<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 June 30, 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 X No
--- ---
As of August 9, 1996, there were 876,875 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
---
Page 1 of ___ Pages Exhibit Index at Page ___
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
HEARTLAND BANCSHARES, INC.
--------------------------
AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
(Unaudited)
------------------------
(In Thousands)
------------------------
<S> <C> <C>
ASSETS
------
Cash and cash equivalents
Interest-bearing $ 9,896 $ 3,562
Noninterest-bearing 2,395 1,682
Investment securities available-for-sale at
estimated market value 101 102
Investment securities held to maturity 8,532 9,120
Mortgage-backed and related securities available for
sale at estimated market value 2,812 7,335
Mortgage-backed and related securities held to
maturity 6,739 3,128
Loans receivable, net 38,100 35,060
Investment required by law - Federal Home Loan
Bank stock, at cost 366 342
Property, equipment, and property held
for investment, net 461 572
Accrued interest receivable 256 233
Prepaid expenses and other assets 53 18
Prepaid income taxes -- 127
Other assets -- 28
Real estate owned 61 --
------- -------
TOTAL ASSETS $69,772 $61,309
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
- -----------
Deposits $56,365 $55,632
Accrued interest on deposits 59 66
Advances from borrowers for taxes and insurance 547 380
Accrued income taxes 11 -
Other liabilities 99 49
Deferred tax liability 395 432
------- -------
Total Liabilities $57,476 $56,559
----------------- ------- -------
Commitments and Contingencies
- -----------------------------
Stockholders' Equity
- --------------------
Preferred stock, 1,000,000 shares authorized, -0-
issued $ -- $ --
Common stock, $.01 par value per share: 4,000,000
shares authorized; 876,875 and -0- shares issued and
outstanding at June 30, 1996 and December 31, 1995 9 --
Additional paid-in capital 8,139 --
Unearned ESOP shares (702) --
Retained earnings - substantially restricted 4,897 4,733
Unrealized gain (loss) on securities
available for sale, net of tax (47) 17
------- -------
Total Stockholders' Equity $12,296 $ 4,750
-------------------------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $69,772 $61,309
- ------------------------------------------ ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HEARTLAND BANCSHARES, INC.
--------------------------
AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- ------------------
June 30, June 30, June 30, June 30,
------------------- ------------------
1996 1995 1996 1995
--------- -------- -------- --------
(In Thousands) (In Thousands)
------------------- ------------------
<S> <C> <C> <C> <C>
Interest Income
- ---------------------------------------
Interest on first mortgage loans $ 718 $ 578 $1,381 $1,126
Interest on other loans 34 16 62 30
Interest on investments, securities, ------ ----- ------ ------
and
deposits with banks 239 217 438 451
Interest on mortgage backed
securities 145 175 277 348
------ ----- ------ ------
Total Interest Income $1,136 $ 986 $2,158 $1,955
---------------------- ------ ----- ------ ------
Interest Expense
- ----------------
Interest on deposits 694 637 1,392 1,253
------ ----- ------ ------
Net Interest Income $ 442 $ 349 $ 766 $ 702
- -------------------
Provision for Loan Losses - - - -
- ------------------------- ------ ----- ------ ------
Net Interest Income After Provision
- -----------------------------------
for Loan Losses $ 442 $ 349 $ 766 $ 702
- ---------------- ------ ----- ------ ------
Non-Interest Income
- -------------------
Initial service charges and other
loan fees $ 17 $ 17 $ 38 $ 36
Gain on sale of investments - - 13 -
Other 32 35 74 74
------ ----- ------ ------
Total Non-Interest Income $ 49 $ 52 $ 125 $ 110
------------------------- ------ ----- ------ ------
Non-Interest Expense
- --------------------
Compensation to directors, officers,
and
employees $ 121 $ 113 $ 241 $ 241
Pension expense and other employee
benefits 13 13 33 28
Office properties and equipment
expense
including depreciation 26 23 52 49
Advertising 9 12 18 22
Federal insurance premiums 32 33 63 64
Stationery, postage, and office
supplies 13 10 27 28
Checking account expense 37 35 74 74
Service bureau expense 16 14 36 33
Other 47 44 85 80
Loss on sale of investments - - 3 -
Loss on sale of property held for
investment 6 - 6 -
------ ----- ------ ------
Total Non-Interest Expense $ 320 $ 297 $ 638 $ 619
-------------------------- ------ ----- ------ ------
Income Before Income Taxes $ 171 $ 104 $ 253 $ 193
- --------------------------
Income Tax Expense 64 30 89 56
------ ----- ------ ------
Net Income (Loss) $ 107 $ 74 $ 164 $ 137
- ----------------- ======= ===== ======= =====
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HEARTLAND BANCSHARES, INC. AND SUBSIDIARY
-----------------------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
----------------------------------------------
(IN THOUSANDS)
--------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Net
Unrealized
Gain (Loss)
Additional Unearned on Securities
Common Paid-In ESOP Retained Available
Stock Capital Shares Earnings for Sale Total
------ ---------- ------------ -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ - $ - $ - $ 4,733 $ 17 $ 4,750
- ----------------------------
Net income - - - 164 - 164
Sale of common stock 9 8,139 - - - 8,148
Issuance of shares to ESOP - - (702) - - (702)
Change in net unrealized gain (loss)
on securities available for sale - - - - (64) (64)
------- ------- ------- ------- ------- -------
Balance at June 30, 1996 $ 9 $ 8,139 $ (702) $ 4,897 $ (47) $ 12,296
- ------------------------ ======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HEARTLAND BANCSHARES, INC.
--------------------------
AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Six Months Ended
--------------------
June 30, June 30,
1996 1995
--------- ---------
(In Thousands)
--------------------
<S> <C> <C>
Cash Flows From Operating Activities
- ------------------------------------
Net income $ 164 $ 137
------- -------
Adjustments to reconcile net income
to net cash provided (used) by operating
activities
Depreciation $ 25 $ 23
Discount accretion/premium amortization-securities
(net) 8 (2)
Amortization of deferred loan origination fees (24) (24)
Provision for loan losses - -
(Gain) loss on sale of investments (10) -
(Gain) loss on sale of property held for investment 6 -
(Increase) decrease in accrued interest receivable (23) 23
(Increase) decrease in prepaid expenses (35) (25)
(Increase) decrease in prepaid income taxes 137 3
Increase (decrease) in deferred income taxes 4 13
(Increase) decrease in other assets (33) -
Increase (decrease) in accrued interest payable (7) 5
Increase (decrease) in other liabilities 51 (8)
------- -------
Total Adjustments $ 99 $ 8
----------------- ------- -------
Net Cash Provided by Operating Activities $ 263 $ 145
----------------------------------------- ------- -------
Cash Flows From Investing Activities
- ------------------------------------
Proceeds from maturities of investment securities
and mortgage backed securities $ 3,085 $ 1,870
Principal payments on mortgage backed securities 693 384
Net (increase) decrease in loans receivable (3,016) (4,429)
Purchases of property and equipment (32) (34)
Purchase of investment securities - Held-to-maturity (2,493) (155)
Purchase of mortgage backed securities -
Held-to-maturity (3,902) -
Proceeds from sale of mortgage-backed securities -
available-for-sale 4,015 -
Purchase of Federal Home Loan Bank stock (24) -
Proceeds from the sale of property held for investment 112 -
------- -------
Net Cash Provided (Used) by Investing Activities $(1,562) $(2,364)
------------------------------------------------ ------- -------
Cash Flows From Financing Activities
- ------------------------------------
Net increase (decrease) in deposits $ 733 $ (639)
Net increase (decrease) in mortgage escrow funds 167 75
Sale of stock 7,446 -
------- -------
Net Cash Provided (Used) by Financing Activities $ 8,346 $ (564)
------------------------------------------------ ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents $ 7,047 $(2,783)
- ----------------------------------------------------
Cash and Cash Equivalents at Beginning of Period 5,244 6,238
------- -------
Cash and Cash Equivalents at End of Period $12,291 $ 3,455
- ------------------------------------------ ======= =======
Supplemental Disclosures
- ------------------------
Cash Paid During the Period for:
Interest $ 1,399 $ 1,248
Income taxes paid (refunded) $ (53) $ 40
Loans Transferred to Foreclosed Real Estate
During Period $ 61 $ 29
Schedule of Noncash Investing Activities:
- ----------------------------------------
FHLB Stock Dividend $ - $ 5
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HEARTLAND BANCSHARES, INC.
--------------------------
AND SUBSIDIARY
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
-----------
JUNE 30, 1996 AND 1995
----------------------
1. Stock Conversion
----------------
On June 28, 1996, First Federal Savings and Loan Association of Herrin (the
"Association") completed its conversion from a federal mutual savings and
loan association to a federal stock savings and loan association, and then
from a stock association to a national bank known as Heartland National
Bank (the "Bank"), while simultaneously being acquired by Heartland
Bancshares, Inc. (the "Company"), an Illinois corporation, which was formed
to act as the holding company of the Bank. At the date of the conversion,
the Company completed the sale of 876,875 shares of common stock, $.01 par
value at $10.00 per share. Net proceeds from the above transactions, after
deducting offering expenses, underwriting fees, and amounts retained to
fund the Company's employee stock ownership plan (ESOP) totaled
approximately $7.4 million.
The Company is primarily engaged in the business of directing, planning and
coordinating the business activities of the Bank. These activities
primarily consist of accepting deposits from the general public and
investing these funds in loans in the Bank's market area and in investment
securities and mortgage-backed securities. In the future, the holding
company structure will permit the Company to expand the financial services
currently offered through the Bank, although there are no definitive plans
or arrangements for such expansion at present.
2. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements were prepared
in accordance with the instructions for Form 10-QSB and, therefore, do not
include all information and footnotes necessary for a complete presentation
of financial position, results of operations, changes in stockholders'
equity, and cash flows in conformity with generally accepted accounting
principles. However, all adjustments which, in the opinion of management,
are necessary for a fair presentation of the unaudited consolidated
financial statements for the three months and six months ended June 30,
1996 and 1995 have been recorded. Operating results for the three months
and six months ended June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996.
Prior to the acquisition of the Association on June 28, 1996, and the
Association's simultaneous conversion to the Bank, the Company had not
issued any stock, had no assets or liabilities, and had not engaged in any
business activities other than that of an organizational nature.
Accordingly, and as June 28, 1996 was the last normal business day of the
quarter, the unaudited consolidated financial statements included herein
reflect the operations of the Association only.
3. Principles of Consolidation
---------------------------
The accompanying unaudited consolidated financial statements include the
accounts of Heartland Bancshares, Inc., Heartland National Bank, and Herrin
First Service Corporation, a wholly owned subsidiary of Heartland National
Bank. All significant intercompany items have been eliminated.
<PAGE>
4. Earnings per Common Share
-------------------------
As no common stock was outstanding during the three and six months ended
June 30, 1996, earnings per share information for those periods is not
applicable.
5. Employee Stock Ownership Plan
-----------------------------
The Company has established the ESOP for employees of the Company and its
subsidiary. Employees who have attained age 21 and completed one year of
service are eligible to participate in the plan. On June 28, 1996, the
Company loaned the ESOP $701,500 to finance the plan's initial purchase of
70,150 shares. The loan is due and payable in ten (10) annual payments of
principal and interest, beginning December 31, 1996. The principal is to
be repaid in equal installments, with interest at a variable rate of 1%
above prime. The Company intends to contribute sufficient funds to the
ESOP to enable it to repay the loan, plus such other amounts as the
Company's Board of Directors may determine in its discretion. The Company
will account for its ESOP in accordance with Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans." As shares are
committed to be released to participants, the Company will report employee
benefits expense based on the market price of the shares released.
6. Regulatory Capital
------------------
The Bank is required to maintain certain levels of regulatory capital. At
June 30, 1996, the Bank was in compliance with all regulatory capital
requirements. In addition to these requirements, the Bank must maintain
sufficient capital for the "liquidation account" for the benefit of
eligible account holders. In the event of a complete liquidation of the
Bank, eligible depositors would have an interest in the account.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
----------------------------------------------------------
General
- -------
As the completion of the conversion of First Federal Savings and Loan
Association of Herrin (the "Association") to Heartland National Bank (the
"Bank"), and the simultaneous acquisition of the institution and issuance
of stock by Heartland Bancshares, Inc. (the "Company") took place on June
28, 1996, this discussion of financial condition and results of operations
will primarily relate to the Association (now the Bank).
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 (and the Bank'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 (and the Bank) 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 (now the Bank's)
market area.
Liquidity and Capital Resources
- -------------------------------
As a holding company, the Company conducts its business through its
subsidiary, the Bank (previously the Association). The Association's (and
the Bank'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 Bank's liquidity needs for the immediate future.
<PAGE>
A portion of the Bank'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 Bank's operating, financing,
and investing activities during any given period. At June 30, 1996 and
December 31, 1995, cash and cash equivalents totaled $12.3 million and $5.2
million, respectively.
Liquidity management is both a daily and long-term function of business
management. The Bank has other sources of liquidity if there is a need for
funds. The Bank has a portfolio of investment securities and mortgage-
backed and related securities with an aggregate market value of $2.9
million at June 30, 1996 classified as available for sale. Another source
of liquidity is the Bank's ability to obtain advances from the Federal Home
Loan Bank of Chicago ("FHLB"). At June 30, 1996, the Bank had no
outstanding advances from the FHLB.
At June 30, 1996, the Bank had $806,000 in outstanding commitments to
extend credit. The Bank anticipates that it will have sufficient funds
available to meet its current loan origination commitments.
The Bank is required to maintain certain levels of regulatory capital. At
June 30, 1996, the Bank was in compliance with all regulatory capital
requirements.
Financial Condition
- -------------------
Total assets increased by $8.5 million, or 13.8%, from $61.3 million at
December 31, 1995 to $69.8 million at June 30, 1996. The increase was due
primarily to an infusion of capital of $8.1 million ($7.4 million net of
ESOP funding) from the conversion of the Association to stock ownership and
concurrent issue and sale of the Company's common stock.
The Bank's loan portfolio increased by $3.0 million, or 8.7%, from $35.1
million at December 31, 1995 to $38.1 million at June 30, 1996. The
increase in loan activity during the period is attributed to increased loan
marketing activities in the Bank's service area. The Bank's allowance for
loan losses totaled $300,000 at June 30, 1996 and December 31, 1995.
Cash and cash equivalents totaled $12.2 million at June 30, 1996, compared
to a total of $5.2 million at December 31, 1995. The $7.0 million increase
is primarily due to the receipt of proceeds from the sale of the Company's
stock.
The Bank's investment securities portfolio totaled $8.6 million at June 30,
1996, a decrease of $589,000 from $9.2 million at December 31, 1995. This
decrease was due to maturities of investment securities in excess of new
purchases of such securities for the six months ended June 30, 1996. The
Bank's mortgage-backed and related securities portfolio totaled $9.6
million as of June 30, 1996, a decrease of $912,000 from $10.5 million at
December 31, 1995. This decrease was due to the sale of the institution's
remaining collateralized mortgage obligations ("CMO's") during the first
quarter of 1996, partially offset by the purchase of new mortgage-backed
securities. During the six months ended June 30, 1996, the institution's
portfolio of investment securities and mortgage-backed and related
securities decreased capital by $64,000 (net of taxes) as a result of a
decrease in the market value of such securities classified as available for
sale pursuant to Statement of Financial Accounting Standards ("SFAS") No.
115.
Total liabilities increased by $917,000, or 1.6%, from $56.6 million at
December 31, 1995 to $57.5 million at June 30, 1996. Total deposits
increased by $733,000, or 1.3%, from $55.6 million at December 31, 1995 to
$56.4 million at June 30, 1996.
<PAGE>
Stockholders' equity increased by $7.5 million during the six months ended
June 30, 1996. This increase is primarily due to the issuance and sale of
common stock with net proceeds of $7.4 million, as well as net income of
$164,000 for the period.
Results of Operations
- ---------------------
Net Income. Net income was $107,000 for the three months ended June 30,
----------
1996, as compared to $74,000 for the three months ended June 30, 1995. The
increase of $33,000, or 44.6%, reflects an increase of $93,000, or 26.6%,
in net interest income, a decrease of $3,000, or 5.8%, in non-interest
income, an increase of $23,000, or 7.7%, in non-interest expense, and a
$34,000 increase in the provision for income taxes.
Net income was $164,000 for the six months ended June 30, 1996, as compared
to $137,000 for the six months ended June 30, 1995. The increase of
$27,000, or 19.7%, reflects an increase of $64,000, or 9.1%, in net
interest income, an increase of $15,000, or 13.6%, in non-interest income,
an increase of $19,000, or 3.1%, in non-interest expense, and a $33,000
increase in the provision for income taxes.
Net Interest Income. Net interest income increased $93,000, or 26.6%, to
-------------------
$442,000 for the three months ended June 30, 1996, as compared to $349,000
for the three months ended June 30, 1995. This increase was primarily due
to an increase in the ratio of average interest-earning assets to average
interest-bearing liabilities from 107.30% for the three months ended June
30, 1995 to 109.45% for the three months ended June 30, 1996, along with an
increase in the net interest margin from 2.13% for the three months ended
June 30, 1995 to 2.31% for the three months ended June 30, 1996. The
increase is primarily due to the net interest income earned on the proceeds
from the stock conversion.
Net interest income increased $64,000, or 9.1%, to $766,000 for the six
months ended June 30, 1996, as compared to $702,000 for the six months
ended June 30, 1995. This increase was primarily due to an increase in the
ratio of average interest-earning assets to average interest-bearing
liabilities from 106.73% for the six months ended June 30, 1995 to 106.91%
for the six months ended June 30, 1996, partially offset by a decrease in
the net interest margin from 2.18% for the six months ended June 30, 1995
to 2.17% for the six months ended June 30, 1996. Again, the increase is
primarily due to the net interest income earned on the proceeds from the
stock conversion during the second quarter of 1996.
Interest Income. Total interest income increased by $150,000, or 15.2%, to
---------------
$1.1 million for the three months ended June 30, 1996 as compared to
$986,000 for the three months ended June 30, 1995. The increase in
interest income is primarily the result of an increase of $8.3 million, or
14.7%, in average interest-earning assets from $56.7 million for the three
months ended June 30, 1995 to $65.1 million for the three months ended June
30, 1996. This increase was primarily due to an increase of $6.3 million
in the average balance of the loan portfolio during the three months ended
June 30, 1996 as compared to the three months ended June 30, 1995 resulting
from ongoing loan origination efforts, and the increase in interest-earning
assets arising from proceeds from the stock conversion. The increase in
interest income also reflects an increase of 3 basis points in the average
yield on interest-earning assets for the three months ended June 30, 1996
as compared to the three months ended June 30, 1995.
<PAGE>
Total interest income increased by $203,000, or 10.4%, to $2.2 million for
the six months ended June 30, 1996 as compared to $2.0 million for the six
months ended June 30, 1995. The increase in interest income is primarily
the result of an increase of $5.0 million, or 8.9%, in average interest-
earning assets from $56.6 million for the six months ended June 30, 1995 to
$61.6 million for the six months ended June 30, 1996. This increase was
primarily due to an increase of $6.5 million in the average balance of the
loan portfolio during the six months ended June 30, 1996 as compared to the
six months ended June 30, 1995 resulting from increased loan origination
efforts. The increase in interest income also reflects a 9 basis point
increase in the average yield on interest-earning assets for the six months
ended June 30, 1996 compared to the six months ended June 30, 1995.
Interest Expense. Interest expense increased by $57,000, or 8.9%, to
----------------
$694,000 for the three months ended June 30, 1996 as compared to $637,000
for the three months ended June 30, 1995. This increase was primarily due
to an increase of $6.6 million in the average balance of deposits from
$52.9 million for the three months ended June 30, 1995 to $59.5 million for
the three months ended June 30, 1996. This increase was largely due to
increases in deposit accounts by customers using those deposit accounts to
purchase the stock of the Company in the conversion. The increase in the
average balance of deposits was partially offset by a 15 basis point
decrease in the average cost of deposits, from 4.82% for the three months
ended June 30, 1995 to 4.67% for the three months ended June 30, 1996.
Interest expense increased by $139,000, or 11.1%, from $1.3 million for the
six months ended June 30, 1995 to $1.4 million for the six months ended
June 30, 1996. This increase was primarily due to an increase of $4.6
million in the average balance of deposits from $53.0 million for the six
months ended June 30, 1995 to $57.6 million for the six months ended June
30, 1996. Again, this increase was predominantly due to increases in
deposit accounts by customers using those deposit accounts to purchase
Company stock during the second quarter of 1996. The increase in interest
expense also reflected a 10 basis point increase in the average cost of
deposits, from 4.73% for the six months ended June 30, 1995 to 4.83% for
the six months ended June 30, 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 June 30, 1996 and 1995, or for
the six months ended June 30, 1996 and 1995.
Non-Interest Income. Non-interest income decreased $3,000, or 5.8%, from
-------------------
$52,000 for the three months ended June 30, 1995 to $49,000 for the three
months ended June 30, 1996. This decrease was caused by a net decrease in
various income items.
Non-interest income increased $15,000, or 13.6%, from $110,000 for the six
months ended June 30, 1995 to $125,000 for the six months ended June 30,
1996. This increase was primarily due to realized gains on the sale of
investments for the first quarter of 1996.
Non-Interest Expense. Non-interest expense increased $23,000, or 7.7%,
--------------------
from $297,000 for the three months ended June 30, 1995 to $320,000 for the
three months ended June 30, 1996. The increase was due to an $8,000
increase in compensation and employee benefits expense, and net increases
of $15,000 in various other expense items.
<PAGE>
Non-interest expense increased $19,000, or 3.1%, from $619,000 for the six
months ended June 30, 1995 to $638,000 for the six months ended June 30,
1996. The increase was primarily due to a $5,000 increase in compensation
and employee benefits expense, and net increases of $14,000 in various
other expense items.
Income Tax Expense. Income tax expense was $64,000 for the three months
------------------
ended June 30, 1996 as compared with $30,000 for the three months ended
June 30, 1995. For the six months ended June 30, 1996 and 1995, income tax
expense of $89,000 and $56,000, respectively, was recorded. The increases
in income tax expense are primarily the result of increases in income
before income taxes for the comparable periods.
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 Bank's operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Bank are monetary in nature. As a result,
interest rates have a greater impact on the Bank'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.
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
Bank 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 Bank'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
<PAGE>
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 Bank 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 Bank'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. 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
which may be assessed on the Bank.
<PAGE>
PART II. 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 June 30, 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:
Exhibit 27 Financial Data Schedule
<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: August 12, 1996 By: /s/ Roger O. Hileman
-------------------------------
Roger O. Hileman
(Principal Executive, Accounting
and Financial Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,395
<INT-BEARING-DEPOSITS> 9,896
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,913
<INVESTMENTS-CARRYING> 15,271
<INVESTMENTS-MARKET> 15,039
<LOANS> 38,400
<ALLOWANCE> 300
<TOTAL-ASSETS> 69,772
<DEPOSITS> 56,365
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,111
<LONG-TERM> 0
0
0
<COMMON> 9
<OTHER-SE> 12,287
<TOTAL-LIABILITIES-AND-EQUITY> 69,772
<INTEREST-LOAN> 1,443
<INTEREST-INVEST> 715
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,158
<INTEREST-DEPOSIT> 1,392
<INTEREST-EXPENSE> 1,392
<INTEREST-INCOME-NET> 766
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 13
<EXPENSE-OTHER> 638
<INCOME-PRETAX> 253
<INCOME-PRE-EXTRAORDINARY> 164
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.49
<LOANS-NON> 625
<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>
