FORM 10-QSB
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from to .
Commission file number: 333-32245
Heartland Bancshares, Inc.
(Exact name of small business issuer as specified in its charter)
Indiana 35-2017085
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
420 North Morton Street, P.O. Box 469, Franklin, Indiana 46131
(Address of principal executive offices)
(317)738-3915
(Registrant's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 90 days.
Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
As of November 12, 1999, the latest practicable date, 1,265,000 shares of the
Registrant's Common Stock, no par value, were issued and outstanding.
Transitional Small Business Disclosure Format Yes No X
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
HEARTLAND BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1999 and December 31, 1998
(Unaudited, Dollar amounts in thousands, except share data)
- --------------------------------------------------------------------------------
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 571 $ 403
Interest bearing deposits in other banks 3,206 1,560
Federal funds sold 3,912 1,200
-------- --------
Total cash and cash equivalents 7,689 3,163
Securities available-for-sale, at market 12,072 10,457
Loans 83,063 49,442
Allowance for loan losses (1,246) (742)
-------- --------
Loans, net 81,817 48,700
Premises, furniture and equipment, net 1,667 1,707
Accrued interest receivable and other assets 1,210 633
-------- --------
$104,455 $ 64,660
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 8,015 $ 4,341
Interest-bearing demand and savings deposits 25,732 13,397
Interest-bearing time deposits 52,653 35,016
-------- --------
Total deposits 86,400 52,754
Short-term borrowings 6,045 740
Accrued interest payable and other liabilities 595 250
-------- --------
93,040 53,744
Shareholders' equity
Common stock, no par value: 10,000,000 shares
authorized; 1,265,000 shares issued and
outstanding 1,265 1,265
Additional paid-in capital 10,466 10,466
Accumulated deficit (179) (868)
Accumulated other comprehensive income (137) 53
-------- --------
11,415 10,916
$104,455 $ 64,660
======== ========
</TABLE>
<PAGE>
<TABLE>
HEARTLAND BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME For the three
months and nine months ended September 30, 1999 and 1998
(Unaudited, Dollar amounts in thousands, except per share data)
- --------------------------------------------------------------------------------
<CAPTION>
Three Months Nine months
Ended September 30, Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans $1,866 $ 716 $4,691 $ 1,324
Securities:
Taxable 182 141 511 388
Non-taxable 4 - 16 76
Other 24 14 51 -
------ ------ ------ ------
Total interest income 2,076 871 5,269 1,788
Interest expense
Deposits 915 397 2,378 745
Short-term borrowings 82 3 106 5
------ ------ ------ ------
Total interest expense 997 400 2,484 750
------ ------ ------ ------
Net interest income 1,079 471 2,785 1,038
Provision for loan losses 115 207 513 530
------ ------ ------ ------
Net interest income after
provision for loan losses 964 264 2,272 508
Noninterest income
Service charges and fees 60 55 138 176
Noninterest expense
Salaries and employee benefits 340 261 949 737
Occupancy and equipment
expenses, net 54 43 153 122
Data processing expense 100 49 227 118
Printing and supplies 20 16 52 55
Advertising 24 22 62 65
Director fees 7 7 21 21
Professional fees 24 14 52 43
Credit reports and other loan
expenses 10 16 36 37
Amortization of organization
costs - 26 - 48
Other operating expenses 90 20 169 74
------ ------ ------ ------
Total noninterest expense 669 474 1,721 1,320
------ ------ ------ ------
Income before income taxes 355 (155) 689 (636)
Income taxes - - - -
------ ------ ------ ------
Net income/(loss) $ 355 $ (155) $ 689 $ (636)
====== ====== ====== ======
Basic and diluted earnings
per share $ .28 $ (.12) $ .54 $ (.50)
====== ====== ====== ======
Comprehensive income (Note 1) $ 392 $ (92) $ 499 $ (558)
====== ====== ====== ======
</TABLE>
<PAGE>
<TABLE>
HEARTLAND BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months and nine months ended September 30, 1999 and 1998
(Dollar amounts in thousands, except share through data)
- --------------------------------------------------------------------------------
<CAPTION>
Accumulated
Other Total
Additional Accum- Compre- Share-
Common Paid-in ulated hensive holders'
Stock Capital Deficit Income Equity
----- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1997 $1,265 $10,466 $ (240) $ 13 $11,504
Comprehensive income (loss)
Net loss for nine months
Ended September 30, 1998 (636) (636)
Change in unrealized
gain on securities
available-for-sale 78 78
-------
Total comprehensive loss (558)
------ ------- ------ ------- -------
Balance September 30, 1998 1,265 10,466 (876) 91 10,946
Comprehensive income (loss)
Net loss for three months
ended December 31, 1998 (147) (147)
Change in unrealized
gain on securities
available-for-sale 25 25
-------
Total comprehensive loss (122)
------ ------- ------ ------- -------
Balance December 31, 1998 1,265 10,466 (868) 53 10,916
Comprehensive income (loss)
Net income for nine months
ended September 30, 1999 689 689
Change in unrealized
gain on securities
available-for-sale (190) (190)
-------
Total comprehensive income 499
------ ------- ------ ------- -------
Balance September 30, 1999 $1,265 $10,466 $ (179) $ (137) $11,415
====== ======= ====== ======= =======
</TABLE>
<PAGE>
<TABLE>
HEARTLAND BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine
months ended September 30, 1999 and 1998
(Unaudited, Dollar amounts in thousands, except per share data)
- --------------------------------------------------------------------------------
<CAPTION>
Nine Months Ended
--September 30,--
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income/(loss) $ 689 $ (636)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation and amortization 62 130
Provision for loan losses 513 530
Change in assets and liabilities:
Accrued interest receivable and other assets (486) (375)
Accrued interest payable and other liabilities 345 73
Net cash from operating activities 1,123 (278)
Cash flows from investing activities
Purchase of securities available-for-sale (4,131) (4,625)
Proceeds from sales, calls and maturities of
securities available-for-sale 2,229 3,540
Loans made to customers, net of payments collected (33,630) (34,301)
Net purchases of property and equipment (16) (608)
-------- --------
Net cash from investing activities (35,548) (35,994)
Cash flows from financing activities
Net change in deposit accounts 33,646 37,289
Net change in short-term borrowings 5,305 (800)
-------- ---------
Net cash from financing activities 38,951 36,489
-------- --------
Net change in cash and cash equivalents 4,526 217
Cash and cash equivalents at beginning of period 3,163 1,140
-------- --------
Cash and cash equivalents at end of period $ 7,689 $ 1,357
======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 2,730 $ --
Income taxes 304 --
</TABLE>
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: The consolidated financial statements include the
accounts of Heartland Bancshares, Inc. (Heartland) and its wholly-owned
subsidiary, Heartland Community Bank (Bank), after elimination of significant
inter-company transactions and accounts. The Bank commenced operation December
17, 1997.
Heartland operates primarily in the banking industry, which accounts for more
than 90% of its revenues, operating income and assets. The Bank is engaged in
the business of commercial and retail banking, with operations conducted through
its main office located in Franklin, Indiana. The Bank opened an additional
branch location in Greenwood, Indiana in January 1998. The majority of the
Bank's income is derived from commercial and retail business lending activities
and investments. The majority of the Bank's loans are secured by specific items
of collateral including business assets, real property and consumer assets.
Use of Estimates: To prepare financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available information. These estimates and assumptions affect the amounts
reported in the financial statements and the disclosures provided, and future
results could differ. The allowance for loan losses, the fair values of
financial instruments, and status of contingencies are particularly subject to
change.
Securities: Securities are classified as held to maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value,
with unrealized holding gains and losses reported separately in shareholders'
equity, net of tax. Securities are written down to fair value when a decline in
fair value is not temporary. Interest and dividend income, adjusted by
amortization of purchase premium or discount, is included in earnings. The Bank
had no held to maturity securities at September 30, 1998 or 1999.
Loans: Loans are reported at the principal balance outstanding, net of unearned
interest, deferred loan fees and costs, and an allowance for loan losses.
Interest income is reported on the interest method and includes amortization of
net deferred loan fees and costs over the loan term.
Interest income is not reported when full loan repayment is in doubt, typically
when payments are past due over 90 days (180 days for residential mortgages).
Payments received on such loans are reported as principal reductions.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance, increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance balance required
based on known and inherent risks in the portfolio, information about specific
borrower situations and estimated collateral values, economic conditions, and
other factors. Allocations of the allowance may be made for specific loans, but
the entire allowance is available for any loan that, in management's judgment,
should be charged-off.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage, consumer and credit card loans, and on an
individual loan basis for other loans. If a loan is impaired, a portion of the
allowance is allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or at the fair
value of collateral if repayment is expected solely from the collateral. Loans
are evaluated for impairment when payments are delayed, typically 90 days or
more, or when it is probable that all principal and interest amounts will not be
collected according to the original terms of the loan.
Premises, Furniture and Equipment: Premises, furniture and equipment are stated
at cost less accumulated depreciation. Depreciation expense is recognized over
the estimated useful lives of the assets, principally on the straight-line
method. These assets are reviewed for impairment when events indicate the
carrying amount may not be recoverable. Maintenance and repairs are expensed and
major improvements are capitalized.
Intangibles: A new accounting standard effective on January 1, 1999, requires
all previously capitalized organizational costs to be written off as of that
date. Early adoption was allowed, so Heartland completely amortized
organizational costs during 1998. The incremental amount written-off in 1998 by
early adoption of this accounting standard was not significant to the results of
operations.
Stock Compensation: Expense for employee compensation under stock option plans
is based on Accounting Principles Board Opinion 25, with expense reported only
if options are granted below market price at grant date. Pro forma disclosures
of net income and earnings per share are provided as if the fair value method of
Financial Accounting Standard No. 123 were used for stock based compensation.
Income Taxes: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Instruments: Financial instruments include credit instruments, such as
commitments to make loans and standby letters of credit, issued to meet customer
financing needs. The face amount for these items represents the exposure to
loss, before considering customer collateral or ability to repay.
Statement of Cash Flows: Cash and cash equivalents are defined to include cash
on hand, amounts due from banks, and federal funds sold. Heartland reports net
cash flows for customer loan transactions, deposit transactions, and short-term
borrowings.
Earnings Per Common Share: Basic earnings per common share is net income divided
by the weighted average number of common shares outstanding during the period.
Diluted earnings per common share includes the dilutive effect of additional
potential common shares issuable under stock options.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale which are also recognized as separate
components of equity. The accounting standard that requires reporting
comprehensive income first applies for 1998, with prior information restated to
be comparable. There are no reclassification adjustments to other comprehensive
income in 1998 or 1999.
Dividend Restriction: Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the bank to the holding company or by
the holding company to shareholders.
Fair Values of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed separately. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and
other factors, especially in the absence of broad markets for particular items.
Changes in assumptions or in market conditions could significantly affect the
estimates. The fair value estimates of existing on- and off-balance sheet
financial instruments does not include the value of anticipated future business
or the values of assets and liabilities not considered financial instruments.
Industry Segment: Internal financial information is primarily reported and
aggregated in one line of business, i.e. banking.
Financial Statement Presentation: Certain items in the prior financial
statements have been reclassified to correspond with the current presentation.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
NOTE 2 - GENERAL
These financial statements were prepared in accordance with the Securities and
Exchange Commission instructions for Form 10-QSB and for interim periods do not
include all of the disclosures necessary for a complete presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. These financial statements have been
prepared on a basis consistent with the annual financial statements and include,
in the opinion of management, all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results of
operations and financial position at the end of and for the periods presented.
NOTE 3 - PER SHARE DATA
The following illustrates the computation of basic and diluted earnings per
share for the three months and nine months ended September 30, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Nine months
Ended September 30, Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic earnings per share
Net income/(loss) $ 355 $ (155) $ 689 $ (636)
========= ========= ========= =========
Weighted average shares
outstanding 1,265,000 1,265,000 1,265,000 1,265,000
========= ========= ========= =========
Basic earnings per share $ .28 $ (.12) $ .54 $ (.50)
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Nine months
Ended September 30, Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Dilutive earnings per share
Net income/(loss) $ 355 $ (155) $ 689 $ (636)
========= ========= ========= =========
Weighted average shares
outstanding 1,265,000 1,265,000 1,265,000 1,265,000
Dilutive effect of assumed
exercise of stock options - - - 1,496
--------- --------- --------- ---------
Diluted average shares
Outstanding 1,265,000 1,265,000 1,265,000 1,266,496
--------- --------- --------- ---------
Diluted earnings per share $ .28 $ (.12) $ .54 $ (.50)
========= ========= ========= =========
</TABLE>
<PAGE>
ITEM 2.
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
INTRODUCTION
The following discussion focuses on the financial condition at September 30,
1999 compared to December 31, 1998 and the results of operations for the three
and nine month periods ended September 30, 1999 in comparison to the three and
nine month periods ended September 30, 1998 of Heartland Bancshares, Inc.
(Heartland). Heartland was incorporated May 27, 1997. Heartland was formed with
the specific intent to form a wholly owned subsidiary state chartered bank
(Heartland Community Bank or Bank). Heartland received approval from the Federal
Reserve Bank of Chicago to be a bank holding company in the fall of 1997.
Operations of the Bank began December 17, 1997.
This discussion should be read in conjunction with the interim financial
statements and related footnotes.
The registrant is not aware of any trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the liquidity,
capital resources or operations except as discussed herein. Also, the Registrant
is not aware of any current recommendations by regulatory authorities that would
have such effect if implemented.
GENERAL
As of October 2, 1997, Heartland raised approximately $11,735,000 in equity
capital through the sale of 1,265,000 shares of the Company's common stock at
$10 per share, net of underwriting discounts and offering costs. Proceeds from
the offering were used to capitalize the Bank and provide working capital.
Heartland's only activity beyond holding stock of the Bank is investment in
securities using working capital provided by the issuance of shares of common
stock.
Heartland's plan of operation is centralized around the growth of the Bank. The
primary operation of the Bank is to accept deposits and make loans. The
operating results of Heartland are affected by general economic conditions, the
monetary and fiscal policies of federal agencies and the regulatory policies of
agencies that regulate financial institutions. Heartland's cost of funds is
influenced by interest rates on competing investments and general market rates
of interest. Lending activities are influenced by consumer and commercial
demand, which in turn are affected by the interest rates at which such loans are
made, general economic conditions and the availability of funds for lending
activities.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
The Federal Financial Institutions Examination Council (FFIEC) has issued
several statements regarding preparing for the Year 2000 date change and related
issues. Those statements have identified specific actions and plans to be
adopted by financial institutions, all of which would be materially adversely
affected by Year 2000 failure of loan and deposit data processing systems. As of
September 30, 1999, Heartland has implemented the procedures and plans set out
by FFIEC. Heartland has completed the evaluation and testing of computer and
software systems, in cooperation with its independent data processing service
provider and hardware and software manufacturers and vendors, and estimates that
the amount of costs that will be incurred to prepare for the date change will
not be significant. Although Heartland has no reason to expect that its data
processing and other costs and expenses will be significant or that its
financial condition and results of operations will be adversely affected by Year
2000 problems, this is a forward-looking statement, and actual expenses may vary
materially from current expectations due to the possibility, among other risks,
that the Company's data processing service provider will be unable to perform in
accordance with the Year 2000 plan and the possibility that the Company's
customers may not be Year 2000 compliant.
FINANCIAL CONDITION
Heartland experienced continued growth through the first nine months of 1999.
Total assets at September 30, 1999 are $104.5 million, an increase of $39.8
million or 61.55% from the December 31, 1998 total assets of $64.7 million.
Investment securities total $12.1 million at September 30, 1999 compared to
$10.5 million at December 31, 1998, an increase of $1.6 million or 15.44%. Total
gross loans are $83.1 million at September 30, 1999, representing growth of
$33.7 million, or 68.0%, from the December 31, 1998 total of $49.4 million.
An increase in total deposits of $33.6 million to $86.4 million at September 30,
1999, or 63.8% from $52.8 million at December 31, 1998 primarily funded the
growth in assets. Short-term borrowings were increased by $5.3 million from $0.7
million at December 31, 1998 to $6.0 million at September 30, 1999. The increase
was due to two advances from the Federal Home Loan Bank of Indianapolis (FHLBI)
totaling $5 million. Heartland maintains a blanket collateral agreement with the
FHLBI whereby all available mortgage loans and securities within Heartland's
portfolio have been pledged as collateral for the advances, which mature in
2000.
Heartland's total equity to total asset ratio was 10.93% at September 30, 1999
compared to 16.88% at December 31, 1998. The change was primarily due to the
growth in assets, offset by the total comprehensive income for the nine months
ended September 30, 1999. Book value per common share of Heartland was $9.02 at
September 30, 1999 compared to $8.63 at December 31, 1998. The change in book
value per common share resulted from the total comprehensive income for the nine
months ended September 30, 1999.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Heartland recorded net income of $355,000 for the three months ended September
30, 1999 compared to a net loss of $(155,000) for the three months ended
September 30, 1998. Similarly net income for the nine months ended September 30,
1999 was $689,000 compared to a net loss of $(636,000) for the nine months ended
September 30, 1998. The improvements were primarily due to the increase in net
interest income. Net interest income for the three months and nine months ended
September 30, 1999 was $1.1 million and $2.8 million compared to $471,000 and
$1.0 million for the three months and nine months ended September 30, 1998.
Non-interest income was $60,000 and $138,000 for the three months and nine
months ended September 30, 1999. Comparatively, non-interest income was $55,000
and $176,000 for the three months and nine months ended September 30, 1998.
Increases in net interest income were achieved primarily through increased
volume of interest earning assets. Total interest income for the three months
ended September 30, 1999 was $2.1 million compared to $871,000 for the same
period in 1998. Interest income for the nine months ended September 30, 1999 and
1998 was $5.3 million and $1.8 respectively. Interest expense of $997,000 and
$2.5 million was incurred during the three months and nine months ended
September 30, 1999. Interest expense during the three months and nine months
ended September 30, 1998 was $400,000 and $750,000. Interest expense during all
periods discussed is related to interest bearing deposits and short-term
borrowings.
Provision for loan losses recorded during the three months ended September 30,
1999 was $115,000 compared to $207,000 for the three months ended September 30,
1998. Similarly, Heartland recorded provision for loan losses of $513,000 during
the nine months ended September 30, 1999 and $530,000 during the same period in
1998.
Salaries and benefits expense was $340,000 and $949,000 for the three months and
nine months ended September 30, 1999 compared to $261,000 and $737,000 for the
three months and nine months ended September 30, 1998. The increases are due
primarily to additional employees added to service the growing loan and deposit
customer base.
Net occupancy and equipment expenses of $54,000 were incurred during the three
months ended September 30, 1999 compared to $43,000 during the same period in
1998. Heartland recorded net occupancy and equipment expenses of $153,000 and
$122,000 for the nine months ended 1999 and 1998 respectively. The Bank entered
into a 10 year lease agreement with a non-related party for a facility located
on Highway 135 in Greenwood, Indiana and commenced banking activities in that
facility in May, 1998.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
Data processing expense was $100,000 for the three months ended September 30,
1999 compared to $49,000 for the three months ended September 30, 1998. Data
processing expense was $227,000 for the nine months ended September 30, 1999 and
$118,000 for the same period in 1998. In the fourth quarter of 1997, the Bank
entered into a three-year contract with a third party service provider for core
data processing, with monthly expense partially based on volume of accounts and
transactions. In the third quarter of 1999, the Bank agreed to an addendum to
the contract which added daily item processing and check imaging to the services
provided. This addition caused $24,000 of additional non-recurring expense
during the three months ended September 30, 1999.
Printing and supplies expense was $20,000 for the three months ended September
30, 1999 and $16,000 for the three months ended September 30, 1998. Heartland
incurred printing and supplies expense of $52,000 for the nine months ended
September 30, 1999 compared to $55,000 for the same period in 1998.
Heartland incurred advertising expense of $24,000 during the three months ended
September 30, 1999 compared to $22,000 during the three months ended September
30, 1998. Advertising expense for the nine months period ended September 30,
1999 and 1998 was $62,000 and $65,000, respectively.
Directors' fees expense was $7,000 for both the three months ended September 30,
1999 and the three months ended September 30, 1998. Similarly, directors' fees
expense was $21,000 for both the nine months ended September 30, 1999 and the
nine months ended September 30, 1998.
Professional fees expense for the three months ended September 30, 1999 was
$24,000 compared to $14,000 for the three months ended September 30, 1998.
Professional fees expense was $52,000 for the nine months ended September 30,
1999 and $43,000 for the nine months ended September 30, 1998.
Credit reports and other loan expenses were $10,000 for the three months ended
September 30, 1999 and $16,000 for the three months ended September 30, 1998.
Heartland recorded credit reports and other loan expenses of $36,000 during the
nine months ended September 30, 1999 and $37,000 during the nine months ended
September 30, 1998.
Amortization of organization costs were $26,000 during the three months ended
September 30, 1998 and $48,000 during the nine months ended September 30, 1998.
All organization costs were fully amortized in 1998, therefore no related
expense has been recorded in the nine months or three months ended September 30,
1999.
The remaining expenses of $90,000 during the three months ended September 30,
1999, $20,000 during the three months ended September 30, 1998, $169,000 during
the nine months ended September 30, 1999 and $74,000 during the nine months
ended September 30, 1998, relate to various other items such as postage,
insurance and training.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
MANAGEMENT'S DISCUSSION AND ANALYSIS
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
CAPITAL RESOURCES
Shareholders' equity totaled $11.4 million at September 30, 1999, compared to
$10.9 million at December 31, 1998. The change is attributable to the total
comprehensive income for the nine months ended September 30, 1999. As of
September 30, 1999, 1,265,000 shares of common stock were issued and
outstanding. Additional paid-in capital was $10.5 million at December 31, 1998
and September 30, 1999.
LIQUIDITY
Liquidity management for Heartland focuses on the ability to keep funds
available to meet the requirements of withdrawals of depositors and funding of
new loans and investments. The primary source of liquidity for Heartland is the
receipt of new deposits. The Bank has the ability to borrow Federal funds from
other commercial banks on a daily basis. Such borrowings are secured by
investment securities. The Bank also has the ability to borrow from the Federal
Home Loan Bank of Indianapolis with various repayment terms ranging from 1 day
to 15 years. Such borrowings are secured by a "blanket" collateral agreement
covering all available mortgage loans and investment securities in the Bank's
portfolio. Heartland manages liquidity through the use of deposits with other
financial institutions, Federal Funds and investment securities.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
PART II
- --------------------------------------------------------------------------------
Item 6 - Exhibits and Reports on Form 8-K:
(a) The following exhibits are filed as part of this report:
3.1 Amended and Restated Articles of Incorporation of Heartland
Bancshares, Inc., which are incorporated by reference to Exhibit 3.1
in the Registration Statement Form SB-2, filed July 28, 1997, as
amended, ("Form SB-2"). 10.1 Amendment to Stock Option Plan
3.2 Amended and Restated Bylaws of Heartland Bancshares, Inc., which
are incorporated by reference to Exhibit 3.2 in the Form SB-2
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the three months
ended September 30, 1999.
<PAGE>
HEARTLAND BANCSHARES, INC.
FORM 10-QSB
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.
(Registrant)
11/12/99 /s/ Steve Bechman
Date: -------------------------- --------------------------
Steve Bechman
President and
Chief Executive Officer
11/12/99 /s/ Jeffery D. Joyce
Date: -------------------------- --------------------------
Jeffery D. Joyce
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in the filer's Form 10-QSB for the Quarter
ended September 30, 1999, and is filed in its entirety by reference to
such finanacial statements.
</LEGEND>
<CIK> 0001042905
<NAME> Heartland Bancshares, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 571
<INT-BEARING-DEPOSITS> 3,206
<FED-FUNDS-SOLD> 3,912
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 12,299
<INVESTMENTS-MARKET> 12,072
<LOANS> 83,063
<ALLOWANCE> 1,246
<TOTAL-ASSETS> 104,455
<DEPOSITS> 86,400
<SHORT-TERM> 6,045
<LIABILITIES-OTHER> 595
<LONG-TERM> 0
0
0
<COMMON> 11,731
<OTHER-SE> (316)
<TOTAL-LIABILITIES-AND-EQUITY> 104,455
<INTEREST-LOAN> 4,691
<INTEREST-INVEST> 527
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<INTEREST-TOTAL> 5,269
<INTEREST-DEPOSIT> 2,378
<INTEREST-EXPENSE> 2,484
<INTEREST-INCOME-NET> 2,785
<LOAN-LOSSES> 513
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,721
<INCOME-PRETAX> 689
<INCOME-PRE-EXTRAORDINARY> 689
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 689
<EPS-BASIC> .54
<EPS-DILUTED> .54
<YIELD-ACTUAL> 4.50
<LOANS-NON> 138
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 742
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<ALLOWANCE-CLOSE> 1,246
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</TABLE>
