<PAGE>
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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
Quarterly Report under Section 13 or 15 (d)
of the Securities and Exchange Act of 1934
For Quarter Ended June 30, 1997
Commission File Number: 0-28442
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Heartland Bancshares, Inc.
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(Exact name of registrant as specified in its charter)
Illinois 37-1356594
- ------------------------ ---------------------
(State of incorporation) (I.R.S. Employer
Identification Number)
318 South Park Avenue, Herrin, Illinois 62948-3604
- --------------------------------------- ------------
(Address of principal executive officer) (Zip Code)
Issuer's telephone number, including area code: (618) 942-7373
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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
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As of August 7, 1997, 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
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEARTLAND BANCSHARES, INC.
--------------------------
AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(IN THOUSANDS)
-------------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents
Interest-bearing $ 248 $ 658
Noninterest-bearing 1,638 1,214
Certificates of deposit 194 293
Investment securities available-for-sale at
estimated market value 1,950 2,108
Investment securities held-to-maturity 7,249 9,030
Mortgage-backed and related securities available-
for-sale at estimated market value 2,567 2,814
Mortgage-backed and related securities held-to-
maturity 6,216 6,663
Loans receivable, net 44,648 41,466
Investments required by law 577 489
Property, equipment, and property held
for investment, net 486 479
Accrued interest receivable 317 316
Prepaid expenses and other assets 43 56
Prepaid income taxes - 73
Foreclosed real estate 37 133
Deferred tax asset 94 64
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TOTAL ASSETS $ 66,264 $ 65,856
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
- -----------
Deposits $ 52,455 $ 52,832
Advances from Federal Home Loan Bank 1,000 -
Accrued interest payable 58 49
Accrued income taxes 37 -
Advances from borrowers for taxes and insurance 467 252
Other liabilities 101 107
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Total Liabilities $ 54,118 $ 53,240
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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 shares
issued and outstanding at March 31, 1997
and December 31, 1996 9 9
Additional paid-in capital 8,172 8,153
Unearned ESOP shares (596) (632)
Management recognition plan shares (476) -
Retained earnings - substantially restricted 5,051 5,101
Unrealized gain (loss) on securities
available-for-sale, net of tax (14) (15)
-------- --------
Total Stockholders' Equity $ 12,146 $ 12,616
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 67,264 $ 65,856
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
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HEARTLAND BANCSHARES, INC.
--------------------------
AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------
(UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
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June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Income
- ---------------
Interest on first mortgage loans $ 822 $ 718 $ 1,619 $ 1,381
Interest on other loans 39 34 77 62
Interest on investments, securities, and
deposits with banks 169 239 358 438
Interest on mortgage backed securities 141 145 291 277
-------- -------- -------- --------
Total Interest Income $ 1,171 $ 1,136 $ 2,345 $ 2,158
Interest Expense
- ----------------
Interest on deposits $ 639 $ 694 $ 1,282 $ 1,392
Interest on borrowings 17 - 33 -
-------- -------- -------- --------
Total Interest Expense $ 656 $ 694 $ 1,315 $ 1,392
-------- -------- -------- --------
Net Interest Income $ 515 $ 442 $ 1,030 $ 766
Provision for Loan Losses - - 10 -
-------- -------- -------- --------
Net Interest Income After Provision
for Loan Losses $ 515 $ 442 $ 1,020 $ 766
-------- -------- -------- --------
Non-Interest Income
- -------------------
Initial service charges and other loan fees $ 12 $ 17 $ 25 $ 38
Gain on sale of investments 4 - 4 13
Gain on sale of other real estate 12 - 12 -
Other 34 32 62 74
-------- -------- -------- --------
Total Non-Interest Income $ 62 $ 49 $ 103 $ 125
Non-Interest Expense -------- -------- -------- --------
- --------------------
Compensation to directors, officers, and
employees $ 190 $ 121 $ 349 $ 241
Pension expense and other employee benefits 35 13 94 33
Legal and professional services 125 6 158 12
Office properties and equipment expense
including depreciation 34 26 64 52
Advertising 11 9 24 18
Federal insurance premiums 8 32 17 63
Stationery, postage, and office supplies 18 13 40 27
Checking account expense 38 37 71 74
Service bureau expense 19 16 42 36
Other 58 41 109 73
Loss on sale of investments - - - 3
Loss on sale of property held for investment - 6 - 6
-------- -------- -------- --------
Total Non-Interest Expense $ 536 $ 320 $ 968 $ 638
-------- -------- -------- --------
Income Before Income Taxes $ 41 $ 171 $ 155 $ 253
- --------------------------
Income Tax Expense 7 64 42 89
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Net Income (Loss) $ 34 $ 107 $ 113 $ 164
-------- -------- -------- --------
Earnings per Share - Primary $ .04 $ N/A $ .14 $ N/A
======== ======== ======== ========
- Fully Diluted $ .04 $ N/A $ .14 $ N/A
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
HEARTLAND BANCSHARES, INC.
--------------------------
AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
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(IN THOUSANDS)
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(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Net
Unrealized
Management Gain (Loss)
Additional Unearned Recognition on Securities
Common Paid-in ESOP Plan Retained Available
Stock Capital Shares Shares Earnings for Sale Total
------ ---------- -------- -------- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 9 $ 8,153 $ (632) $ - $5,101 $(15) $12,616
- ---------------------------
Net income - - - - 113 - 113
Cash dividends paid - - - - (163) - (163)
Purchase of shares for management
recognition plan - - - (501) - - (501)
Amortization of ESOP expense - 19 36 - - - 55
Amortization of management
recognition plan expense - - - 25 - - 25
Change in net unrealized gain
(loss) on securities available
for sale - - - - - (21) (21)
----- ------- ----- ----- ------ ---- --------
Balance at June 30, 1997 $ 9 $ 8,172 $(596) $(476) $5,051 $(14) $12,146
- ------------------------- ===== ======= ===== ===== ====== ==== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
HEARTLAND BANCSHARES, INC. AND SUBSIDIARY
-----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
---------------------
June 30, June 30,
1997 1996
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<S> <C> <C>
Cash Flows From Operating Activities
- ------------------------------------
Net income $ 113 $ 164
-------- --------
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation $ 27 $ 25
Discount accretion/premium amortization-securities (net) (2) 8
Amortization of deferred loan origination fees (12) (24)
Amortization of ESOP expense 55 -
Amortization of MRP expense 25 -
Provision for loan losses 10 -
(Gain) loss on sale of investments (4) (10)
(Gain) loss on sale of property held for investment - 6
(Gain) loss on sale of other real estate (12) -
(Increase) decrease in accrued interest receivable (1) (23)
(Increase) decrease in prepaid expenses 13 (35)
(Increase) decrease in prepaid income taxes 73 137
(Increase) decrease in deferred income taxes (31) 4
(Increase) decrease in other assets - (33)
Increase (decrease) in accrued interest payable 9 (7)
Increase (decrease) in accrued income taxes 37 -
Increase (decrease) in other liabilities (6) 51
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Total Adjustments $ 181 $ 99
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Net Cash Provided by Operating Activities $ 294 $ 263
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Cash Flows From Investing Activities
- ------------------------------------
Net (increase) decrease in certificates of deposit $ 99 $ 394
Proceeds from maturities of investment securities
and mortgage-backed securities 2,135 3,085
Principal payments on mortgage-backed securities 705 693
Net (increase) decrease in loans receivable (3,170) (3,016)
Purchases of property and equipment (34) (32)
Purchase of investment securities held-to-maturity (251) (2,493)
Purchase of investment securities available-for-sale (200) -
Purchase of mortgage-backed securities held-to-maturity - (3,902)
Proceeds from sale of mortgage-backed securities
available-for-sale - 4,015
Proceeds from sale of investment securities available-for-sale 252 -
Proceeds from sale of property held for investment - 112
Purchase of Federal Home Loan Bank stock (88) (24)
Proceeds from sale of other real estate 98 -
-------- --------
Net Cash Used by Investing Activities $ (454) $ (1,168)
------------------------------------- -------- --------
Cash Flows From Financing Activities
- ------------------------------------
Net increase (decrease) in deposits $ (377) $ 733
Net increase (decrease) in mortgage escrow funds 215 167
Proceeds from Federal Home Loan Bank advances 1,500 -
Payments on Federal Home Loan Bank advances (500) -
Shares acquired by management recognition plan (501) -
Dividends on common stock (163) -
Sale of stock - 7,446
-------- --------
Net Cash Provided by Financing Activities $ 174 $ 8,346
----------------------------------------- -------- --------
Net Increase in Cash and Cash Equivalents $ 14 $ 7,441
- ----------------------------------------- -------- --------
Cash and Cash Equivalents at Beginning of Period 1,872 4,263
-------- --------
Cash and Cash Equivalents at End of Period $ 1,886 $ 11,704
- ------------------------------------------ ======== ========
Supplemental Disclosures
- ------------------------
Cash Paid (Received) During the Period for:
Interest $ 1,306 $ 1,399
Income taxes $ (37) $ (53)
Loans Transferred to Foreclosed Real Estate During Period $ - $ 61
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
HEARTLAND BANCSHARES, INC.
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AND SUBSIDIARY
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
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JUNE 30, 1997 AND 1996
----------------------
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, 1997 and 1996 have been recorded.
Operating results for the three months and six months ended June
30, 1997 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1997.
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.
Certain reclassifications have been made for the three months
and six months ended June 30, 1996 to conform with the financial
statement presentation for the three months and six months ended
June 30, 1997. The reclassifications had no effect on
previously reported net income or retained earnings.
<PAGE>
<PAGE>
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.
4. Earnings per Share
------------------
Primary and fully diluted earnings per share amounts are
computed based on the weighted average number of shares actually
outstanding plus the shares that would be outstanding assuming
exercise of stock options, all of which are considered to be
common stock equivalents. The number of shares that would be
issued from the exercise of stock options has been reduced by
the number of shares that could have been purchased from the
proceeds at the average market price of the Company's stock. In
accordance with Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" (SOP 93-6), only
employee stock ownership plan (ESOP) shares that have been
committed to be released are considered outstanding shares. The
weighted average numbers of shares used for primary earnings per
share for the three months and six months ended June 30, 1997
were 826,495 and 822,859, respectively. The weighted average
numbers of shares used for fully diluted earnings per share for
the three months and six months ended June 30, 1997 were 827,314
and 824,563, respectively.
The Company completed its initial stock offering on June 28,
1996. As no common stock was outstanding during the three
months and six months ended June 30, 1996, earnings per share
information for that period is not applicable.
5. Dividends per Share
-------------------
In accordance with the provisions of SOP 93-6, dividends paid on
unallocated ESOP shares are not considered dividends for
financial reporting purposes.
6. 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 accounts
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
reports employee benefits expense based on the average market
price of the shares during the period. ESOP benefits expense
recorded during the three months and six months ended June 30,
1997 was $34,077 and $66,302, respectively.
7. Director Retirement Plan
------------------------
In connection with the stock conversion of the Association to
the Bank, the Board of Directors of the Association (now the
Bank) has adopted a director retirement plan, effective December
31, 1995, for its directors who are members of the Board of
Directors at some time on or after the plan's effective date.
Under the plan, a bookkeeping account in each participant's name
is credited with "Performance Units" according to the following
formula: (i) 70 Performance Units for each full year of service
as a director prior to 1996, plus (ii) 100 Performance Units for
each full year of service as a director after 1995, with the
value of each Performance Unit equal to the average fair market
value of one share of the Company's common stock as of December
31st of each of the three years preceding the determination date
(or such shorter period as to which trading information is
available). Additional Performance Units are to be
<PAGE>
credited at the end of each year after 1995, based upon the
amount of dividends paid on the Company's common stock. A
participant's vested interest in Performance Units credited on
the plan's effective date equals 50% if the participant serves
on the Board for less than a year after 1995, 75% after the
second year, and 100% after the third year. In the event a
participant's service on the Board is terminated due to death or
disability, the vested percentage becomes 100% regardless of the
number of years of service. Performance Units credited after
the plan's effective date are fully vested at all times.
As of June 30, 1997, a liability of $60,533 has been recognized
in the financial statements based on the vested value of the
interests in the director retirement plan as of that date. The
amount of expense recognized in the financial statements for the
three months and six months ended June 30, 1997 was $8,307 and
$16,614, respectively.
8. Management Recognition Plan
---------------------------
On January 28, 1997, the stockholders of the Company approved a
management recognition plan ("MRP"). With funds to be
contributed by the Company, the MRP intends to purchase, in the
aggregate, 35,075 shares of the Company's common stock (the
maximum number of shares allowed to be purchased). Such shares
may be purchased in the open market or in the form of shares
newly issued by the Company. In June, 1997, the MRP's
administrative committee voted to grant awards of common stock
totaling 21,917 shares to certain executive officers and
directors of the Company and the Bank. These awards are deemed
to be effective as of the date of stockholder approval of the
MRP. Common stock granted under the MRP vests over a five year
period at twenty percent per year. Under current accounting
standards, when MRP awards are granted, the Company will
recognize compensation expense based on the fair market value of
the common stock on the date the awards are granted with such
amount being amortized over the expected vesting period for the
award. As of June 30, 1997, 31,900 shares had been purchased on
the open market by the MRP to fund the plan at a total cost of
approximately $501,000. This amount has been recorded in the
consolidated financial statements as an increase in a contra
equity account. This contra equity account will be amortized to
expense over the period over which the MRP awards become vested.
Expense recognized in the financial statements for the six
months ended June 30, 1997 was $25,570.
9. Stock Option and Incentive Plan
-------------------------------
Also on January 28, 1997, the stockholders of the Company
approved a stock option and incentive plan. The option plan
provides for the granting of stock options and stock
appreciation rights to certain employees and directors of the
Company and the Bank and has a term of ten years from the
effective date of the plan after which no awards may be granted.
The plan intends to reserve 87,687 authorized, but unissued
shares (or treasury shares) of common stock for issuance upon
the future exercise of options or stock appreciation rights. At
the effective date of the plan, certain executive officers and
directors of the Company and the Bank will receive a grant of an
option under the plan to purchase up to 87,683 shares of common
stock at an exercise price per share equal to its fair market
value on that date. The plan provides for one-fifth of the
options granted to be exercisable on each of the first five
anniversaries of the date the option was granted. Recognition
of compensation expense for stock options is not required when
options are granted at an exercise price equal to or
exceeding the fair market value of the Company's common stock on
the date the option is granted. Therefore, no expense related
to the stock option plan is reflected on the accompanying
financial statements. The stock options are considered common
stock equivalents for purposes of computing primary and fully
diluted earnings per share (as shown in Note 4).
<PAGE>
<PAGE>
10. Advances from Federal Home Loan Bank
------------------------------------
In January, 1997, the Bank borrowed a total of $1,500,000 from
the Federal Home Loan Bank of Chicago at interest rates ranging
from 5.69% to 5.77%. All of these borrowings are due and
payable within six months of the borrowing date. In April,
1997, $500,000 of these borrowings matured and were repaid by
the Bank. In May, 1997, $500,000 of these borrowings were
extended to a maturity date of August, 1997 at an interest rate
of 5.85%.
11. Regulatory Capital
------------------
The Bank is required to maintain certain levels of regulatory
capital. At June 30, 1997, 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.
Item 2. Management's Discussion and Analysis or Plan of
Operations
-----------------------------------------------
General
- -------
The following discussion reviews the consolidated financial
condition of Heartland Bancshares, Inc. (the "Company"),
Heartland National Bank (the "Bank"), and Herrin First Service
Corporation, a wholly owned subsidiary of Heartland National
Bank, as of June 30, 1997 and December 31, 1996, and the results
of operations for the three months and six months ended June 30,
1997 and 1996.
As the completion of the conversion of First Federal Savings and
Loan Association of Herrin (the "Association") to the Bank, and
the simultaneous acquisition of the institution and issuance of
stock by the Company took place on June 28, 1996, this
discussion of financial condition and results of operations will
relate to the Association (now the Bank) as pertains to
operations before that date.
The business of the Bank 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 Bank's market area. To a
lesser extent, the Bank 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 Company is currently primarily investing the funds received
from its issuance of common stock in mortgage-backed securities,
U.S. Government and federal agency securities, municipal
securities and interest-bearing deposits.
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 Bank's interest rate spread is affected by
regulatory, economic and competitive factors that influence
interest rates, loan demand and deposit flows. The Bank'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.
<PAGE>
<PAGE>
The operations of 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 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
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
Bank 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.
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, 1997 and December 31, 1996, the
consolidated amounts of cash and cash equivalents totaled $1.9
million.
Liquidity management is both a daily and long-term function of
business management. The Company has other sources of liquidity
if there is a need for funds. The Company has a portfolio of
investment securities and mortgage-backed and related securities
with a consolidated aggregate market value of $4.5 million at
June 30, 1997 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, 1997,
the Bank had outstanding advances from the FHLB in the amount of
$1,000,000.
At June 30, 1997, the Bank had $870,000 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, 1997, the Bank was in compliance with all
regulatory capital requirements.
Financial Condition
- -------------------
Total assets increased by $408,000, or 62 basis points, from
$65.9 million at December 31, 1996 to $66.3 million at June 30,
1997.
The Bank's loan portfolio increased by $3.2 million, or 7.67%,
from $41.5 million at December 31, 1996 to $44.6 million at June
30, 1997. The increase in loan activity during the period is
attributed to increased loan marketing activities and increased
loan demand in the Company's market area.
The Bank's allowance for loan losses totaled $300,000 at June
30, 1997 and December 31, 1996. During the six months ended
June 30, 1997, loan charge-offs amounted to $10,000. An
additional provision of $10,000 was made during the period.
The Company's consolidated investment securities portfolio
totaled $9.2 million at June 30, 1997, a decrease of $1.9
million from $11.1 million at December 31, 1996. This decrease
was primarily due to maturities and
<PAGE>
sales of investment securities totaling $2.4 million exceeding
purchases of such securities totaling $451,000 for the six
months ended June 30, 1997. The Company's mortgage-backed and
related securities portfolio totaled $8.8 million as of June 30,
1997, a decrease of $694,000 from $9.5 million at December 31,
1996. This decrease was due to principal payments received on
mortgage-backed and related securities. During the six months
ended June 30, 1997, the institution's portfolio of investment
securities and mortgage-backed and related securities classified
as available for sale increased capital by $1,000 (net of taxes)
as a result of an increase 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 $878,000, or 1.65%, from $53.2
million at December 31, 1996 to $54.1 million at June 30, 1997.
Total deposits decreased by $377,000, or 71 basis points, from
$52.8 million at December 31, 1996 to $52.5 million at June 30,
1997. The increase in total liabilities is primarily
attributable to the $1.0 million increase in borrowings from the
Federal Home Loan Bank incurred by the Bank during the six
months ended June 30, 1997.
Stockholders' equity decreased by $470,000 during the six months
ended June 30, 1997. This decrease is primarily due to the
$501,000 purchase of shares on the open market for the Company's
management recognition plan, as well as dividends of $163,000
paid on Company stock. These decreases were offset by
amortization of ESOP and MRP expense of $80,000, as well as net
income of $113,000 for the period.
Results of Operations
- ---------------------
Net Income. Net income was $34,000 for the three months ended
June 30, 1997, as compared to $107,000 for the three months
ended June 30, 1996. The decrease of $73,000, or 58.22%,
reflects an increase of $73,000, or 16.52%, in net interest
income, an increase of $13,000, or 26.53%, in non-interest
income, an increase of $216,000, or 67.50%, in non-interest
expense, and a $53,000 decrease in the provision for income
taxes.
Net income was $113,000 for the six months ended June 30, 1997,
as compared to $164,000 for the six months ended June 30, 1996.
The decrease of $51,000, or 31.10%, reflects an increase of
$264,000, or 34.46%, in net interest income, a $10,000 increase
in the provision for loan losses, a decrease of $22,000, or
17.60%, in non-interest income, an increase of $330,000, or
51.72%, in non-interest expense, and a $47,000 decrease in the
provision for income taxes.
Net Interest Income. Net interest income increased $73,000, or
16.52%, to $515,000 for the three months ended June 30, 1997, as
compared to $442,000 for the three months ended June 30, 1996.
This increase was primarily due to an increase in the ratio of
average interest-earning assets to average interest-bearing
liabilities from 109.45% for the three months ended June 30,
1996 to 120.28% for the three months ended June 30, 1997, along
with an increase in the net interest margin from 2.31% for the
three months ended June 30, 1996 to 2.40% for the three months
ended June 30, 1997. The increase in net interest income
reflects the increased level of interest-earning assets due to
the investment of the net proceeds from the Company's initial
public stock offering, and the net increase in loans, bearing a
rate of return relatively higher than other investments.
Net interest income increased $264,000, or 34.46%, to $1,030,000
for the six months ended June 30, 1997, as compared to $766,000
for the six months ended June 30, 1996. This increase was
primarily due to an increase in the ratio of average interest-
earning assets to average interest-bearing liabilities from
106.91% for the six months ended June 30, 1996 to 120.05% for
the six months ended June 30, 1997, along with an increase in
the net interest margin from 2.17% for the six months ended June
30, 1996 to 2.39% for the six months ended June 30, 1997.
Again, the increase in net interest income is attributed to the
investment of the net proceeds from the stock offering and the
net increase in loans.
<PAGE>
Interest Income. Total interest income increased by $35,000, or
3.08%, to $1.2 million for the three months ended June 30, 1997
as compared to $1.1 million for the three months ended June 30,
1996. This increase was primarily due to an increase of $6.8
million in the average balance of the loan portfolio during the
three months ended June 30, 1997 as compared to the three months
ended June 30, 1996 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 37 basis points in
the average yield on interest-earning assets for the three
months ended June 30, 1997 as compared to the three months ended
June 30, 1996.
Total interest income increased by $187,000, or 8.67%, to $2.3
million for the six months ended June 30, 1997 as compared to
$2.2 million for the six months ended June 30, 1996. The
increase in interest income is primarily the result of an
increase of $2.5 million, or 3.98%, in average interest-earning
assets from $61.6 million for the six months ended June 30, 1996
to $64.1 million for the six months ended June 30, 1997. The
increase in interest income also reflects a 32 basis point
increase in the average yield on interest-earning assets for the
six months ended June 30, 1997 compared to the six months ended
June 30, 1996. Again, this increase reflects the increase in
the average total loan balance and the investment of the
proceeds from the Company's initial public stock offering.
Interest Expense. Interest expense decreased by $38,000, or
5.48%, to $656,000 for the three months ended June 30, 1997 as
compared to $694,000 for the three months ended June 30, 1996.
This decrease was primarily due to a decrease of $6.5 million in
the average balance of interest-bearing liabilities from $59.5
million for the three months ended June 30, 1996 to $53.0
million for the three months ended June 30, 1997. This decrease
was largely attributed to decreases in deposit accounts caused
by customers using those deposit accounts to purchase the stock
of the Company in the conversion, partially offset by the $1.0
million increase in borrowings from the Federal Home Loan Bank
during 1997. The decrease in the average balance of interest-
bearing liabilities was offset by a 28 basis point increase in
the average cost of interest-bearing liabilities for the three
months ended June 30, 1997 as compared to the three months ended
June 30, 1996.
Interest expense decreased by $77,000, or 5.53%, from $1.4
million for the six months ended June 30, 1996 to $1.3 million
for the six months ended June 30, 1997. This decrease was
primarily due to a decrease of $4.2 million in the average
balance of interest-bearing liabilities from $57.6 million for
the six months ended June 30, 1996 to $53.4 million for the six
months ended June 30, 1997. Again, this decrease was
predominantly due to decreases in deposit accounts by customers
using those deposit accounts to purchase Company stock during
the conversion. The decrease in the average balance of
interest-bearing liabilities was offset by a 10 basis point
increase in the average cost of those liabilities for the six
months ended June 30, 1997 as compared to the three 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. No
additional provision for loan losses was made during the three
months ended June 30, 1997 and June 30, 1996. A $10,000
provision for loan losses was made during the six months ended
June 30, 1997, while no provision was made for the six months
ended June 30, 1996. Although the Company believes that the
present level of the allowance for loan losses is adequate to
reflect the risks inherent in its loan portfolio, there can be
no assurance that the Company will not experience increases in
its nonperforming assets, that it will not increase the level of
the allowance for loan losses in the future or that significant
provisions for losses will not be required based on factors such
as deterioration in market conditions, changes in borrowers'
financial conditions, delinquencies and defaults.
<PAGE>
<PAGE>
Non-Interest Income. Non-interest income increased $13,000, or
26.53%, from $49,000 for the three months ended June 30, 1996 to
$62,000 for the three months ended June 30, 1997. The largest
components of non-interest income for the three month periods
ended June 30, 1997 and 1996 included $12,000 and $17,000,
respectively, in loan and other service fees and $34,000 and
$32,000, respectively, in other service charges and other
miscellaneous operating income. In addition, the Company
recognized $16,000 of realized gains on the sale of investments
and other real estate, with no corresponding gains during the
three months ended June 30, 1996.
Non-interest income decreased $22,000, or 17.60%, from $125,000
for the six months ended June 30, 1996 to $103,000 for the six
months ended June 30, 1997. The largest components of non-
interest income for the six month periods ended June 30, 1997
and 1996 included $25,000 and $38,000, respectively, in loan and
other service fees and $62,000 and $74,000, respectively, in
other service charges and other miscellaneous operating income.
In addition, the Company recognized $16,000 of realized gains on
sales of investments and other real estate in the six months
ended June 30, 1997 compared to $13,000 of realized gains for
the six months ended June 30, 1996.
Non-Interest Expense. Non-interest expense increased $216,000,
or 67.50%, from $320,000 for the three months ended June 30,
1996 to $526,000 for the three months ended June 30, 1997. This
increase included an increase of $91,000 in compensation and
employee benefits expense. This increase is primarily a result
of recognition of expense related to items which have been
incurred subsequent to the formation of the Company in June,
1996, such as the ESOP, director retirement, and management
recognition plans, and additional director fees paid by the
Company. A $119,000 increase in legal and professional fees for
the same period reflects ongoing legal, accounting and
consulting expenses resulting primarily from the Company's proxy
contest in connection with its Annual Meeting as well as
expenses associated with the Company's initial periods of
operation as a public company. Legal and professional fees
incurred pursuant to the initial issuance of stock were offset
against stock proceeds, and are not reflected on the Company's
income statement. There were net increases of $6,000 in various
other expense items.
Non-interest expense increased $330,000, or 51.72%, from
$638,000 for the six months ended June 30, 1996 to $968,000 for
the six months ended June 30, 1997. This increase included
increases of $169,000 in compensation and employee benefits
expense, $145,000 in legal and professional fees, and net
increases of $15,000 in various other expense items. The
increases in compensation and legal and professional fees are
attributable to the same factors described in the previous
paragraph relating to the operating results for the three month
periods ended June 30, 1997 and 1996.
Income Tax Expense. Income tax expense was $7,000 for the three
months ended June 30, 1997 as compared with $64,000 for the
three months ended June 30, 1996. For the six months ended June
30, 1997 and 1996, income tax expense of $42,000 and $89,000,
respectively, was recorded. The decreases in income tax expense
are primarily the result of decreases 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.
<PAGE>
<PAGE>
Impact of New Accounting Standards
- ----------------------------------
Accounting for Transfers and Servicing of Financial Assets. In
June, 1996, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". SFAS No.
125 establishes accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of
liabilities based on the consistent application of the financial
components approach. This approach requires the recognition of
financial assets and servicing assets that are controlled by the
reporting entity, the derecognition of financial assets when
control is surrendered, and the derecognition of liabilities
when they are extinguished. Specific criteria are established
for determining when control has been surrendered in the
transfer of financial assets. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996. Subsequent to
the issuance of SFAS No. 125, the FASB issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125". This statement defers for one year the
effective date of SFAS No. 125 as applies to secured borrowings
and collateral and certain other transactions. The Company has
adopted the relevant provisions of the statement during 1997,
and will adopt the provisions of the statement which become
effective in 1998 at that time. The provisions of the statement
adopted in 1997 did not have a material effect on the Company's
financial position or operating results, and management does not
currently believe that the future adoption of additional
provisions of this statement will have such an effect.
Accounting for Stock-Based Compensation. SFAS No. 123,
"Accounting for Stock-Based Compensation" was issued by the FASB
in October, 1995. SFAS No. 123 establishes a fair value-based
method of accounting for stock options and other equity
instruments. It requires the use of that method for
transactions with other than employees and encourages its use
for transactions with employees. It permits entities to
continue to use the intrinsic value method included in
Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees", but regardless of the method
used to account for the compensation cost associated with stock
option and similar plans, it requires employers to disclose
information in accordance with SFAS No. 123. The general
principle underlying SFAS No. 123 is that equity instruments are
recognized at the fair value of the consideration received for
them. If the fair value of the consideration received cannot be
reasonably determined, the fair value of the equity instrument
itself may be used. The fair value method of accounting for
stock options and other instruments applies this general
principle measuring compensation cost for employers as the
excess of the fair value of the equity instrument over the
amount paid by the employee. The definition of fair value in
SFAS No. 123 is the same as that included in SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of".
SFAS No. 123 requires significantly expanded disclosures,
including disclosure of the pro forma amount of net income (and
earnings per share for public entities) as if the fair value-
based method were used to account for stock-based compensation
if the intrinsic value method of APB-25 is retained.
The recognition requirements for transactions with other than
employees apply for transactions entered into after December 15,
1995. The recognition alternative of the fair value-based
method for transactions with employees may be implemented
immediately upon issuance of SFAS No. 123. The disclosure
requirements, which apply regardless of the recognition method
chosen, are applicable for financial statements for fiscal years
beginning after December 15, 1995.
With the adoption in 1997 of stock-based compensation plans, the
Company intends to follow the SFAS No. 123 guidelines as
appropriate upon the granting of stock-based compensation under
those plans.
<PAGE>
<PAGE>
Earnings per Share. In February, 1997, the FASB issued SFAS No.
128, "Earnings per Share". SFAS No. 128 establishes standards
for computing and presenting earnings per share ("EPS") and
applies to entities with publicly held common stock or potential
common stock. The statement simplifies the standards for
computing earnings per share previously found in APB Opinion No.
15, "Earnings per Share", and makes them comparable to
international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital
structures, and requires a reconciliation of the two
computations. This statement is effective for financial
statements issued for periods ending after December 15, 1997,
with earlier application not permitted. The management of the
Company plans to adopt the provisions of the statement at
December 31, 1997, and does not currently believe that the
future adoption of this statement will have a material effect on
the Company's financial position or operating results.
Comprehensive Income. In June, 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income". SFAS No. 130 establishes
standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full
set of general-purpose financial statements. This statement
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the
same prominence as other financial statements.
This statement requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement
of financial position. This statement is effective for fiscal
years beginning after December 15, 1997. The management of the
Company plans to adopt the provisions of the statement at
December 31, 1997, and does not currently believe that the
future adoption of this statement will have a material effect on
the Company's financial position or operating results.
Disclosures about Segments of an Enterprise and Related
Information. In June, 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 131 establishes standards for the way
that public business enterprises report information about
operating segments in annual financial statements and requires
that those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997. The
management of the Company plans to adopt the appropriate
provisions of the statement at December 31, 1997, and does not
currently believe that the future adoption of this statement
will have a material effect on the Company's financial position
or operating results.
<PAGE>
<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, 1997, 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
---------------------------------------------------
(a) On April 24, 1997, the Company held its 1997 Annual Meeting
of Stockholders (the "Annual Meeting") for the purpose of the
election of directors.
(b) The following individuals were re-elected to the Board of
Directors of the Company at the Annual Meeting:
Paul R. Calcaterra
B. D. Cross
The following directors had terms of office continuing after
the Annual Meeting:
Roger O. Hileman
Charles Stevens
James C. Walker
Randall A. Youngblood
(c) The following items were voted upon at the Annual Meeting:
(i) the election of two individuals as directors, (ii) a
proposal brought by a stockholder of the Company calling for the
Company to undertake a study to determine whether a sale of the
Company would be appropriate. One stockholder indicated his
intention to solicit proxies in opposition to the Company's
nominees for director and in favor of the stockholder proposal.
At the Annual Meeting, the stockholder announced that he was
withdrawing the nomination of the two opposition candidates.
Results of voting were as follows:
(i) Election of Directors
For Withheld
--- --------
Paul R. Calcaterra 675,299 111,665
B.D. Cross 675,269 111,695
Barrett Rochman N/A * N/A *
Chuck Decker N/A * N/A *
________
* Nominations were withdrawn.
(ii) Stockholder Proposal
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
146,536 464,561 9,200 166,667
(d) Not applicable
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 7, 1997 By: /s/ Roger O. Hileman
-------------------------------
Roger O. Hileman
(Principal Executive, Accounting
and Financial Officer)
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<ARTICLE> 9
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,638
<INT-BEARING-DEPOSITS> 442
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,517
<INVESTMENTS-CARRYING> 13,465
<INVESTMENTS-MARKET> 13,237
<LOANS> 44,948
<ALLOWANCE> 300
<TOTAL-ASSETS> 66,264
<DEPOSITS> 52,455
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 663
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0
0
<OTHER-SE> 12,137
<TOTAL-LIABILITIES-AND-EQUITY> 66,264
<INTEREST-LOAN> 1,696
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