<PAGE>
<PAGE>
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, 1998
Commission File Number: 0-28442
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Heartland Bancshares, Inc.
-------------------------------------------------------
(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
--------------
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 1, 1998, there were 833,032 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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<PAGE>
HEARTLAND BANCSHARES, INC.
--------------------------
AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(IN THOUSANDS)
-------------
<TABLE>
<CAPTION>
June 30,
1998 December 31,
---------- 1997
(Unaudited) ------------
ASSETS -----------
<S> ------ <C> <C>
Cash and cash equivalents
Interest-bearing $ 7,002 $ 3,319
Noninterest-bearing 1,844 1,651
Certificates of deposit 471 95
Investment securities available-for-sale at
estimated market value 1,516 1,714
Investment securities held-to-maturity 4,736 5,627
Mortgage-backed and related securities available-
for-sale at estimated market value 1,012 1,249
Mortgage-backed and related securities held-to-
maturity 4,840 5,737
Loans receivable, net 42,324 46,307
Investments required by law 585 577
Property, equipment, and property held
for investment, net 465 461
Accrued interest receivable 250 292
Prepaid expenses and other assets 81 32
Foreclosed real estate 209 239
Deferred tax asset 191 161
-------- --------
TOTAL ASSETS $ 65,526 67,461
- ------------ ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
- -----------
Deposits $ 53,426 $ 54,022
Accrued interest on deposits 52 63
Advances from borrowers for taxes
and insurance 418 228
Other liabilities 211 127
Accrued income taxes - 126
Short-term borrowings - 750
-------- --------
Total Liabilities $ 54,107 $ 55,316
----------------- ======== ========
Commitments and Contingencies
- -----------------------------
Stockholders' Equity
- --------------------
Preferred stock, $.01 par value per share:
1,000,000 shares authorized, - 0 - issued $ - $ -
Common stock, $.01 par value per share:
4,000,000 shares authorized; 876,875 shares
issued; 833,032 and 876,875 outstanding at
June 30, 1998 and December 31, 1997,
respectively 9 9
Additional paid-in capital 8,242 8,212
Unearned employee stock ownership plan
(ESOP) shares (470) (519)
Management recognition plan shares (466) (496)
Treasury stock (43,843 shares at cost) (682) -
Retained earnings - substantially restricted 4,776 4,938
Accumulated other comprehensive income:
Unrealized gains (losses) on securities 10 1
-------- --------
Total Stockholders' Equity $ 11,419 $ 12,145
-------------------------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 65,526 $ 67,461
- ------------------------------------------ ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1<PAGE>
<PAGE>
HEARTLAND BANCSHARES, INC.
--------------------------
AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------------------
(UNAUDITED)
<TABLE> -----------
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
1998 1997 1998 1997
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Interest Income
- ---------------
Interest on first mortgage loans $ 807 $ 822 $ 1,657 $ 1,619
Interest on other loans 49 39 101 77
Interest on investments, securities, and
deposits with banks 171 169 318 358
Interest on mortgage backed securities 96 141 205 291
------- -------- ------- -------
Total Interest Income $ 1,123 $ 1,171 $ 2,281 $ 2,345
---------------------
Interest Expense
- ----------------
Interest on deposits $ 639 $ 639 $ 1,281 $ 1,282
Interest on borrowings - 17 3 33
------- -------- ------- -------
Total Interest Expense $ 639 $ 656 $ 1,284 $ 1,315
---------------------- ------- -------- ------- -------
Net Interest Income $ 484 $ 515 $ 997 $ 1,030
- -------------------
Provision for Loan Losses 16 - 97 10
- ------------------------- ------- -------- ------- -------
Net Interest Income After Provision
- -----------------------------------
for Loan Losses $ 468 $ 515 $ 900 $ 1,020
--------------- ------- -------- ------- -------
Non-Interest Income
- -------------------
Initial service charges and other loan fees $ 10 $ 12 $ 22 $ 25
Gain on sale of other real estate - 12 8 12
Other 28 34 55 62
Gain on sale of investments - 4 - 4
------- -------- ------- -------
Total Non-Interest Income $ 38 $ 62 $ 85 $ 103
------------------------- ------- -------- ------- -------
Non-Interest Expense
- --------------------
Compensation to directors, officers, and
employees $ 194 $ 190 $ 395 $ 349
Pension expense and other employee benefits 40 35 79 94
Office properties and equipment expense
including depreciation 33 34 67 64
Advertising 7 11 16 24
Federal insurance premiums 12 8 24 17
Stationery, postage, and office supplies 18 18 32 40
Checking account expense 2 38 21 71
Service bureau expense 36 19 79 42
Other 52 58 111 109
Legal and professional services 136 125 182 158
Loss on sale of investments 1 - 1 -
------- -------- ------- -------
Total Non-Interest Expense $ 531 $ 536 $ 1,007 $ 968
-------------------------- ------- -------- ------- -------
Income Before Income Taxes $ (25) $ 41 $ (22) $ 155
- --------------------------
Income Tax Expense (Benefit) (17) 7 (21) 42
------- -------- ------- -------
Net Income (Loss) $ (8) $ 34 $ (1) $ 113
- ----------------- ======= ======== ======= =======
<PAGE>
Earnings (Loss) Per Common Share - Basic
- ----------------------------------------
Net income $ (.01) $ .04 $ - $ .14
======= ======= ======= =======
Earnings (Loss) Per Common Share -
- --------------------------------
Assuming Dilution
-----------------
Net income $ (.01) $ .04 $ - $ .14
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
2<PAGE>
<PAGE>
HEARTLAND BANCSHARES, INC. AND SUBSIDIARY
------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
(IN THOUSANDS)
-------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Management Accumulated
Additional Unearned Recognition Other
Common Paid-in ESOP Plan Treasury Retained Comprehensive
Stock Capital Shares Shares Stock Earnings Income Total
------ ---------- -------- -------- --------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 9 $ 8,212 $ (519) $(496) $ - $4,938 $ 1 $12,145
- ---------------------------
Comprehensive income:
Net income $ - $ - $ - $ - - (1) $ - $ (1)
Other comprehensive income,
net of tax:
Unrealized gains (losses)
on securities:
Unrealized holding gains
(losses) arising during
the period (net of
tax of $6) - - - - - - 9 9
----- ------- ----- ----- ------ ------ ----- -------
Total comprehensive income $ - $ - $ - $ - $ - $ (1) $ 9 $ 8
Cash dividends paid - - - - - (161) - (161)
Purchase of treasury stock
(43,843 shares at cost) - - - - (682) - - (682)
Amortization of management
recognition plan expense - - - 30 - - - 30
Amortization of ESOP expense - 30 49 - - - - 79
----- ------- ----- ----- ------ ------ ----- -------
Balance at June 30, 1998 $ 9 $ 8,242 $(470) $(466) $ (682) $4,776 $ 10 $11,419
- ------------------------ ===== ======= ===== ===== ====== ====== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
3<PAGE>
<PAGE>
HEARTLAND BANCSHARES, INC.
-------------------------
AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(IN THOUSANDS)
--------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Six Months Ended
----------------------
June 30, June 30,
1998 1997
----------------------
<S> <C> <C>
Cash Flows From Operating Activities
- ------------------------------------
Net income $ (1) $ 113
------- --------
Adjustments to reconcile net income
to net cash provided (used) by operating
activities
Depreciation $ 29 $ 27
Discount accretion/premium amortization-securities (net) (3) (2)
Amortization of deferred loan origination fees (12) (12)
Amortization of ESOP expense 79 55
Amortization of MRP expense 30 25
Provision for loan losses 97 10
(Gain) loss on sale of investments 1 (4)
(Gain) loss on sale of other real estate (8) (12)
(Increase) decrease in accrued interest receivable 42 (1)
(Increase) decrease in prepaid expenses/other assets (49) 13
(Increase) decrease in prepaid income taxes - 73
(Increase) decrease in deferred income taxes (35) (31)
Increase (decrease) in accrued interest payable (11) 9
Increase (decrease) in accrued income taxes (126) 37
Increase (decrease) in other liabilities 84 (6)
------- --------
Total Adjustments $ 118 $ 181
----------------- ------- --------
Net Cash Provided by Operating Activities $ 117 $ 294
----------------------------------------- ------- --------
Cash Flows From Investing Activities
- ------------------------------------
Net (increase) decrease in certificates of deposit $ (376) $ 99
Proceeds from maturities of investment securities
and mortgage-backed securities 1,620 2,135
Principal payments on mortgage-backed securities 1,145 705
Net (increase) decrease in loans receivable 3,846 (3,170)
Purchases of property and equipment (33) (34)
Purchase of investment securities held-to-maturity (900) (251)
Purchase of investment securities available-for-sale - (200)
Proceeds from sale of investment securities
available-for-sale 249 252
Proceeds from sale of investment securities
held-to-maturity 125 -
Purchase of Federal Home Loan Bank stock (8) (88)
Proceeds from sale of other real estate 90 98
------- --------
Net Cash Provided by (Used in) Investing Activities $ 5,758 $ (454)
--------------------------------------------------- ------- --------
Cash Flows From Financing Activities
- ------------------------------------
Net increase (decrease) in deposits $ (596) $ (377)
Net increase (decrease) in mortgage escrow funds 190 215
Proceeds from Federal Home Loan Bank advances - 1,500
Payments on Federal Home Loan Bank advances (750) (500)
Shares acquired by management recognition plan - (501)
Dividends on common stock (161) (163)
Purchase of treasury stock (682) -
------- --------
Net Cash Provided by (Used in) Financing Activities $(1,999) $ 174
--------------------------------------------------- ------- --------
<PAGE>
Net Increase in Cash and Cash Equivalents $ 3,876 $ 14
- -----------------------------------------
Cash and Cash Equivalents at Beginning of Period 4,970 1,872
------- --------
Cash and Cash Equivalents at End of Period $ 8,846 $ 1,886
======= ========
Supplemental Disclosures
- ------------------------
Cash Paid (Received) During the Period for:
Interest $ 1,295 $ 1,306
Income taxes $ 166 $ (37)
Loans Transferred to Foreclosed Real Estate During Period $ 118 $ -
Proceeds from Sales of Foreclosed Real Estate Financed
Through Loans $ 19 $ -
</TABLE>
See accompanying notes to consolidated financial statements.
4<PAGE>
<PAGE>
HEARTLAND BANCSHARES, INC.
--------------------------
AND SUBSIDIARY
--------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
-----------
June 30, 1998 and 1997
----------------------
1. Business
--------
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"). Simultaneously, Heartland National Bank was
acquired by Heartland Bancshares, Inc. (the "Company"),
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 (through the Bank) provides a full range of
financial services to individual and corporate customers
from two office locations in Herrin and Carterville,
Illinois. The Company is subject to competition from
other financial institutions in the area, is subject to
the regulations of certain federal agencies, and undergoes
periodic examinations by those regulatory authorities.
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, 1998 and 1997 have been recorded. Operating results
for the three months and six months ended June 30, 1998
are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
Certain reclassifications have been made for the three
months and six months ended June 30, 1997 to conform with
the financial statement presentation for the three months
and six months ended June 30, 1998. The reclassifications
had no effect on previously reported net income or
retained earnings.
<PAGE>
3. Principles of Consolidation
---------------------------
The accompanying unaudited consolidated financial
statements include the accounts of Heartland Bancshares,
Inc., Heartland National Bank, and
5<PAGE>
<PAGE>
Herrin First Service Corporation, a wholly owned subsidiary
of Heartland National Bank. All significant intercompany
items have been eliminated.
4. Earnings per Share
------------------
In accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share" (SFAS No. 128),
earnings per common share are being computed and presented
on both a basic and diluted basis. Basic earnings per
share are computed based on the weighted average number of
shares actually outstanding during the period in question.
In addition to using the weighted average number of
outstanding shares, diluted earnings per share
computations also consider the dilutive effect of stock
options. 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 number of shares
outstanding has also been reduced by shares repurchased by
the Company and held as treasury stock (see Note 11). The
weighted average numbers of shares used for basic earnings
per share for the three months and six months ended June
30, 1998 were 799,489 and 812,251, respectively. The
weighted average numbers of shares used for basic earnings
per share for the three months and six months ended June
30, 1997 were 816,354 and 815,489, respectively. The
weighted average numbers of shares used for diluted
earnings per share for the three months and six months
ended June 30, 1998 were 806,358 and 819,434,
respectively. The weighted average numbers of shares used
for diluted earnings per share for the three months and
six months ended June 30, 1997 were 826,495 and 822,859,
respectively.
Earnings per share amounts for the three months and six
months ended June 30, 1997 have been restated to give
effect to the application of SFAS No. 128, which was
adopted by the Company at the end of 1997. This
restatement did not affect the earnings per share amounts
previously presented for the three months and six months
ended June 30, 1997.
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 a tax qualified employee stock
ownership plan (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 and the shares become outstanding for
earnings per share computations. Dividends on allocated
ESOP shares are recorded as a reduction of retained
earnings; dividends on unallocated ESOP shares are
recorded as a reduction of debt. ESOP benefits expense
recorded during the three months and six months ended June
30, 1998 was $37,296 and $74,883, respectively. 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,
6<PAGE>
<PAGE>
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
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, 1998, a liability of $101,683 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, 1998 was $9,513 and $19,026, respectively.
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 contributed by the Company, the MRP has purchased,
in the aggregate, 35,075 shares of the Company's common
stock (the maximum number of shares allowed to be
purchased). Such shares were purchased in the open
market. 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 recognizes 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,
1998, 35,075 shares had been purchased on the open market
by the MRP to fund the plan at a total cost of
approximately $552,000. 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 in the future over the period over
which the MRP awards become vested. The amount of expense
recognized in the financial statements for the six months
ended June 30, 1998 and 1997 was $30,384 and $25,570,
respectively.
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. The Company applies APB Opinion 25 in accounting
for its stock option plan. Recognition of compensation
expense for stock
7<PAGE>
<PAGE>
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.
10. Regulatory Capital
------------------
The Bank is required to maintain certain levels of
regulatory capital. At June 30, 1998, 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.
11. Stock Repurchase Plan
---------------------
The Board of Directors of the Company has adopted a
program to repurchase 43,843 shares, or 5% of the
Company's outstanding common stock. It is management's
current intention that all repurchased shares will be held
as treasury stock and will be used for general corporate
purposes, including the exercise of stock options. As of
June 30, 1998, the repurchase program has been completed,
with 43,843 shares being repurchased under the plan.
12. Securities Transaction
----------------------
During the second quarter of 1998, the holding company
(Heartland Bancshares, Inc.) sold a municipal security
which had been classified as held-to-maturity for total
proceeds of $124,909, resulting in a net loss of $91. As
a result of this transaction, the other securities of that
issue held by the holding company (which comprise all of
the held-to- maturity securities held by the holding
company) were transferred to the available-for-sale
category. These securities are currently shown at
estimated market value as required by SFAS No. 115. These
securities had an amortized cost of approximately
$250,000, with an unrealized gain of approximately $2,199
at transfer.
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 the Bank, as of June 30, 1998 and December
31, 1997, and the results of operations for the three
months and six months ended June 30, 1998 and 1997.
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
8<PAGE>
<PAGE>
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.
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. 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,
1998 and December 31, 1997, the consolidated amounts of
cash and cash equivalents totaled $8.8 million and $5.0
million, respectively.
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 $2.5 million at June 30, 1998
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, 1998, the Bank had no outstanding advances from the
FHLB.
At June 30, 1998, the Bank had $243,000 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, 1998, the Bank was in
compliance with all regulatory capital requirements.
Financial Condition
- -------------------
Total assets decreased by $1.9 million, or 2.87%, from
$67.5 million at December 31, 1997 to $65.5 million at
June 30, 1998. The decrease was due primarily to
decreases of $4.0 million in loans receivable and $2.2
million in investment and mortgage-backed securities.
These decreases were partially offset by an increase of
$4.3 million in cash and cash equivalents and certificates
of deposit from December 31, 1997 to June 30, 1998.
The Bank's loan portfolio decreased by $4.0 million, or
8.60%, from $46.3 million at December 31, 1997 to $42.3
million at June 30, 1998. The decrease in loan activity
during the period is attributed to the level of repayments
on existing loans exceeding new loan demand for the six
months ended June 30, 1998.
9<PAGE>
<PAGE>
The Bank's allowance for loan losses totaled $401,000 and
$400,000 at June 30, 1998 and December 31, 1997,
respectively. During the six months ended June 30, 1998,
net loan charge-offs amounted to $96,000. An additional
provision of $97,000 was made during the period.
The Company's consolidated investment securities portfolio
totaled $6.2 million at June 30, 1998, a decrease of $1.1
million from $7.3 million at December 31, 1997. This
decrease was due to maturities and sales of investment
securities totaling $2.0 million exceeding purchases of
such securities totaling $900,000 for the six months ended
June 30, 1998. The Company's mortgage-backed and related
securities portfolio totaled $5.9 million as of June 30,
1998, a decrease of $1.1 million from $7.0 million at
December 31, 1997. This decrease was due to principal
payments received on mortgage-backed and related
securities. During the six months ended June 30, 1998,
the institution's portfolio of investment securities and
mortgage-backed and related securities classified as
available for sale increased capital by $9,000 (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 decreased by $1.2 million, or 2.19%,
from $55.3 million at December 31, 1997 to $54.1 million
at June 30, 1998. Total deposits decreased by $596,000,
or 1.10%, from $54.0 million at December 31, 1997 to $53.4
million at June 30, 1998. The decrease in total
liabilities is primarily attributable to that decrease in
deposits, and to the $750,000 decrease in borrowings from
the Federal Home Loan Bank during the six months ended
June 30, 1998. Management attributes the decrease in
deposits to competition from other local banks to attract
deposit business. The decrease has to date primarily
affected the Bank's levels of one-year maturity
certificates of deposit.
Stockholders' equity decreased by $726,000 during the six
months ended June 30, 1998. This decrease is primarily
due to the $682,000 repurchase of Company stock performed
by the Company during the second quarter of 1998, along
with dividends of $161,000 paid on Company stock and a net
loss of $1,000 from operations. These decreases were
offset by amortization of ESOP and MRP expense of $109,000
and $9,000 in unrealized holding gains on securities (net
of tax).
Results of Operations
- ---------------------
Net Income. The Company incurred a net loss of $8,000 for
the three months ended June 30, 1998, as compared to net
income of $34,000 for the three months ended June 30,
1997. The decrease of $42,000, or 123.53%, reflects a
decrease of $31,000, or 6.02%, in net interest income.
Also contributing to the decrease in net income were a
decrease of $24,000, or 38.71%, in non-interest income,
and a $16,000 increase in the provision for loan losses,
as compared with the same period in 1997. These changes
were partially offset by a decrease of $5,000, or 0.93%,
in non-interest expense, and by a decrease of $24,000 in
income tax expense.
The Company incurred a net loss of $1,000 for the six
months ended June 30, 1998, as compared to net income of
$113,000 for the six months ended June 30, 1997. The
decrease of $114,000, or 100.88%, reflects a decrease of
$33,000, or 3.20%, in net interest income, an $87,000
increase in the provision for loan losses, a decrease of
$18,000, or 17.48%, in non-interest income, an increase of
$39,000, or 4.03%, in non-interest expense, and a $63,000
decrease in the provision for income taxes.
Net Interest Income. Net interest income decreased
$31,000, or 6.02%, to $484,000 for the three months ended
June 30, 1998, as compared to $515,000 for the three
months ended June 30, 1997. This decrease was primarily
due to a decrease in the ratio of average interest-earning
assets to average interest-bearing liabilities from
120.28% for the three months ended June 30, 1997 to
118.84% for the three months ended June 30, 1997, while
the net interest margin decreased from 2.40% for the three
months ended June 30, 1997 to 2.37% for the three months
ended June 30, 1998. The decrease in the net interest
margin was coupled with the fact that average interest-
earning assets decreased more than average interest-
bearing liabilities for the periods in question.
10<PAGE>
<PAGE>
Net interest income decreased $33,000, or 3.20%, to
$997,000 for the six months ended June 30, 1998 as
compared to $1.0 million for the six months ended June 30,
1997. This decrease was primarily due to the decrease in
the ratio of average interest-earning assets to average
interest-bearing liabilities from 120.05% for the six
months ended June 30, 1997 to 119.34% for the six months
ended June 30, 1998. This decrease was partially offset
by an increase in the net interest margin from 2.39% for
the six months ended June 30, 1997 to 2.41% for the six
months ended June 30, 1998. The small increase in the net
interest margin was more than offset by the fact that
average interest-earning assets again decreased more than
average interest-bearing liabilities for the periods in
question.
Interest Income. Total interest income decreased by
$48,000, or 4.10%, to $1.1 million for the three months
ended June 30, 1998 as compared to $1.2 million for the
three months ended June 30, 1997. The decrease in
interest income is primarily the result of a decrease of
$2.3 million, or 3.60%, in average interest-earning assets
from $63.7 million for the three months ended June 30,
1997 to $61.4 million for the three months ended June 30,
1998. This decrease was primarily due to a decrease of
$1.3 million in the average balance of loans receivable
during the three months ended June 30, 1998 as compared to
the three months ended June 30, 1997. The decrease in
loans reflects a decline in the new loans being originated
by the Bank compared with the level of repayments on
existing loans. The decrease in average interest-earning
assets was also due to a decrease of $995,000 in the
average balance of the securities and short-term
investment portfolios during the three months ended June
30, 1998 as compared to the three months ended June 30,
1997, resulting from maturities and repayments on such
assets exceeding new investments in this area. The
decrease in interest income also reflects a decrease of 4
basis points in the average yield on interest-earning
assets for the three months ended June 30, 1998 as
compared to the three months ended June 30, 1997.
Total interest income decreased by $64,000, or 2.73%,
totaling $2.3 million for both the six months ended June
30, 1998 and the six months ended June 30, 1997. Average
interest-earning assets decreased by $2.0 million, or
3.07%, from $64.1 million for the six months ended June
30, 1997 to $62.1 million for the six months ended June
30, 1998. The decrease in average interest-earning assets
was primarily caused by a decrease of $2.5 million in the
average balance of the securities and short-term
investment portfolios during the six months ended June 30,
1998 as compared to the six months ended June 30, 1997.
The decrease in average interest-earning assets was
partially offset by an increase of 3 basis points in the
average yield on interest-earning assets for the six
months ended June 30, 1998 as compared to the six months
ended June 30, 1997.
Interest Expense. Interest expense decreased by $17,000,
or 2.59%, to $639,000 for the three months ended June 30,
1998 as compared to $656,000 for the three months ended
June 30, 1997. This decrease was primarily due to a
decrease of $1.3 million in the average balance of
interest-bearing liabilities from $53.0 million for the
three months ended June 30, 1997 to $51.7 million for the
three months ended June 30, 1998. This decrease is
primarily attributed to a $1.0 million decrease in the
average balance of borrowings from the Federal Home Loan
Bank, with no such borrowings outstanding as of June 30,
1998. The average balance of deposit liabilities also
decreased by $290,000 during the same periods. The
decrease in interest expense also reflected a 1 basis
point decrease in the average cost of interest-bearing
liabilities, from 4.95% for the three months ended June
30, 1997 to 4.94% for the three months ended June 30,
1998.
Interest expense decreased by $31,000, or 2.36%, totaling
$1.3 million for both the six months ended June 30, 1998
and the six months ended June 30, 1997. Average interest-
bearing liabilities decreased by $1.3 million, or 2.50%,
from $53.4 million for the six months ended June 30, 1997
to $52.0 million for the six months ended June 30, 1998.
This decrease in the level of average interest-bearing
liabilities was again primarily attributed to the decrease
in the average balance of borrowings from the Federal Home
Loan Bank, such decrease totaling $1.3 million. The
decrease in average interest-bearing liabilities was
slightly offset by a 1 basis
11<PAGE>
<PAGE>
point increase in the average cost of interest-bearing
liabilities, from 4.93% for the six months ended June 30,
1997 to 4.94% for the six months ended June 30, 1998.
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. A $16,000 provision for
loan losses was made during the three months ended June
30, 1998, while no provision was made during the three
months ended June 30, 1997. A $97,000 provision for loan
losses was made for the six months ended June 30, 1998, as
compared with a provision of $10,000 for the six months
ended June 30, 1997. The increase in the provision was
deemed necessary due to charge-offs of $15,000 during the
second quarter of 1998, and $97,000 during the first six
months of 1998. 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.
Non-Interest Income. Non-interest income decreased
$24,000, or 38.71%, from $62,000 for the three months
ended June 30, 1997 to $38,000 for the three months ended
June 30, 1998. The largest components of non-interest
income for the three month periods ended June 30, 1998 and
1997 included $10,000 and $12,000, respectively, in loan
and other service fees and $28,000 and $34,000,
respectively, in other service charges and other
miscellaneous operating income. In addition, the Company
recognized $16,000 of realized gains on the sale of
investment securities and real estate owned during the
three months ended June 30, 1997, with no corresponding
gains during the three months ended June 30, 1998.
Non-interest income decreased $18,000, or 17.48%, from
$103,000 for the six months ended June 30, 1997 to $85,000
for the six months ended June 30, 1998. The largest
components of non-interest income for the six month
periods ended June 30, 1998 and 1997 included $22,000 and
$25,000, respectively, in loan and other service fees and
$55,000 and $62,000, respectively, in other service
charges and other miscellaneous operating income. In
addition, the Company recognized $8,000 of realized gains
on the sale of real estate owned during the six months
ended June 30, 1998, as compared with $16,000 of realized
gains on the sale of investments and real estate owned
during the six months ended June 30, 1997.
Non-Interest Expense. Non-interest expense decreased
$5,000, or 0.93%, from $536,000 for the three months ended
June 30, 1997 to $531,000 for the three months ended June
30, 1998. The components of this decrease included
increases of $9,000 in compensation and employee benefits
expense, $11,000 in legal and professional services, and
net decreases of $25,000 in various other expense items.
The increase in legal and professional services was
attributed to expenses resulting from proxy contests
involving the Company, as well as fees connected with
ongoing litigation.
On May 7, 1998, Barrett Rochman, a stockholder of the
Company, filed suit against the Company and each of the
directors individually seeking an injunction requiring the
Company to install him and David Burns as directors of the
Company and prohibiting the Company from installing
Directors Hileman and Stevens as directors. Mr. Rochman is
also seeking money damages of an unspecified amount. In
connection with the 1998 Annual Meeting of Stockholders,
Mr. Rochman solicited proxies in opposition to management
and in favor of his nominees for director. The Board of
Directors determined that Mr. Rochman, together with
certain other stockholders were acting in concert and
controlled in excess of 10% of the outstanding shares of
Company common stock in violation of the Company's Articles
of Incorporation and, in accordance with the provisions of
the Articles of Incorporation, the Board invalidated the
voting rights of shares owned by such group of stockholders
in excess of the limit. The Company and each director
individually are also party to litigation involving a
former employee of the Bank who alleges that she was
terminated in retaliation for her voting of shares in
opposition to management and certain other matters. The
Company and the Bank believe the former employee's claims
are without merit. Such litigation is ongoing and as such
the Company anticipates that it will continue to incur
legal expenses related to such litigation in future
periods.
Non-interest expense increased $39,000, or 4.03%, from
$968,000 for the six months ended June 30, 1997 to $1.0
million for the six months ended June 30, 1998. This
increase included increases of $31,000 in compensation and
employee benefits expense, $24,000 in legal and
professional services, and net decreases of $16,000 in
various other expense items. The increase in compensation
and employee benefits expense was attributed to increases
in employee wages, while the increase in legal and
professional services is attributable to the same factors
described in the previous paragraph relating to the
operating results for the three month periods ended June
30, 1998 and 1997.
Income Tax Expense. Income tax expense was $(17,000) for
the three months
12<PAGE>
<PAGE>
ended June 30, 1998 as compared with $7,000 for the three
months ended June 30, 1997. The $24,000 decrease is
primarily due to the decrease in income before income taxes
from $41,000 for the three months ended June 30, 1997 to
$(25,000) for the three months ended June 30, 1998. The
negative tax expense (or tax benefit) of $17,000 for the
three months ended June 30, 1998 arises from the effect of
items such as tax-exempt interest income upon the Company's
income tax computation.
Income tax expense was $(21,000) for the six months ended
June 30, 1998 as compared with $42,000 for the six months
ended June 30, 1997. The $63,000 decrease is primarily
due to the decrease in income before income taxes from
$155,000 for the six months ended June 30, 1997 to
$(22,000) for the six months ended June 30, 1998. Again,
the negative tax expense (or tax benefit of $21,000 for
the six months ended June 30, 1998 arises from the effect
of items such as tax-exempt interest income upon the
Company's income tax computation.
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 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 adopted the relevant provisions
of the statement during 1997, and is now adopting the
provisions of the statement which become effective in
1998. The provisions of the statement adopted in 1998 did
not 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
13<PAGE>
<PAGE>
for fiscal years beginning after December 15, 1997. The
Company has adopted the provision of this statement in
1998, and has presented comprehensive income information in
the consolidated statements of financial condition and
statements of stockholders' equity.
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 statement
provides that its provisions need not be applied to
interim financial statements in the initial year of its
application. Therefore, the Company plans to adopt the
appropriate provisions of the statement for its financial
statements for the year ended December 31, 1998, and does
not believe that the adoption of this statement will have
a material effect on the Company's financial position or
operating results.
Employers' Disclosure about Pensions and Other
Postretirement Benefits. In February, 1998, the FASB
issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". SFAS No. 132
standardizes the disclosure requirements for pensions and
other postretirement benefits. This statement is
effective for financial statements for periods beginning
after December 15, 1997. The Company is adopting the
appropriate provisions of this statement during 1998, and
does not believe that the adoption of this statement will
have a material effect on the Company's financial position
or operating results.
Accounting for Derivative Instruments and Hedging
Activities. In June, 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 establishes a new model for
accounting for derivatives and hedging activities and
supersedes and amends a number of existing standards.
SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999, but earlier application is permitted as of
the beginning of any fiscal quarters subsequent to June
15, 1998. Upon the statement's initial application, all
derivatives are required to be recognized in the statement
of financial position as either assets or liabilities and
measured at fair value. In addition, all hedging
relationships must be designated, reassessed and
documented pursuant to the provisions of SFAS No. 133.
Adoption of SFAS No. 133 is not expected to have a
material effect on the Company's financial position or
operating results.
Regulatory Developments
-----------------------
On June 3, 1998, the Bank entered into a formal agreement
with the Office of the Comptroller of the Currency ("OCC").
The agreement requires that the Bank adopt a formal
strategic plan, a written plan with timetables to ensure
that all of its information systems are Year 2000 compliant
and to take certain other actions with respect to the
internal audit and compliance functions and its policies
and procedures. The Bank does not expect that such written
agreement will have a material adverse effect on its
operations.
14<PAGE>
<PAGE>
Year 2000
---------
As with all providers of financial services, the Bank's
operations are heavily dependent on information technology
systems. The Bank is addressing the potential problems
associated with the possibility that the computers that
control or operate the Bank's information technology system
and infrastructure may not be programmed to read four-digit
date codes and, upon arrival of the year 2000, may
recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data.
As of the date hereof, the Board of Directors of the Bank
has adopted a formal policy with respect to this Year 2000
problem and has tested its primary mission critical
systems. The Bank is working with the companies that
supply or service its information technology systems to
identify and remedy any year 2000 related problems.
As of the date of this Form 10-QSB, the Bank does not
anticipate that any expenses that are reasonably likely to
be incurred by the Bank in connection with this issue will
be material. No assurance can be given, however, that
significant expense will not be incurred in future periods.
In the event that the Bank is ultimately required to
purchase replacement computer systems, programs and
equipment, or incur substantial expense to make the Bank's
current systems, programs and equipment year 2000
compliant, the Bank's net earnings and financial condition
could be adversely affected.
In addition to possible expense related to its own systems,
the Bank could incur losses if loan payments are delayed
due to year 2000 problems affecting any major borrowers in
the Bank's primary market area. Because the Bank's loan
portfolio is highly diversified with regard to individual
borrowers and types of businesses and the Bank's primary
market area is not significantly dependent upon one
employer or industry, the Bank does not expect any
significant or prolonged difficulties that will affect net
earnings or cash flow.
15<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On May 7, 1998, Barrett Rochman, a stockholder of the
Company, filed suit in the Circuit Court of the First Judicial
Circuit, Williamson County, Illinois, (Rochman v. Heartland
Bancshares, Inc., Roger O. Hileman, Charles Stevens, James C.
Walker, Randall A. Youngblood, Paul R. Calcaterra and B. D.
Cross) against Heartland Bancshares, Inc. and each of the
individual directors of the Company seeking a preliminary and
permanent injunction and damages. Mr. Rochman alleges certain
wrongdoings in connection with the exclusion of votes at the
Annual Meeting of Stockholders. Mr. Rochman is seeking an
injunction prohibiting the Company from installing Messrs.
Hileman and Stevens as directors and requiring that Mr. Rochman
and Mr. Burns be installed as directors of the Company. Mr.
Rochman is also seeking damages although no specific amount is
specified in the complaint.
On June 16, 1998, Vicki Gower, a former employee of the
Bank, filed suit in the Circuit Court of the First Judicial
Circuit, Williamson County, Illinois (Vicki Gower v. Heartland
Bancshares, Inc., Roger O. Hileman, Charles Stevens, James C.
Walker, Randall A. Youngblood, Paul R. Calcaterra and B.D.
Cross) against the Company and each director individually
seeking money damages of an unspecified amount. Ms. Gower
alleges that she was wrongfully terminated in retaliation for
voting shares of stock owned by her and in the Bank's employee
stock ownership plan against management. She also claims that
such discharge constituted intentional infliction of emotional
distress and is seeking monetary damages of an unspecified
amount.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
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 (EDGAR Only)
16<PAGE>
<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 14, 1998 By: /s/ Roger O. Hileman
------------------------
Roger O. Hileman
(Principal Executive,
Accounting and Financial
Officer)
17
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
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<LOANS> 42,725
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