operating Activities $ (229) $ 70
------------------------------------------------ ------- -------
Cash Flows From Investing Activities
- ------------------------------------
Proceeds from maturities of investment securities and
mortgage backed securities $ 1,750 $ 850
Principal payments on mortgage backed securities 374 243
Net (increase) decrease in loans receivable (532) (2,203)
Purchases of fixed assets -- (8)
Purchase of investment securities - Held-to-maturity (1,250) (150)
Purchase of mortgage backed securities - Held-to-maturity (1,905) --
Proceeds from sale of mortgage-backed securities - available-for-sale 4,015 --
Purchase of Federal Home Loan Bank stock $ (24) --
------- -------
Net Cash Provided (Used) by Investing Activities $ 2,428 $(1,268)
------------------------------------------------- ------- -------
Cash Flows From Financing Activities
- ------------------------------------
Net increase (decrease) in deposits $ 763 $ (320)
Net increase (decrease) in mortgage escrow funds $ 95 $ 80
------- -------
Net Cash Provided (Used) by Financing Activities $ 858 $ (240)
------------------------------------------------ ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents $ 3,057 $(1,438)
- ----------------------------------------------------
Cash and Cash Equivalents at Beginning of Period 5,244 6,238
------- -------
Cash and Cash Equivalents at End of Period $ 8,301 $ 4,800
- ------------------------------------------ ======= =======
Supplemental Disclosures
- ------------------------
Cash Paid During the Period for:
Interest $ 703 $ 608
Income taxes $ -- $ --
Loans Transferred to Foreclosed Real Estate
During Period $ 61 $ 29
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
------------------------------------------
OF HERRIN AND SUBSIDIARY
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
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MARCH 31, 1996 AND 1995
-----------------------
1. Heartland Bancshares, Inc.
--------------------------
Heartland Bancshares, Inc. (the "Company") was incorporated under the laws
of the State of Illinois for the purpose of serving as the holding company
of First Federal Savings and Loan Association of Herrin (the "Association")
in connection with the Association's conversion from a federal mutual
savings and loan association to a federal stock savings and loan
association, and subsequent conversion to a national bank, pursuant to its
plan of conversion. On April 12, 1996, the Company commenced a
subscription and community offering of its shares in connection with the
conversion of the Association.
The Company has not transacted any material business activities through
March 31, 1996 other than those associated with the preparations for the
issuance of stock. Accordingly, the consolidated financial statements
included herein are for the Association and its wholly owned subsidiary,
Herrin First Service Corporation.
2. Basis of Presentation
---------------------
The consolidated financial statements include the accounts of First Federal
Savings and Loan Association of Herrin and Herrin First Service
Corporation. All significant intercompany accounts and transactions have
been eliminated in consolidation. The accompanying unaudited consolidated
financial statements were prepared in accordance with the instructions for
Form 10-QSB and, therefore, do not include information or footnotes
necessary for a complete presentation of financial condition, results of
operations, and cash flows in conformity with generally accepted accounting
principles. In the opinion of the Association's management, the unaudited
consolidated financial statements reflect all adjustments necessary for the
fair presentation of the Association's financial position at March 31, 1996
and December 31, 1995, and the results of its operations and cash flows for
the three months ended March 31, 1996 and 1995.
Operating results for the three months ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
3. Stock Conversion
----------------
On December 31, 1995, the Board of Directors of the Association, subject to
regulatory approval and approval by the members of the Association, adopted
an overall plan of conversion and reorganization to convert from a
federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association and thereafter to a national
bank. The plan includes, as part of the conversion, the concurrent
formation of Heartland Bancshares, Inc. as a holding company.
The conversion is to be accomplished through a subscription offering for
the sale of shares of the holding company's common stock to the
Association's eligible deposit account holders and other members of the
Association. Any shares of the holding company's common stock not sold in
the subscription offering will be offered for sale to the general public,
giving preference to the Association's market area. The number of shares
expected to be sold in the common stock offering ranges from 595,000 to
925,750. Subject to certain conditions, preliminary approval for the
conversion has been granted by the Office of Thrift Supervision and the
Office of the Comptroller of the Currency.
5
<PAGE>
4. Regulatory Capital
------------------
At March 31, 1996, the Association met each of the three current minimum
regulatory capital requirements. The following table summarizes the
Association's regulatory capital position at March 31, 1996:
<TABLE>
<CAPTION>
Amount Percent
------ -------
(Dollars in thousands)
<S> <C> <C>
Tangible Capital:
Actual $4,790 7.71%
Required 933 1.50
------ -----
Excess $3,857 6.21%
====== =====
Core Capital:
Actual $4,790 7.71%
Required 1,865 3.00
------ -----
Excess $2,925 4.71%
====== =====
Risk-Based Capital:
Actual $5,090 19.79%
Required 2,058 8.00
------ -----
Excess $3,032 11.79%
====== =====
</TABLE>
Tangible and core capital levels are shown as a percentage of total adjusted
assets; risk-based capital levels are shown as a percentage of risk-weighted
assets.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
----------------------------------------------------------
General
- -------
Heartland Bancshares, Inc. (the "Company") has only recently been formed
and, accordingly, has no results of operations at this time. As a result,
this discussion relates to the financial condition and results of
operations of the Association and its subsidiary. The business of the
Association has historically been to function as a financial intermediary,
accepting deposits from the general public and investing these funds
primarily in loans for one- to four-family residences located in the
Association's market area. To a lesser extent, the Association engages in
various forms of consumer and home equity lending and invests in mortgage-
backed securities, U.S. Government and federal agency securities, municipal
securities and interest-bearing deposits.
The Association's net income is dependent primarily on its net interest
income, which is the difference between interest income earned on loans and
investments, and the interest paid on interest-bearing liabilities,
primarily deposits. Net interest income is determined by (i) the
difference between yields earned on interest-earning assets and rates paid
on interest-bearing liabilities ("interest rate spread") and (ii) the
relative amounts of interest-earning assets and interest-bearing
liabilities. The Association's interest rate spread is affected by
regulatory, economic and competitive factors that influence interest rates,
loan demand and deposit flows. The Association's net earnings are also
affected by the level of non-interest income, which primarily consists of
fees and service charges, and by the level of its operating expenses and
provisions for loan losses.
The operations of the Association are significantly affected by prevailing
economic conditions, competition and the monetary, fiscal and regulatory
policies of governmental agencies. Lending activities are influenced by
the demand for and supply of housing, competition among lenders, the level
of interest rates and the availability of funds. Deposit flows and costs
of funds are influenced by prevailing market rates of interest, primarily
on competing investments, account maturities and the levels of personal
income and savings in the Association's market area.
Liquidity and Capital Resources
- -------------------------------
The Association's primary sources of funds are deposits and proceeds from
maturing investment securities, maturing mortgage-backed and related
securities and principal and interest payments on loans, investment
securities and mortgage-backed and related securities. While maturities
and scheduled amortization of investment securities, mortgage-backed and
related securities and loans are a predictable source of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest
rates, economic conditions, competition and other factors. The Association
uses its liquidity resources principally to fund the origination of loans,
to purchase investment securities and mortgage-backed and related
securities, to fund deposit withdrawals, to maintain liquidity, and to meet
operating expenses. Management believes that its sources of funds will be
adequate to meet the Association's liquidity needs for the immediate
future.
The Association is required to maintain minimum levels of liquid assets as
defined by Office of Thrift Supervision ("OTS") regulations. This
requirement, which may be changed at the direction of the OTS depending
upon economic conditions and deposit flows, is based upon a percentage of
deposits and short-term borrowings. The required minimum ratio is
currently 5%. The Association's average daily liquidity ratio for the
month of March, 1996 was 28.93%, and its short-term liquidity for such
month was 20.72%, which levels exceeded required levels for such period.
The comparable ratios for the month of December, 1995 were 24.23% and
16.37%, respectively. Management of the Association seeks to maintain a
relatively high level of liquidity in order to retain flexibility in terms
of investment opportunities and deposit pricing.
A portion of the Association's liquidity consists of cash and cash
equivalents, which include investments in highly liquid, short-term
deposits. The levels of these assets are dependent on the Association's
7
<PAGE>
operating, financing and investing activities during any given period. At
March 31, 1996 and December 31, 1995, cash and cash equivalents totaled
$8.3 million and $5.2 million, respectively.
Liquidity management is both a daily and long-term function of business
management. If the Association requires funds beyond its ability to
generate them internally, the Association may obtain advances from the
Federal Home Loan Bank ("FHLB"). At March 31, 1996, the Association had no
outstanding advances from the FHLB.
At March 31, 1996, the Association had $631,000 in outstanding commitments
to extend credit. The Association anticipates that it will have sufficient
funds available to meet its current loan origination commitments.
Regulatory Capital
- ------------------
Federally insured savings associations such as the Association are required
to maintain a minimum level of regulatory capital. The capital regulations
require institutions to have tangible capital equal to 1.5% of total
adjusted assets (as defined by regulation), a minimum core capital ratio of
3% of adjusted total assets, and a risk-based capital ratio of 8% of risk-
based assets (as defined by regulation). As of March 31, 1996, the
Association was in compliance with all of these capital requirements.
Financial Condition
- -------------------
The Association's total assets increased by $825,000, or 1.35%, from $61.3
million at December 31, 1995 to $62.1 million at March 31, 1996.
The Association's loan portfolio increased by approximately $544,000 during
the three months ended March 31, 1996. Net loans totaled $35.6 million and
$35.1 million at March 31, 1996 and December 31, 1995, respectively. The
increase in loan activity during the quarter is attributed to increased
loan marketing activities in the Association's service area. The allowance
for loan losses totaled $300,000 at March 31, 1996 and December 31, 1995.
Cash and cash equivalents totaled $8.3 million at March 31, 1996, compared
to a total of $5.2 million at December 31, 1995. The $3.1 million increase
is primarily due to the sale of the Association's portfolio of
collateralized mortgage obligations ("CMO's") during the first quarter of
1996 for gross proceeds of $4.0 million.
The Association's investment securities portfolio totaled $8.7 million at
March 31, 1996, a decrease of $500,000 from $9.2 million at December 31,
1995. This decrease was due to proceeds from maturities of investment
securities during the three months ended March 31, 1996. The Association's
mortgage-backed and related securities portfolio totaled $7.9 million at
March 31, 1996, a decrease of $2.6 million from $10.5 million at December
31, 1995. This decrease was due to the sale of CMO's during the first
quarter as described above, partially offset by the Association's
reinvestment in new mortgage-backed securities.
The $61,000 increase in real estate owned during the three months ended
March 31, 1996 resulted from the acquisition of one residential property
through foreclosure. The increase of $167,000 in other assets for the same
period relates primarily to costs related to the conversion.
At March 31, 1996, deposits increased to $56.4 million from $55.6 million
at December 31, 1995, a net increase of $764,000 or 1.37%. Management is
continually evaluating the investment alternatives available to the
Association's customers, and adjusts the pricing on its savings products to
maintain its existing deposits.
8
<PAGE>
The Association's retained earnings remained relatively level at $4.8
million at March 31, 1996 and at December 31, 1995. The net earnings of
$57,000 for the three months ended March 31, 1996 were offset by a $47,000
increase in unrealized loss, net of income taxes, on the Association's
available-for-sale securities.
Results of Operations
- ---------------------
Net Income. For the three months ended March 31, 1996, the Association
----------
earned net income of $57,000, as compared to net income of $63,000 for the
corresponding period of 1995. The decrease of $6,000, or 9.52%, reflects a
decrease of $29,000, or 8.22%, in net interest income, an increase of
$18,000, or 31.03%, in non-interest income, a decrease of $4,000, or 1.24%,
in non-interest expense, and a $1,000 decrease in the provision for income
taxes.
Net Interest Income. Net interest income decreased by $29,000, or 8.22%,
-------------------
from $353,000 for the three months ended March 31, 1995 to $324,000 for the
three months ended March 31, 1996. This decrease was primarily due to a
decrease in the net interest margin from 2.23% for the three months ended
March 31, 1995 to 2.03% for the three months ended March 31, 1996, coupled
with a decrease in the ratio of average interest-earning assets to average
interest-bearing liabilities from 106.16% for the three months ended March
31, 1995 to 104.21% for the three months ended March 31, 1996.
Interest Income. Total interest income increased by $53,000, or 5.47%, to
---------------
$1.0 million for the three months ended March 31, 1996 compared to $969,000
for the three months ended March 31, 1995. The increase in interest income
is primarily a result of an increase of $1.7 million, or 3.01%, in average
interest-earning assets from $56.5 million for the three months ended March
31, 1995 to $58.2 million for the three months ended March 31, 1996. The
increase in interest income also reflects an increase of 17 basis points in
the average yield on interest-earning assets from 6.86% for the three
months ended March 31, 1995 to 7.03% for the three months ended March 31,
1996. This increase is attributable to increased loan origination efforts,
resulting in relatively higher interest rates as compared with investment
securities.
Interest Expense. Interest expense increased by $82,000, or 13.31%, to
----------------
$698,000 for the three months ended March 31, 1996 as compared to $616,000
for the three months ended March 31, 1995. This increase was primarily due
to a 37 basis point increase in the average cost of deposits to the
Association, resulting from an increase in prevailing market interest
rates. Also contributing to the increase in expense was an increase of
$2.6 million in the average balance of deposits from $53.2 million for the
three months ended March 31, 1995 to $55.8 million for the three months
ended March 31, 1996.
Provision for Loan Losses. The allowance for loan losses is established
-------------------------
through a provision for loan losses based on management's evaluation of the
risk inherent in its loan portfolio and the general economy. Such
evaluation is based on an analysis of various factors, including the market
value of the underlying collateral, growth and composition of the loan
portfolio, the relationship of the allowance for loan losses to outstanding
loans, historical loss experience, delinquency trends and prevailing and
projected economic conditions. There was no additional provision for loan
losses made during the three months ended March 31, 1996 and March 31,
1995.
Non-Interest Income. Total non-interest income increased $18,000, or
-------------------
31.03%, from $58,000 for the three months ended March 31, 1995 to $76,000
for the three months ended March 31, 1996. This increase was primarily due
to realized gains on the sale of investments for the three months ended
March 31, 1996.
Non-Interest Expense. Total non-interest expense decreased $4,000, or
--------------------
1.24%, from $322,000 for the three months ended March 31, 1995 to $318,000
for the three months ended March 31, 1996. The decrease was due to
relatively small fluctuations in compensation, employee benefits and other
operating expenses between the three months ended March 31, 1996 and the
corresponding period in the prior year.
9
<PAGE>
Income Taxes. Income tax expense decreased by $1,000, or 3.85%, from
------------
$26,000 for the three months ended March 31, 1995 to $25,000 for the three
months ended March 31, 1996. This decrease was primarily the result of the
decrease in income before income taxes for the three months ended March 31,
1996 as compared with the corresponding period in the prior year.
Nonperforming Assets
- --------------------
The following table sets forth the amounts and categories of non-performing
assets in the Association's portfolio at March 31, 1996 and December 31,
1995:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- -------------
(Dollars in Thousands)
<S> <C> <C>
Nonaccrual Loans
----------------
One- to four-family real estate $ 423 $ 481
Consumer 143 89
----- -----
Total $ 566 $ 570
----- ===== =====
Accruing Loans Delinquent 90 Days or More
-----------------------------------------
One- to four-family real estate $ -- $ --
Consumer -- --
----- -----
Total $ -- $ --
----- ===== =====
Total Nonperforming Loans $ 566 $ 570
-------------------------
Foreclosed Asset
----------------
One- to four-family real estate 61 --
----- -----
Total Nonperforming Assets $ 627 $ 570
-------------------------- ===== =====
Total Nonperforming Assets as a
-------------------------------
Percent of Total Assets 1.01% 0.93%
----------------------- ===== =====
Total Nonperforming Loans as a Percentage
-----------------------------------------
of Total Loans Receivable, Net 1.59% 1.63%
------------------------------ ===== =====
</TABLE>
Impact of Inflation and Changing Prices
- ---------------------------------------
The unaudited consolidated financial statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the
change in the relative purchasing power of money over time and due to
inflation. The impact of inflation is reflected in the increased cost of
the Association's operations. Unlike most industrial companies, nearly all
the assets and liabilities of the Association are monetary in nature. As a
result, interest rates have a greater impact on the Association's
performance than do the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or to the same extent
as the price of goods and services.
10
<PAGE>
Impact of New Accounting Standards
- ----------------------------------
Accounting for the Impairment of Long-Lived Assets. In March, 1995, the
--------------------------------------------------
Financial Accounting Standards Board (FASB) issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets to be held and used and for long-lived
assets and certain identifiable intangibles to be disposed of. The
statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If, under the criteria of the
statement, an asset is impaired, an impairment loss is recognized. SFAS
No. 121 is effective for fiscal years ending after December 15, 1995. The
Association has adopted the provisions of the statement effective for the
year ending December 31, 1996. The adoption of SFAS No. 121 did not have a
material effect on the Association's financial position or operating
results.
Accounting for Mortgage Servicing Rights. In May, 1995, the FASB issued
----------------------------------------
SFAS No. 122, "Accounting for Mortgage Servicing Rights." SFAS No. 122
requires that a mortgage banking enterprise recognize as separate assets
rights to service mortgage loans for others, however those servicing rights
are acquired. A mortgage banking enterprise that acquires mortgage
servicing rights through either the purchase or origination of mortgage
loans and sells or securitizes those loans with servicing rights retained
should allocate the total cost of the mortgage loans to the mortgage
servicing rights and the loans (without mortgage servicing rights) based on
their relative fair values if it is practicable to estimate those fair
values. If it is not practicable to estimate the fair values of the
mortgage servicing rights and the mortgage loans (without the servicing
rights), the entire cost of purchasing or originating the loans should be
allocated to the mortgage loans, and no cost should be allocated to the
mortgage servicing rights. SFAS No. 122 also requires that a mortgage
banking enterprise assess its capitalized mortgage servicing rights for
impairment based on the fair value of those rights. SFAS No. 122 must be
applied prospectively for fiscal years beginning after December 15, 1995,
with earlier adoption encouraged, to transactions in which a mortgage
banking enterprise sells or securitizes mortgage loans with servicing
rights retained and to impairment evaluations of all amounts capitalized as
mortgage servicing rights, including those purchased before the adoption of
SFAS No. 122. Retroactive capitalization of mortgage servicing rights
retained in transactions in which a mortgage banking enterprise originates
mortgage loans and sells or securitizes those loans before the adoption of
SFAS No. 122 is prohibited. The Association has adopted the provision of
the statement for the year ending December 31, 1996. The adoption of SFAS
No. 122 did not have a material effect on the Association's financial
position or operating results.
Potential SAIF Assessment
- -------------------------
Legislation has been considered by the United States Congress which would
require financial institutions which are members of the Savings Association
Insurance Fund ("SAIF") to pay a one-time premium on insured deposits
currently estimated at 85 to 90 basis points. If enacted, this premium or
surcharge would have the effect of immediately reducing the capital of
SAIF-member institutions by the amount of the fee and would reduce earnings
in the years during which such fee was amortized. At this time, it is
unlikely that institutions would be permitted to amortize the premium over
a period of years. Based upon the Association's deposits as of March 31,
1995, the proposed one-time premium or surcharge would range from
approximately $450,000 to $480,000 with an estimated after-tax effect on
expense of $280,000 to $295,000. Management cannot predict whether the
proposed legislation will be enacted by Congress, or, if enacted, the
amount of the one-time premium or surcharge.
11
<PAGE>
PART I. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
-----------------
From time to time, the Company and its subsidiaries may be a party to
various legal proceedings incident to its or their business. At March 31, 1996,
there were no legal proceedings to which the Company or any subsidiary was a
party, or to which any of their property was subject, which were expected by
management to result in a material loss.
ITEM 2. CHANGES IN SECURITIES
---------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None
ITEM 5. OTHER INFORMATION
-----------------
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
None.
The following exhibits are filed as a part of this report:
None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEARTLAND BANCSHARES, INC.
Date: May 24, 1996 By: /s/ Roger O. Hileman
-------------------------------------
Roger O. Hileman
(Principal Executive, Accounting
and Financial Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB AT MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,664
<INT-BEARING-DEPOSITS> 6,637
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,111
<INVESTMENTS-CARRYING> 13,517
<INVESTMENTS-MARKET> 0
<LOANS> 35,604
<ALLOWANCE> 300
<TOTAL-ASSETS> 62,134
<DEPOSITS> 56,396
<SHORT-TERM> 0
<LIABILITIES-OTHER> 978
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 4,760
<TOTAL-LIABILITIES-AND-EQUITY> 62,134
<INTEREST-LOAN> 691
<INTEREST-INVEST> 331
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,022
<INTEREST-DEPOSIT> 698
<INTEREST-EXPENSE> 698
<INTEREST-INCOME-NET> 324
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 13
<EXPENSE-OTHER> 318
<INCOME-PRETAX> 82
<INCOME-PRE-EXTRAORDINARY> 57
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.03
<LOANS-NON> 566
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 300
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 300
<ALLOWANCE-DOMESTIC> 300
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
