<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 March 31, 1998
Commission File Number: 0-28442
-------
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 May 15, 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
------ -----
<PAGE>
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEARTLAND BANCSHARES, INC.
--------------------------
AND SUBSIDIARY
--------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
(IN THOUSANDS)
-------------
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
ASSETS (Unaudited)
<S> ------ <C> <C>
Cash and cash equivalents
Interest-bearing $ 4,356 $ 3,319
Noninterest-bearing 1,380 1,651
Certificates of deposit 95 95
Investment securities available-for-sale at
estimated market value 1,513 1,714
Investment securities held-to-maturity 5,378 5,627
Mortgage-backed and related securities available-
for-sale at estimated market value 1,148 1,249
Mortgage-backed and related securities held-to-
maturity 5,414 5,737
Loans receivable, net 44,456 46,307
Investments required by law 577 577
Property, equipment, and property held
for investment, net 463 461
Accrued interest receivable 311 292
Prepaid expenses and other assets 47 32
Foreclosed real estate 209 239
Deferred tax asset 174 161
-------- --------
TOTAL ASSETS $ 65,521 $ 67,461
- ------------ ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities
- -----------
Deposits $ 52,844 $ 54,022
Accrued interest on deposits 51 63
Advances from borrowers for taxes and insurance 337 228
Other liabilities 140 127
Accrued income taxes 17 126
Short-term borrowings - 750
-------- --------
Total Liabilities $ 53,389 $ 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 and outstanding at March 31, 1998
and December 31, 1997 9 9
Additional paid-in capital 8,227 8,212
Unearned employee stock ownership plan
(ESOP) shares (494) (519)
Management recognition plan shares (481) (496)
Retained earnings - substantially restricted 4,862 4,938
Accumulated other comprehensive income:
Unrealized gains (losses) on securities 9 1
-------- --------
Total Stockholders' Equity $ 12,132 $ 12,145
-------------------------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 65,521 $ 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
----------------------
March 31, March 31,
1998 1997
----------------------
<S> <C> <C>
Interest Income
- ---------------
Interest on first mortgage loans $ 850 $ 797
Interest on other loans 52 38
Interest on investments, securities, and
deposits with banks 147 189
Interest on mortgage backed securities 109 150
-------- --------
Total Interest Income $ 1,158 $ 1,174
---------------------
Interest Expense
- ----------------
Interest on deposits $ 642 $ 643
Interest on borrowings 3 16
-------- --------
Total Interest Expense $ 645 $ 659
---------------------- -------- --------
Net Interest Income $ 513 $ 515
- -------------------
Provision for Loan Losses 81 10
- ------------------------- -------- --------
Net Interest Income After Provision
- -----------------------------------
for Loan Losses $ 432 $ 505
--------------- -------- --------
Non-Interest Income
- -------------------
Initial service charges and other loan fees $ 12 $ 13
Gain on sale of other real estate 8 -
Other 27 28
-------- --------
Total Non-Interest Income $ 47 $ 41
------------------------- -------- --------
Non-Interest Expense
- --------------------
Compensation to directors, officers, and
employees $ 201 $ 159
Pension expense and other employee benefits 39 59
Office properties and equipment expense
including depreciation 34 30
Advertising 9 13
Federal insurance premiums 12 9
Stationery, postage, and office supplies 14 22
Checking account expense 19 33
Service bureau expense 43 23
Other 59 51
Legal and professional services 46 33
-------- --------
Total Non-Interest Expense $ 476 $ 432
-------------------------- -------- --------
Income Before Income Taxes $ 3 $ 114
- -------------------------- -------- --------
Income Tax Expense (Benefit) (4) 35
-------- --------
Net Income (Loss) $ 7 $ 79
- ----------------- ======== ========
Earnings Per Common Share - Basic
- ---------------------------------
Net income $ .01 $ .10
======== ========
<PAGE>
Earnings Per Common Share - Assuming Dilution
- ---------------------------------------------
Net income $ .01 $ .10
======== ========
</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 Retained Comprehensive
Stock Capital Shares Shares Earnings Income Total
------ ---------- -------- -------- --------- ---------- -----
<S> <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 $ - $ - $ - $ - 7 $ - $ 7
Other comprehensive income,
net of tax:
Unrealized gains (losses)
securities:
Unrealized holding gains
(losses) arising during
the period (net of
tax of $6) - - - - - 8 8
----- ------- ----- ----- ------ ---- -------
Total comprehensive income $ - $ - $ - $ - $ 7 $ 8 $ 15
Cash dividends paid - - - - (83) - (83)
Amortization of management
recognition plan expense - - - 15 - - 15
Amortization of ESOP expense - 15 25 - - - 40
----- ------- ----- ----- ------ ---- -------
Balance at March 31, 1998 $ 9 $ 8,227 $(494) $(481) $4,862 $ 9 $12,132
- ------------------------- ===== ======= ===== ===== ====== ==== =======
</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>
Three Months Ended
----------------------
March 31, March 31,
1998 1997
----------------------
<S> <C> <C>
Cash Flows From Operating Activities
- ------------------------------------
Net income $ 7 $ 79
-------- --------
Adjustments to reconcile net income
to net cash provided (used) by operating
activities
Depreciation $ 14 $ 13
Discount accretion/premium amortization-
securities (net) (1) (1)
Amortization of deferred loan origination fees (8) (7)
Amortization of ESOP expense 40 27
Amortization of MRP expense 15 -
Provision for loan losses 81 10
(Gain) loss on sale of other real estate (8) -
(Increase) decrease in accrued interest receivable (19) (49)
(Increase) decrease in prepaid expenses/other assets (15) 9
(Increase) decrease in prepaid income taxes - 44
(Increase) decrease in deferred income taxes (19) (10)
Increase (decrease) in accrued interest payable (12) 14
Increase (decrease) in other liabilities 13 3
Increase (decrease) in income taxes payable (109) -
-------- --------
Total Adjustments $ (28) $ 53
----------------- -------- --------
Net Cash Provided (Used) by Operating Activities $ (21) $ 132
------------------------------------------------ -------- --------
Cash Flows From Investing Activities
- ------------------------------------
Proceeds from maturities of investment securities
and mortgage-backed securities $ 450 $ 1,350
Principal payments on mortgage-backed securities 439 341
Net (increase) decrease in loans receivable 1,726 (1,933)
Purchases of property and equipment (16) (28)
Purchase of investment securities available-for-sale - (200)
Proceeds from sale of other real estate 90 84
-------- --------
Net Cash Provided (Used) by Investing Activities $ 2,689 $ (386)
------------------------------------------------ -------- --------
Cash Flows From Financing Activities
- ------------------------------------
Net increase (decrease) in deposits $ (1,178) $ 339
Net increase (decrease) in mortgage escrow funds 109 120
Proceeds from Federal Home Loan Bank advances - 1,500
Shares acquired by management recognition plan - (230)
Dividends on common stock (83) (82)
Payments on Federal Home Loan Bank advances (750) -
-------- --------
Net Cash Provided by Financing Activities $ (1,902) $ 1,647
----------------------------------------- -------- --------
Net Increase in Cash and Cash Equivalents $ 766 $ 1,393
- -----------------------------------------
Cash and Cash Equivalents at Beginning of Period 4,970 1,872
-------- --------
Cash and Cash Equivalents at End of Period $ 5,736 $ 3,265
- ------------------------------------------ ======== ========
<PAGE>
Supplemental Disclosures
- ------------------------
Cash Paid During the Period for:
Interest $ 657 $ 645
Income taxes $ 124 $ -
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)
-----------
March 31, 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 ended March 31, 1998 and
1997 have been recorded. Operating results for the three
months ended March 31, 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 ended March 31, 1997 to conform with the financial
statement presentation for the three months ended March
31, 1998. The reclassifications had no effect on
previously reported net income or retained earnings.
5<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
------------------
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 weighted average
numbers of shares used for basic earnings per share for
the three months ended March 31, 1998 and March 31, 1997
were 816,763 and 814,614, respectively. The weighted
average numbers of shares used for diluted earnings per
share for the three months ended March 31, 1998 and March
31, 1997 were 824,260 and 819,213, respectively.
Earnings per share amounts for the three months ended
March 31, 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 ended March 31, 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 ended March 31, 1998 and
1997 was $37,587 and $32,225, respectively.
6<PAGE>
<PAGE>
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 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 March 31, 1998, a liability of $92,170 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 ended March 31,
1998 and 1997 was $9,513 and $8,307, 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 March 31,
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 three
months ended March 31, 1998 was $15,342.
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
7<PAGE>
<PAGE>
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 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 March 31, 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. The program will be
dependent upon market conditions, and there is no
guarantee as to the exact number of shares which will be
repurchased by the Company. Management expects that the
repurchase program will be completed within six months.
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 March 31, 1998, no shares have as
yet been repurchased under the plan.
8<PAGE>
<PAGE>
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 March 31,
1998 and December 31, 1997, and the results of operations
for the three months ended March 31, 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
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.
9
<PAGE>
A portion of the Bank's liquidity consists of cash and
cash equivalents, which include investments in highly
liquid, short-term deposits. The levels of these assets
are dependent on the Bank's operating, financing, and
investing activities during any given period. At March
31, 1998 and December 31, 1997, the consolidated amounts
of cash and cash equivalents totaled $5.7 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 $2.7 million at March 31, 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 March
31, 1998, the Bank had no outstanding advances from the
FHLB.
At March 31, 1998, the Bank had $171,000 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 March 31, 1998, the Bank was in
compliance with all regulatory capital requirements.
Financial Condition
- -------------------
Total assets decreased by $1.9 million, or 2.88%, from
$67.5 million at December 31, 1997 to $65.5 million at
March 31, 1998. The decrease was due primarily to a
decrease of $1.9 million in loans receivable.
The Bank's loan portfolio decreased by $1.9 million, or
4.00%, from $46.3 million at December 31, 1997 to $44.5
million at March 31, 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 three
months ended March 31, 1998.
The Bank's allowance for loan losses totaled $400,000 at
March 31, 1998 and December 31, 1997. During the three
months ended March 31, 1998, net loan charge-offs amounted
to $81,000. An additional provision of $81,000 was made
during the period.
The Company's consolidated investment securities portfolio
totaled $6.9 million at March 31, 1998, a decrease of
$450,000 from $7.3 million at December 31, 1997. This
decrease was due to maturities and calls of investment
securities totaling $450,000 for the three months ended
March 31, 1998. The Company's mortgage-backed and related
securities portfolio totaled $6.6 million as of March 31,
1998, a decrease of $424,000 from $7.0 million at December
31, 1997. This decrease was due to principal payments
received on mortgage-backed and related securities.
During the three months ended March 31, 1998, the
institution's portfolio of investment securities and
mortgage-backed and related securities classified as
available for sale increased capital by $8,000 (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.
10
<PAGE>
<PAGE>
Total liabilities decreased by $1.9 million, or 3.48%,
from $55.3 million at December 31, 1997 to $53.4 million
at March 31, 1998. Total deposits decreased by $1.2
million, or 2.18%, from $54.0 million at December 31, 1997
to $52.8 million at March 31, 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 three months ended
March 31, 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 $13,000 during the three
months ended March 31, 1998. This decrease is primarily
due to dividends of $83,000 paid on Company stock. These
decreases were offset by amortization of ESOP and MRP
expense of $55,000, $8,000 in unrealized holding gains on
securities (net of tax), and net income of $7,000 for the
period.
Results of Operations
- ---------------------
Net Income. Net income was $7,000 for the three months
ended March 31, 1998, as compared to $79,000 for the three
months ended March 31, 1997. The decrease of $72,000 was
primarily due to a $71,000 increase in the provision for
loan losses during the first quarter of 1998 as compared
to the first quarter of 1997. Also contributing to the
decrease was a decrease of $2,000, or 39 basis points,
in net interest income and an increase of $44,000, or
10.19%, in non-interest expense. These changes were
partially offset by an increase of $6,000, or 14.63%, in
non-interest income, and by a decrease of $39,000 in income
tax expense.
Net Interest Income. Net interest income decreased
$2,000, or 39 basis points, to $513,000 for the three
months ended March 31, 1998, as compared to $515,000 for
the three months ended March 31, 1997. The ratio of
average interest-earning assets to average interest-
bearing liabilities remained steady at 119.83% for both
the three months ended March 31, 1998 and the three months
ended March 31, 1997, while the net interest margin
increased from 2.39% for the three months ended March 31,
1997 to 2.45% for the three months ended March 31, 1998.
The consistent level of net interest income reflects the
relatively uniform relationship between the ratio of the
total of average interest-earning assets to average
interest-bearing liabilities for the three months ended
March 31, 1998 as compared to the same period in 1997. The
small increase in the net interest margin was offset by the
fact that average interest-earning assets decreased more
than average interest-bearing liabilities for the periods
in question.
Interest Income. Total interest income decreased by
$16,000, or 1.36%, totaling $1.2 million both for the
three months ended March 31, 1998 and for the three months
ended March 31, 1997. The decrease in interest income is
primarily the result of a decrease of $1.7 million, or
2.56%, in average interest-earning assets from $64.4
million for the three months ended March 31, 1997 to $62.7
million for the three months ended March 31, 1998. This
decrease was primarily due to a decrease of $4.0 million
in the average balance of the securities and short-term
investment portfolios during the three months ended March
31, 1998 as compared to the three months ended March 31,
1997, resulting from maturities and repayments on such
assets exceeding new investments in this area. This
decrease was partially offset by a $2.3 million increase in
the average balance of loans receivable for the three
months ended March 31, 1998 as compared with the three
months ended March 31, 1997. This increase reflects the
Bank's ongoing loan origination efforts. The decrease in
11<PAGE>
<PAGE>
interest income also reflects an increase of 7 basis points
in the average yield on interest-earning assets for the
three months ended March 31, 1998 as compared to the three
months ended March 31, 1997.
Interest Expense. Interest expense decreased by $14,000,
or 2.12%, to $645,000 for the three months ended March 31,
1998 as compared to $659,000 for the three months ended
March 31, 1997. This decrease was primarily due to a
decrease of $1.4 million in the average balance of
interest-bearing liabilities from $53.7 million for the
three months ended March 31, 1997 to $52.4 million for the
three months ended March 31, 1998. This decrease is
attributed to a $1.5 million decrease in the average
balance of borrowings from the Federal Home Loan Bank,
with no such borrowings outstanding as of March 31, 1998.
The decrease in the average balance of interest-bearing
liabilities was partially offset by a 3 basis point
increase in the average cost of interest-bearing
liabilities, from 4.90% for the three months ended March
31, 1997 to 4.93% for the three months ended March 31,
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. An $81,000 provision for
loan losses was made during the three months ended March
31, 1998, compared with a provision of $10,000 for the
three months ended March 31, 1997. The increase in the
provision was deemed necessary due to charge-offs of
$81,000 during the first quarter 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 increased from
$41,000 for the three months ended March 31, 1997 to
$47,000 for the three months ended March 31, 1998. The
largest components of non-interest income for the three
month periods ended March 31, 1998 and 1997 included
$12,000 and $13,000, respectively, in loan and other
service fees and $27,000 and $28,000, respectively, in
other service charges and other miscellaneous operating
income. In addition, the Company recognized a gain of
$8,000 on the sale of real estate owned during the three
months ended March 31, 1998, with no corresponding gains
during the three months ended March 31, 1997.
Non-Interest Expense. Non-interest expense increased
$44,000, or 10.19%, from $432,000 for the three months
ended March 31, 1997 to $476,000 for the three months
ended March 31, 1998. This increase included increases of
$22,000 in compensation and employee benefits expense,
$13,000 in legal and professional services, and net
increases of $9,000 in various other expense items.
12<PAGE>
<PAGE>
Income Tax Expense. Income tax expense was $(4,000) for
the three months ended March 31, 1998 as compared with
$35,000 for the three months ended March 31, 1997. The
$39,000 decrease is primarily due to the decrease in
income before income taxes from $114,000 for the three
months ended March 31, 1997 to $3,000 for the three months
ended March 31, 1998. The negative tax expense (or tax
benefit) of $4,000 for the three months ended March 31,
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.
13<PAGE>
<PAGE>
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 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.
14<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.
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 30, 1998, the Company held its Annual Meeting of
Stockholders for the purpose of electing two directors and
considering a stockholder proposal calling for the Board
to engage an investment banker or consultant to advise the
Board on strategies to enhance earnings and shareholder
value (the "Stockholder Proposal").
(b) Mr. Roger Hileman and Mr. Charles Stevens were elected as
directors at the Annual Meeting. In addition, the
following directors had terms of office continuing after
the Annual Meeting: James C. Walker, Randall A.
Youngblood, Paul R. Calcaterra and B. D. Cross.
(c) At the Annual Meeting, stockholders voted upon the
election of two individuals as directors and the
consideration of the Stockholder Proposal. The election
of directors was contested with management soliciting
proxies in favor of its two nominees and Barrett Rochman
soliciting proxies in favor of himself and David Burns.
In accordance with Article XIV of the Company's Articles
of Incorporation, all shares beneficially owned by any
person (including a group acting in concert) in excess of
10% of the issued and outstanding shares of Company common
stock are not counted as shares outstanding for purposes
of voting and are not entitled to vote in connection with
any matter submitted to stockholders for a vote. The
Board of Directors of the Company determined that Barrett
Rochman, together with other stockholders with whom he was
acting in concert, had acquired in excess of 10% of the
outstanding shares. Accordingly, 140,999 shares were not
counted as outstanding or entitled to vote. The results
of the voting at the Annual Meeting were as follows:
1. Election of Directors
Nominee Votes For Votes Withheld
- ------- --------- --------------
Roger O. Hileman 331,854 627
Charles Stevens 331,854 627
Barrett Rochman 288,976 0
David Burns 288,976 0
15<PAGE>
<PAGE>
2. Stockholder Proposal
Votes For Votes Against Abstentions
--------- ------------- -----------
274,063 320,628 26,767
(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 (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: May 15, 1998 By: /s/ Roger O. Hileman
------------------------
Roger O. Hileman
(Principal Executive,
Accounting and Financial
Officer)
17
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,380
<INT-BEARING-DEPOSITS> 4,451
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,661
<INVESTMENTS-CARRYING> 10,792
<INVESTMENTS-MARKET> 10,740
<LOANS> 44,856
<ALLOWANCE> 400
<TOTAL-ASSETS> 65,521
<DEPOSITS> 52,844
<SHORT-TERM> 0
<LIABILITIES-OTHER> 545
<LONG-TERM> 0
<COMMON> 9
0
0
<OTHER-SE> 12,123
<TOTAL-LIABILITIES-AND-EQUITY> 65,521
<INTEREST-LOAN> 902
<INTEREST-INVEST> 256
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,158
<INTEREST-DEPOSIT> 642
<INTEREST-EXPENSE> 645
<INTEREST-INCOME-NET> 513
<LOAN-LOSSES> 81
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 476
<INCOME-PRETAX> 3
<INCOME-PRE-EXTRAORDINARY> 7
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
<YIELD-ACTUAL> 3.27
<LOANS-NON> 498
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 400
<CHARGE-OFFS> 83
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 400
<ALLOWANCE-DOMESTIC> 400
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
