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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999
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Commission File Number 333-67107
HEARTLAND BANCSHARES, INC.
A Florida Corporation
IRS Employer Identification No. 65-0854929
320 U.S. Highway 27 North
Sebring, Florida 33870
(863) 386-1300
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934: NONE
Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 90 days.
Yes X No
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and will not be contained, to the best of
Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
Revenue for the fiscal year ended December 31, 1999: $418,392.
The aggregate market value of the common stock of the Registrant held by
nonaffiliates of the Registrant (500,280 shares) on March 1, 2000, was
$5,002,800. As of such date, no organized trading market existed for the common
stock of the Registrant. The aggregate market value was computed by reference to
the fair market value of the common stock of the Registrant based on recent
sales of the common stock. For the purposes of this response, directors,
officers and holders of 5% or more of the Registrant's common stock are
considered the affiliates of the Registrant at that date.
The number of shares outstanding of the Registrant's common stock, as of March
1, 2000: 652,030 shares of $.10 par value common stock.
Documents Incorporated by Reference: NONE
Transitional Small Business Disclosure Format (check one) Yes No X
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this Annual Report on Form 10-KSB contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which statements generally can be identified by
the use of forward-looking terminology, such as "may," "will," "expect,"
"estimate," "anticipate," "believe," "target," "plan," "project," or "continue"
or the negatives thereof or other variations thereon or similar terminology, and
are made on the basis of management's plans and current analyses of Heartland
Bancshares, its business and the industry as a whole. These forward-looking
statements are subject to risks and uncertainties, including, but not limited
to, economic conditions, competition, interest rate sensitivity and exposure to
regulatory and legislative changes. The above factors, in some cases, have
affected, and in the future could affect, Heartland Bancshares' financial
performance and could cause actual results for fiscal 2000 and beyond to differ
materially from those expressed or implied in such forward-looking statements.
Heartland Bancshares does not undertake to publicly update or revise its
forward-looking statements even if experience or future changes make it clear
that any projected results expressed or implied therein will not be realized.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Heartland Bancshares was incorporated in Florida in August 1998 to
serve as a holding company for Heartland National Bank, a national banking
association then in organization. Heartland Bancshares was incorporated as a
mechanism to enhance Heartland National Bank's ability to serve its future
customers' requirements for financial services. The holding company structure
provides flexibility for expansion of Heartland Bancshares' banking business
through acquisition of other financial institutions and provision of additional
banking-related services which the traditional commercial bank may not provide
under present laws. For example, banking regulations require that a national
bank maintain a minimum ratio of capital to assets. In the event that Heartland
National Bank's growth is such that this minimum ratio is not maintained,
Heartland Bancshares may borrow funds, subject to the capital adequacy
guidelines of the Federal Reserve Board, and contribute them to the capital of
Heartland National Bank and otherwise raise capital in a manner which is
unavailable to Heartland National Bank under existing banking regulations.
For approximately the first thirteen months following its
incorporation, the main activities of Heartland Bancshares centered on applying
for a national bank charter, applying to become a bank holding company,
preparing the banking facilities and premises, hiring and training bank
employees, and conducting an initial public offering of common stock to raise a
minimum of $6.2 million to fund the startup of Heartland National Bank. By July
1999, Heartland Bancshares had received subscriptions to purchase common stock
in an amount in excess of $6.2 million, and on September 7, 1999, Heartland
National Bank commenced banking operations. The bank currently operates two
banking offices, one in Sebring, Florida and one in Lake Placid, Florida.
Heartland National Bank is a full service commercial bank, without
trust powers. The bank offers a full range of interest bearing and non-interest
bearing accounts, including commercial and retail
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checking accounts, money market accounts, individual retirement accounts,
regular interest bearing statement savings accounts, certificates of deposit,
commercial loans, real estate loans, home equity loans and consumer/installment
loans. In addition, Heartland National Bank provides such consumer services as
U.S. Savings Bonds, travelers checks, cashiers checks, safe deposit boxes, bank
by mail services, direct deposit and automatic teller services.
DEPOSITS
Heartland National Bank offers a full range of interest bearing and
non-interest bearing accounts, including commercial and retail checking
accounts, money market accounts, individual retirement accounts, regular
interest bearing statement savings accounts and certificates of deposit with
fixed and variable rates and a range of maturity date options. The sources of
deposits are residents, businesses and employees of businesses within Heartland
National Bank's market area, obtained through the personal solicitation of
Heartland National Bank's officers and directors, direct mail solicitation and
advertisements published in the local media. Heartland National Bank pays
competitive interest rates on time and savings deposits up to the maximum
permitted by law or regulation. In addition, Heartland National Bank has
implemented a service charge fee schedule competitive with other financial
institutions in the bank's market area, covering such matters as maintenance
fees on checking accounts, per item processing fees on checking accounts,
returned check charges and the like.
LOAN PORTFOLIO
Heartland National Bank engages in a full complement of lending
activities, including commercial/industrial, consumer and real estate loans. As
of December 31, 1999, Heartland National Bank had a legal lending limit for
unsecured loans of up to $839,694 to any one person. See "Supervision and
Regulation."
While risk of loss in Heartland National Bank's loan portfolio is
primarily tied to the credit quality of the various borrowers, risk of loss may
also increase due to factors beyond Heartland National Bank's control, such as
local, regional and/or national economic downturns. General conditions in the
real estate market may also impact the relative risk in Heartland National
Bank's real estate portfolio. Of Heartland National Bank's target areas of
lending activities, commercial loans are generally considered to have greater
risk than real estate loans or consumer installment loans.
Management of Heartland National Bank intends to originate loans and to
participate with other banks with respect to loans which exceed Heartland
National Bank's lending limits. Management of Heartland National Bank does not
believe that loan participations necessarily pose any greater risk of loss than
loans which Heartland National Bank originates.
The following is a description of each of the major categories of loans
in Heartland National Bank's loan portfolio:
Commercial Loans
Commercial lending is directed principally towards businesses whose
demands for funds fall within Heartland National Bank's legal lending limits and
which are potential deposit customers of the bank. This category of loans
includes loans made to individual, partnership or corporate borrowers, and
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obtained for a variety of business purposes. Particular emphasis is placed on
loans to small and medium-sized businesses. The primary repayment risk for
commercial loans is the failure of the business due to economic or financial
factors. Although Heartland National Bank typically looks to a commercial
borrower's cash flow as the principal source of repayment for such loans, many
commercial loans may be secured by inventory, equipment, accounts receivable,
and other assets.
Consumer Loans
Heartland National Bank's consumer loans consist primarily of
installment loans to individuals for personal, family and household purposes,
including automobile loans to individuals and pre-approved lines of credit. This
category of loans also includes lines of credit and term loans secured by second
mortgages on the residences of borrowers for a variety of purposes including
home improvements, education and other personal expenditures. In evaluating
these loans Heartland National Bank reviews the borrower's level and stability
of income and past credit history and the impact of these factors on the ability
of the borrower to repay the loan in a timely manner. In addition, Heartland
National Bank maintains a proper margin between the loan amount and collateral
value.
Real Estate Loans
Heartland National Bank's real estate loans consist of residential
first and second mortgage loans, residential construction loans and commercial
real estate loans to a limited degree. These loans are made consistent with
Heartland National Bank's appraisal policy and real estate lending policy which
detail maximum loan-to-value ratios and maturities. These loan-to-value ratios
are sufficient to compensate for fluctuations in the real estate market to
minimize the risk of loss to the bank.
ASSET/LIABILITY MANAGEMENT
It is the objective of Heartland National Bank to manage assets and
liabilities to provide a satisfactory, consistent level of profitability within
the framework of established cash, loan, investment, borrowing and capital
policies. Certain of the officers of Heartland National Bank are responsible for
monitoring policies and procedures that are designed to ensure acceptable
composition of the asset/liability mix, stability and leverage of all sources of
funds while adhering to prudent banking practices. It is the overall philosophy
of management to support asset growth primarily through growth of core deposits,
which include deposits of all categories made by individuals, partnerships and
corporations. Management of Heartland National Bank seeks to invest the largest
portion of Heartland National Bank's assets in commercial, consumer and real
estate loans.
Heartland National Bank's asset/liability mix is monitored on a daily
basis with a monthly report reflecting interest-sensitive assets and
interest-sensitive liabilities being prepared and presented to Heartland
National Bank's Board of Directors. The objective of this policy is to control
interest-sensitive assets and liabilities so as to minimize the impact of
substantial movements in interest rates on Heartland National Bank's earnings.
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MARKET AREA AND COMPETITION
The primary market area for Heartland National Bank is Highlands
County, Florida. Highlands County is located in the central part of Florida,
approximately 100 miles from the east and west coasts. The county consists of
three major communities, Sebring, Lake Placid and Avon Park. These communities
are geographically located from the northern border of Highlands County to the
south, a distance of approximately twelve miles apart. Each has its own
municipal government, schools and identity.
Highlands County represents a diverse market with a stable economy.
Agriculture (citrus), health services and small retail service businesses are
the major industries in the county. The county is also a major retirement
community and continues to attract retirees due to the lower cost of living as
compared to the coastal areas of Florida.
Heartland National Bank operates two banking offices in Highlands
County, one in Sebring and one in Lake Placid. These two cities represent the
major business and retail activity for the county and Heartland National Bank
expects to generate over 95% of its business from these two cities. Heartland
National Bank focuses on serving the needs of the low to moderate income areas,
targeting households with $25,000 in annual income and businesses with up to $10
million in sales, including agriculture businesses, attorneys, physicians, and
small retail and service businesses.
Competition in Highlands County is intense. The Highlands County market
consists of eight commercial banks with a total of 25 branches. The four
regional holding company banks operating in Highlands County possess over 80% of
the market share in the county. Barnett Bank (now part of Bank of America) has
historically held the dominant market share in the county, with approximately
31% market share as of September 1999. One locally owned independent bank also
operates in Highlands County, and two other independent banks each have one
branch office in the county.
Financial institutions compete with one another primarily for deposits.
Heartland National Bank's deposit base directly affects its loan activities and
general growth. Primary methods of competition include interest rates on
deposits and loans, service charges on deposit accounts and the offering of
unique financial services products. Heartland National Bank competes with
financial institutions which have much greater financial resources than
Heartland National Bank, and which may be able to offer more and unique services
and possibly better terms to their customers.
Heartland National Bank also competes with financial institutions other
than commercial banks and savings and loan associations, including insurance
companies, consumer finance companies, brokerage houses, credit unions and other
business entities which have recently been entering the traditional banking
markets. Due to the continuing growth of Highlands County, it is anticipated
that additional competition will continue from new entrants to the market.
CORRESPONDENT BANKING
Correspondent banking involves the providing of services by one bank to
another bank which cannot provide that service for itself from an economic or
practical standpoint. Heartland National Bank is required to purchase
correspondent services offered by larger banks, including check collections,
purchase of Federal Funds, security safekeeping, investment services, coin and
currency supplies,
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overline and liquidity loan participations and sales of loans to or
participations with correspondent banks. Such correspondent arrangements are
governed, in part, by the provisions of 12C.F.R.32.107 and OCC Banking
Circular 181 (Rev.) (August 2, 1984).
Heartland National Bank plans to sells loan participations to
correspondent banks with respect to loans which exceed Heartland National Bank's
lending limit. As compensation for services provided by a correspondent,
Heartland National Bank may maintain certain balances with such correspondents
in non-interest bearing accounts. At December 31, 1999 Heartland National Bank
had no outstanding participations.
DATA PROCESSING
Heartland National Bank has entered into a data processing servicing
agreement with First Integrated Systems, which provides for Heartland National
Bank to receive a full range of data processing services, including an automated
general ledger, deposit accounting, commercial, real estate and installment
lending data processing, central information file and ATM processing. Investment
portfolio accounting is provided by SunTrust Bank, and payroll processing is
provided by ADP.
EMPLOYEES
As of March 15, 2000, Heartland National Bank employed 20 persons on a
full-time basis, including four officers, and two persons on a part-time basis.
Heartland National Bank will hire additional persons as needed, including
additional tellers and financial service representatives. All employees of
Heartland Bancshares are also employed by Heartland National Bank, and all of
the compensation paid to such employees is paid by Heartland National Bank.
MONETARY POLICIES
The results of operations of Heartland National Bank will be affected
by credit policies of monetary authorities, particularly the Federal Reserve
Board. The instruments of monetary policy employed by the Federal Reserve Board
include open market operations in U.S. Government securities, changes in the
discount rate on member bank borrowings, changes in reserve requirements against
member bank deposits and limitations on interest rates which member banks may
pay on time and savings deposits. In view of changing conditions in the national
economy and in the money markets, as well as the effect of action by monetary
and fiscal authorities, including the Federal Reserve Board, no prediction can
be made as to possible future changes in interest rates, deposit levels, loan
demand or the business and earnings of Heartland National Bank.
SUPERVISION AND REGULATION
Heartland Bancshares and Heartland National Bank operate in a highly
regulated environment, and their business activities are governed by statute,
regulation and administrative policies. The business activities of Heartland
Bancshares and Heartland National Bank are closely supervised by a number of
regulatory agencies, including the Federal Reserve Board, the Office of the
Comptroller of the Currency (the "OCC"), the Florida Department of Banking and
Finance (the "Florida Banking Department") (to a limited extent) and the Federal
Deposit Insurance Corporation (the "FDIC").
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Heartland Bancshares is regulated by the Federal Reserve Board under
the federal Bank Holding Company Act, which requires every bank holding company
to obtain the prior approval of the Federal Reserve Board before acquiring more
than 5% of the voting shares of any bank or all or substantially all of the
assets of a bank, and before merging or consolidating with another bank holding
company. The Federal Reserve Board (pursuant to regulation and published policy
statements) has maintained that a bank holding company must serve as a source of
financial strength to its subsidiary banks. In adhering to the Federal Reserve
Board policy, Heartland Bancshares may be required to provide financial support
to a subsidiary bank at a time when, absent such Federal Reserve Board policy,
Heartland Bancshares may not deem it advisable to provide such assistance.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994, Heartland Bancshares, or any other bank holding company located in
Florida, may acquire a bank located in any other state, and a bank holding
company located outside Florida may acquire any Florida-based bank, in either
case subject to certain deposit percentage and other restrictions. The
legislation also provides that, unless an individual state has elected to
prohibit out-of-state banks from operating interstate branches within its
territory, adequately capitalized and managed bank holding companies will be
able to consolidate their multistate bank operations into a single bank
subsidiary and to branch interstate through acquisitions.
De novo branching by an out-of-state bank is lawful only if it is
expressly permitted by the laws of the host state. The authority of a bank to
establish and operate branches within a state remains subject
to applicable state branching laws.
On November 12, 1999, the Gramm-Leach-Bliley Financial Services
Modernization Act was signed into law. The Financial Services Modernization Act
eliminates the barriers erected by the 1933 Glass-Steagall Act and amends the
Bank Holding Company Act of 1956, among other statutes. Further, it allows for
the affiliation of banking, securities and insurance activities in new financial
services organizations.
A dominant theme of the new legislation is functional regulation of
financial services, with the primary regulator of the company being the agency
which traditionally regulates the activity in which the company wishes to
engage. For example, the Securities and Exchange Commission will regulate bank
securities transactions, and the various banking regulators will oversee banking
activities.
The principal provisions of the Financial Services Modernization Act
will permit Heartland Bancshares, if it meets the standards for a "well-managed"
and "well-capitalized" institution and has at least a "satisfactory" Community
Reinvestment Act performance, to engage in any activity that is "financial in
nature," including security and insurance underwriting, investment banking, and
merchant banking investing in commercial and industrial companies. Heartland
Bancshares, if it satisfies the above criteria, can file a declaration of its
status as a "financial holding company" ("FHC") with the Federal Reserve, and
thereafter engage directly or through nonbank subsidiaries in the expanded range
of activities which the Financial Services Modernization Act identifies as
financial in nature. Further, Heartland Bancshares, if it elects FHC status,
will be able to pursue additional activities which are incidental or
complementary in nature to a financial activity, or which the Federal Reserve
subsequently determines to be financial in nature. The Financial Services
Modernization Act will also allow the Bank, with OCC approval, to control or
hold an interest in a "financial subsidiary" which may engage in, among other
things, the activities specified in the Financial Services Modernization Act as
being
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financial in nature. Such a subsidiary, though, is not permitted to engage in
insurance underwriting or annuity issuance, real estate development, investment
activities, or merchant banking activities. Further, any financial subsidiary
that the Bank created would generally be treated as an affiliate of the Bank,
rather than as a subsidiary for purposes of affiliate transaction restrictions
of Sections 23A and 23B of the Federal Reserve Act.
It is expected that the Financial Services Modernization Act will
facilitate further consolidation in the financial services industry on both a
national and international basis, and will cause existing bank holding companies
to restructure their existing activities in order to take advantage of the new
powers granted and comply with their attendant requirements and conditions.
A bank holding company which has not elected to become a FHC will
generally be prohibited from acquiring control of any company which is not a
bank and from engaging in any business other than the business of banking or
managing and controlling banks. However, these non-FHC bank holding companies
will still be able to engage in certain activities which have been identified by
the Federal Reserve Board to be so closely related to banking as to be a proper
incident thereto and thus permissible for bank holding companies.
These activities, including those listed below, are left unchanged by
the Financial Services Modernization Act which does not prohibit non-FHC bank
holding companies from engaging in these activities. The list of permissible
nonbanking activities includes the following activities: extending credit and
servicing loans; acting as investment or financial advisor to any person, with
certain limitations; leasing personal and real property or acting as a broker
with respect thereto; providing management and employee benefits consulting
advice and career counseling services to nonaffiliated banks and nonbank
depository institutions; operating certain nonbank depository institutions;
performing certain trust company functions; providing certain agency
transactional services, including securities brokerage services, riskless
principal transactions, private placement services, and acting as a futures
commission merchant; providing data processing and data transmission services;
acting as an insurance agent or underwriter with respect to limited types of
insurance; performing real estate appraisals; arranging commercial real estate
equity financing; providing check-guaranty, collection agency and credit bureau
services; engaging in asset management, servicing and collection activities;
providing real estate settlement services; acquiring certain debt which is in
default; underwriting and dealing in obligations of the United States, the
states and their political subdivisions; engaging as a principal in foreign
exchange trading and dealing in precious metals; providing other support
services such as courier services and the printing and selling of checks; and
investing in programs designed to promote community welfare.
In determining whether an activity is so closely related to banking as
to be permissible for bank holding companies, the Federal Reserve Board is
required to consider whether the performance of such activities by a bank
holding company or its subsidiaries can reasonably be expected to produce
benefits to the public, such as greater convenience, increased competition and
gains in efficiency, that outweigh such possible adverse effects as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, and unsound banking practices. Generally, bank holding companies must
obtain approval of the Federal Reserve Board to engage in any activity not
previously approved by the Federal Reserve Board or to modify in any material
respect as activity for which Federal Reserve Board approval had been obtained.
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Heartland Bancshares is also regulated by the Florida Banking
Department under the Florida Banking Code, which requires every bank holding
company to obtain the prior approval of the Florida Commissioner of Banking
before acquiring more than 5% of the voting shares of any Florida bank or all or
substantially all of the assets of a Florida bank, or before merging or
consolidating with any Florida bank holding company. A bank holding company is
generally prohibited from acquiring ownership or control of 5% or more of the
voting shares of any Florida bank or Florida bank holding company unless the
Florida bank or all Florida bank subsidiaries of the bank holding company to be
acquired have been in existence and continuously operating, on the date of the
acquisition, for a period of three years or more. However, approval of the
Florida Banking Department is not required if the bank to be acquired, or all
bank subsidiaries of the Florida bank holding company to be acquired, are
national banks.
Heartland National Bank is also subject to the Florida banking and
usury laws restricting the amount of interest which it may charge in making
loans or other extensions of credit. In addition, Heartland National Bank, as a
subsidiary of Heartland Bancshares, is subject to restrictions under federal law
in dealing with Heartland Bancshares and other affiliates, if any. These
restrictions apply to extensions of credit to an affiliate, investments in the
securities of an affiliate and the purchase of assets from an affiliate.
Loans and extensions of credit by national banks are subject to legal
lending limitations. Under federal law, a national bank may grant unsecured
loans and extensions of credit in an amount up to 15% of its unimpaired capital
and surplus to any person if the loans and extensions of credit are not fully
secured by collateral having a market value at least equal to their face amount.
In addition, a national bank may grant loans and extensions of credit to such
person up to an additional 10% of its unimpaired capital and surplus, provided
that each loan or extension of credit is fully secured by readily marketable
collateral having a market value, determined by reliable and continuously
available price quotations, at least equal to the amount of funds outstanding.
Loans and extensions of credit may exceed the general lending limit if they
qualify under one of several exceptions. Such exceptions include certain loans
or extensions of credit arising from the discount of commercial or business
paper, the purchase of bankers' acceptances, loans secured by documents of
title, loans secured by U.S. obligations and loans to or guaranteed by the
federal government, and loans or extensions of credit which have the approval of
the OCC and which are made to a financial institution or to any agent in charge
of the business and property of the financial institution.
Both Heartland Bancshares and Heartland National Bank are subject to
regulatory capital requirements imposed by the Federal Reserve Board and the
OCC. The Federal Reserve Board and the OCC have issued risk-based capital
guidelines for bank holding companies and banks which make regulatory capital
requirements more sensitive to differences in risk profiles of various banking
organizations. The capital adequacy guidelines issued by the Federal Reserve
Board are applied to bank holding companies, on a consolidated basis with the
banks owned by the holding company, as well as to state member banks. The OCC's
risk capital guidelines apply directly to national banks regardless of whether
they are a subsidiary of a bank holding company. Both agencies' requirements
(which are substantially similar), provide that banking organizations must have
capital equivalent to at least 8% of risk-weighted assets. The risk weights
assigned to assets are based primarily on credit risks. Depending upon the
riskiness of a particular asset, it is assigned to a risk category.
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For example, securities with an unconditional guarantee by the United
States government are assigned to the lowest risk category, while a risk weight
of 50% is assigned to loans secured by owner-occupied one to four family
residential mortgages provided that certain conditions are met. The aggregate
amount of assets assigned to each risk category is multiplied by the risk weight
assigned to that category to determine the weighted values, which are added
together to determine total risk- weighted assets. Both the Federal Reserve
Board and the OCC have also implemented minimum capital leverage ratios to be
used in tandem with the risk-based guidelines in assessing the overall capital
adequacy of banks and bank holding companies. Under these rules, banking
institutions must maintain a ratio of at least 3% "Tier 1" capital to total
weighted risk assets (net of goodwill, certain intangible assets, and certain
deferred tax assets). Tier 1 capital includes common shareholders equity,
noncumulative perpetual preferred stock and minority interests in the equity
accounts of consolidated subsidiaries.
Both the risk-based capital guidelines and the leverage ratio are
minimum requirements. They are applicable to all banking institutions unless the
applicable regulating authority determines that different minimum capital ratios
are appropriate for a particular institution based upon its circumstances.
Institutions operating at or near these ratios are expected to have
well-diversified risks, excellent control systems, high asset quality, high
liquidity, good earnings, and in general must be considered strong banking
organizations, rated composite 1 under the CAMELS rating system of banks or the
BOPEC rating system of bank holding companies. The OCC requires that all but the
most highly-rated banks and all banks with high levels of risk or experiencing
or anticipating significant growth will maintain ratios at least 100 to 200
basis points above the stated minimums. The Federal Reserve Board requires bank
holding companies without a BOPEC-1 rating to maintain a ratio of at least 4%
Tier 1 capital to total assets; furthermore, banking organizations with
supervisory, financial, operational, or managerial weaknesses, as well as
organizations that are anticipating or experiencing significant growth, are
expected to maintain capital ratios well above the 3% and 4% minimum levels.
The FDIC adopted a rule substantially similar to that issued by the
Federal Reserve Board, establishing a minimum leverage ratio of 3% and providing
that FDIC-regulated banks with anything less than a CAMELS-1 rating must
maintain a ratio of at least 4%. In addition, the FDIC rule specifies that a
depository institution operating with less than the applicable minimum leverage
capital requirement will be deemed to be operating in an unsafe and unsound
manner unless the institution is in compliance with a plan, submitted to and
approved by the FDIC, to increase the ratio to an appropriate level. Finally,
the FDIC requires any insured depository institution with a leverage ratio of
less than 2% to enter into and be in compliance with a written agreement between
it and the FDIC (or the primary regulator, with the FDIC as a party to the
agreement). Such an agreement will nearly always contemplate immediate efforts
to acquire the capital required to increase the ratio to an appropriate level.
Institutions that fail to enter into or maintain compliance with such an
agreement will be subject to enforcement action by the FDIC.
The OCC's guidelines provide that intangible assets are generally
deducted from Tier 1 capital in calculating a bank's risk-based capital ratio.
However, certain intangible assets which meet specified criteria ("qualifying
intangibles") are retained as a part of Tier 1 capital. The OCC has modified the
list of qualifying intangibles, currently including only purchased credit card
relationships and mortgage and non-mortgage servicing assets, whether originated
or purchased and excluding any interest-only strips receivable related thereto.
Furthermore, the OCC's guidelines formerly provided that the amount of such
qualifying intangibles that may be included in Tier 1 capital was limited to a
maximum of 50% of total
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Tier 1 capital. The OCC has amended its guidelines to increase the limitation on
such qualifying intangibles from 50% to 100% of Tier 1 capital, of which no more
than 25% may consist of purchased credit card relationships and non-mortgage
servicing assets. Furthermore, banks may now deduct from Tier 1 capital
disallowed servicing assets on a basis that is net of any associated deferred
tax liability. Deferred tax liabilities netted this way may not also be netted
against deferred tax assets when determining the amount of deferred tax assets
that are dependent upon future taxable income.
In addition, the OCC has adopted rules which clarify treatment of asset
sales with recourse not reported on a bank's balance sheet. Among assets
affected are mortgages sold with recourse under Fannie Mae, Freddie Mac and
Farmer Mac programs. The rules clarify that even though those transactions are
treated as asset sales for bank Call Report purposes, those assets will still be
subject to a capital charge under the risk-based capital guidelines.
The risk-based capital guidelines of the OCC, the Federal Reserve Board
and the FDIC explicitly include provisions regarding a bank's exposure to
declines in the economic value of its capital due to changes in interest rates
to ensure that the guidelines take adequate account of interest rate risk.
Interest rate risk is the adverse effect that changes in market interest rates
may have on a bank's financial condition and is inherent to the business of
banking. The exposure of a bank's economic value generally represents the change
in the present value of its assets, less the change in the value of its
liabilities, plus the change in the value of its interest rate off-balance sheet
contracts. Concurrently, the agencies issued a joint policy statement to
bankers, effective June 26, 1996, to provide guidance on sound practices for
managing interest rate risk. In the policy statement, the agencies emphasize the
necessity of adequate oversight by a bank's Board of Directors and senior
management and of a comprehensive risk management process. The policy statement
also describes the critical factors affecting the agencies' evaluations of a
bank's interest rate risk when making a determination of capital adequacy. The
agencies' risk assessment approach used to evaluate a bank's capital adequacy
for interest rate risk relies on a combination of quantitative and qualitative
factors. Banks that are found to have high levels of exposure and/or weak
management practices will be directed by the agencies to take corrective action.
The OCC, the Federal Reserve Board and the FDIC recently added a
provision to the risk-based capital guidelines that supplements and modifies the
usual risk-based capital calculations to ensure that institutions with
significant exposure to market risk maintain adequate capital to support that
exposure. Market risk is the potential loss to an institution resulting from
changes in market prices. The modifications are intended to address two types of
market risk: general market risk, which includes changes in general interest
rates, equity prices, exchange rates, or commodity prices, and specific market
risk, which includes particular risks faced by the individual institution, such
as event and default risks. The provision defines a new category of capital,
Tier 3, which includes certain types of subordinated debt. The provision
automatically applies only to those institutions whose trading activity, on a
worldwide consolidated basis, equals either (i) 10% or more of total assets or
(ii) $1 billion or more, although the agencies may apply the provision's
requirements to any institution for which application of the new standard is
deemed necessary or appropriate for safe banking practices. For institutions to
which the modifications apply, Tier 3 capital may not be included in the
calculation rendering the 8% credit risk ratio; the sum of Tier 2 and Tier 3
capital may not exceed 100% of Tier 1 capital; and Tier 3 capital is used in
both the numerator and denominator of the normal risk-based capital ratio
calculation to account for the estimated maximum amount that the value of all
positions in the institution's trading account, as well as all foreign exchange
and commodity positions, could decline within certain parameters set forth in a
model defined by the statute. Furthermore, covered institutions must "backtest,"
comparing the
-10-
<PAGE> 12
actual net trading profit or loss for each of its most recent 250 days against
the corresponding measures generated by the statutory model. Once per quarter,
the institution must identify the number of times the actual net trading loss
exceeded the corresponding measure and must then apply a statutory
multiplication factor based on that number for the next quarter's capital charge
for market risk.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"), enacted on December 19, 1991, provides for the development of a
regulatory monitoring system requiring prompt action on the part of banking
regulators with regard to certain classes of undercapitalized institutions.
While the FDICIA does not change any of the minimum capital requirements, it
directs each of the federal banking agencies to issue regulations putting the
monitoring plan into effect. The FDICIA creates five "capital categories" ("well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized") which are defined in the
FDICIA and which will be used to determine the severity of corrective action the
appropriate regulator may take in the event an institution reaches a given level
of undercapitalization. For example, an institution which becomes
"undercapitalized" must submit a capital restoration plan to the appropriate
regulator outlining the steps it will take to become adequately capitalized.
Upon approving the plan, the regulator will monitor the institution's
compliance. Before a capital restoration plan will be approved, any entity
controlling a bank (i.e., a holding company) must guarantee compliance with the
plan until the institution has been adequately capitalized for four consecutive
calendar quarters. The liability of the institution is limited to the lesser of
five percent of the institution's total assets or the amount which is necessary
to bring the institution into compliance with all capital standards. In
addition, "undercapitalized" institutions will be restricted from paying
management fees, dividends and other capital distributions, will be subject to
certain asset growth restrictions and will be required to obtain prior approval
from the appropriate regulator to open new branches or expand into new lines of
business.
As an institution's capital levels decline, the extent of action to be
taken by the appropriate regulator increases, restricting the types of
transactions in which the institution may engage and ultimately providing for
the appointment of a receiver for certain institutions deemed to be critically
undercapitalized.
-11-
<PAGE> 13
In response to the directive issued under the Act, the regulators have
established regulations which, among other things, prescribe the capital
thresholds for each of the five capital categories established by the Act. The
following table reflects the capital thresholds:
<TABLE>
<CAPTION>
Total Risk-Based Tier 1 Risk-Based Tier 1
Capital Ratio Capital Ratio Leverage Ratio
------------- ------------- --------------
<S> <C> <C> <C>
Well capitalized(1) (greater than or (greater than or (greater than or
equal to) 10% equal to) 6% equal to) 5%
Adequately Capitalized(1) (greater than or (greater than or (greater than or
equal to) 8% equal to) 4% equal to) 4%(2)
Undercapitalized(4) (less than) 8% (less than) 4% (less than) 4%(3)
Significantly Undercapitalized(4) (less than) 6% (less than) 3% (less than) 3%
Critically Undercapitalized -- -- (less than or
equal to) 2%(5)
</TABLE>
- ---------------------------
(1) An institution must meet all three minimums.
(2) (greater than or equal to) 3% for composite 1-rated institutions, subject to
appropriate federal banking agency guidelines.
(3) (less than) 3% for composite 1-rated institutions, subject to appropriate
federal banking agency guidelines.
(4) An institution falls into this category if it is below the specified capital
level for any of the three capital measures.
(5) Ratio of tangible equity to total assets.
The FDICIA also provides that each Federal banking agency must
prescribe safety and soundness standards in certain areas of banking practice.
In order to comply with the FDICIA, the Federal Reserve Board, the OCC and the
FDIC have adopted regulations defining operational and managerial standards
relating to internal controls, loan documentation, credit underwriting, interest
rate exposure, asset growth, and compensation, fees and benefits.
Both the capital standards and the safety and soundness standards which
the FDICIA seeks to implement are designed to bolster and protect the deposit
insurance fund.
As a national bank, the Bank is subject to examination and review by
the OCC. This examination is typically completed on-site every eighteen months
and is subject to off-site review at call. The OCC, at will, can access
quarterly reports of condition, as well as such additional reports as may be
required by the national banking laws.
As a bank holding company, Heartland Bancshares is required to file
with the Federal Reserve Board an annual report of its operations at the end of
each fiscal year and such additional information as the Federal Reserve Board
may require pursuant to the Act. The Federal Reserve Board may also make
examinations of Heartland Bancshares and each of its subsidiaries.
The scope of regulation and permissible activities of Heartland
Bancshares and Heartland National Bank is subject to change by future federal
and state legislation. In addition, regulators sometimes require higher capital
levels on a case-by-case basis based on such factors as the risk characteristics
or management of a particular institution. Heartland Bancshares and Heartland
National Bank are not aware of any attributes of their operating plan that would
cause regulators to impose higher requirements.
-12-
<PAGE> 14
ITEM 2. DESCRIPTION OF PROPERTY
Heartland National Bank operates two banking offices. One is located at
320 U.S. Highway 27 North, Sebring, Florida, and the other is located at 600
Highway 27 North, Lake Placid, Florida. Each office consists of a 5,000 square
foot office facility containing a vault, four offices, five teller stations,
four drive-in windows, a boardroom conference facility and a loan operations
area.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Heartland
Bancshares or Heartland National Bank is a party or of which any of their
properties are subject; nor are there material proceedings known to Heartland
Bancshares to be contemplated by any governmental authority; nor are there
material proceedings known to Heartland Bancshares, pending or contemplated, in
which any director, officer or affiliate or any principal security holder of
Heartland Bancshares, or any associate of any of the foregoing is a party or has
an interest adverse to Heartland Bancshares or Heartland National Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the quarter ended December 31, 1999 to a
vote of security holders of Heartland Bancshares.
-13-
<PAGE> 15
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
A. MARKET INFORMATION
During the period covered by this report and to date, there has been no
established public trading market for Heartland Bancshares' common stock.
B. HOLDERS OF COMMON STOCK
As of March 1, 2000, there were 480 holders of record of Heartland
Bancshares' common stock.
C. DIVIDENDS
To date, Heartland Bancshares has not paid any dividends on its common
stock. As Heartland Bancshares and Heartland National Bank are both start-up
enterprises, it is the policy of the Board of Directors of Heartland Bancshares
to reinvest earnings for such period of time as is necessary to ensure the
success of the operations of Heartland Bancshares and of Heartland National
Bank. There are no current plans to initiate payment of cash dividends, and
future dividend policy will depend on Heartland National Bank's earnings,
capital requirements, financial condition and other factors considered relevant
by the Board of Directors of Heartland Bancshares.
Heartland National Bank is restricted in its ability to pay dividends
under the national banking laws and by regulations of the OCC. Pursuant to 12
U.S.C. Section 56, a national bank may not pay dividends from its capital. All
dividends must be paid out of undivided profits, subject to other applicable
provisions of law. Payments of dividends out of undivided profits is further
limited by 12 U.S.C. Section 60(a), which prohibits a bank from declaring a
dividend on its shares of common stock until its surplus equals its stated
capital, unless there has been transferred to surplus not less than one-tenth of
the bank's net income for the preceding two consecutive half-year periods (in
the case of an annual dividend). Pursuant to 12 U.S.C. Section 60(b), the
approval of the OCC is required if the total of all dividends declared by
Heartland National Bank in any calendar year exceeds the total of its net income
for that year combined with its retained net income for the preceding two years,
less any required transfers to surplus.
-14-
<PAGE> 16
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion of Heartland Bancshares' financial condition
and results of operations should be read in conjunction with Heartland
Bancshares' Consolidated Financial Statements, related notes and statistical
information included elsewhere herein.
THE COMPANY
Heartland Bancshares was incorporated in August 1998 to serve as a
holding company for Heartland National Bank. For approximately the first 13
months following its incorporation, the main activities of Heartland Bancshares
centered on applying for a national bank charter, applying to become a bank
holding company, preparing the banking facilities and premises, hiring and
training bank employees, and raising capital in an initial public offering to
fund the start-up of Heartland National Bank. On September 7, 1999, Heartland
National Bank commenced operations.
RESULTS OF OPERATIONS
During the development stage, from August 3, 1998 (date of
incorporation) to September 7, 1999 (the date Heartland National Bank opened),
Heartland Bancshares' net loss amounted to $124,753. Net loss from September 7,
1999 to December 31, 1999 amounted to $260,518. Losses from August 3, 1998 to
December 31, 1999 amounted to $477,690.
Net Interest Income
Net interest income is the principal component of a financial
institution's income stream and represents the difference between interest and
certain fee income generated from earning assets and the interest expense paid
on deposits and other borrowed funds. Fluctuations in interest rates, as well as
volume and mix changes in earning assets and interest-bearing liabilities, can
materially impact net interest income. Heartland National Bank had no
investments in tax-exempt securities during 1999 and, accordingly, no adjustment
is necessary to facilitate comparisons on a taxable equivalent basis.
-15-
<PAGE> 17
The following table sets forth, for the period indicated, certain
information related to the Heartland Bancshares' average balance sheet, its
yields on average earning assets and its average rates on interest-bearing
liabilities. Such yields and rates are derived by dividing income or expense by
the average balance of the corresponding assets or liabilities. Average balances
have been derived from the daily balances throughout the period indicated.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-----------------------------------
Interest
Average Income/ Yield/
Balance Expense Rate
------- ------- ----
(dollar amounts in thousands)
<S> <C> <C> <C>
ASSETS
Earning assets:
Loans, net of deferred loan fees(1).............. $ 767 $ 77 10.00%
Investment securities(2)......................... 356 22 6.18%
Federal funds sold............................... 3,421 191 5.58%
Interest bearing escrow account.................. 2,144 95 4.43%
------- ------ -----
Total earning assets.......................... 6,688 385 5.76%
Cash and due from banks............................. 580
Premises and equipment, net......................... 1,946
Other assets........................................ 65
Allowance for loan losses........................... (9)
-------
Total assets.................................. $ 9,270
=======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing demand deposits................. $ 662 9 1.36%
Savings deposits................................. 178 5 2.81%
Money market deposits............................ 1,224 43 3.51%
Certificates of deposit of $100,000 or more...... 698 38 5.44%
Other time deposits.............................. 693 38 5.48%
Organizational line of credit.................... 1,196 19 1.67%(3)
------- ------ -----
Total interest-bearing liabilities.................. 4,651 152 3.27%
------
Noninterest-bearing demand deposits................. 693
Stock escrow liability.............................. 2,144
Other liabilities................................... 20
Shareholders' equity................................ 1,762
-------
Total liabilities and shareholders' equity.... $ 9,270
=======
Net interest income................................. $ 233
======
Net interest spread ................................ 2.49%
Net interest margin................................. 3.48%
</TABLE>
- -----------------
(1) During 1999, all loans were accruing interest.
-16-
<PAGE> 18
(2) The yield on investment securities is computed based upon the average
balance of investment securities at amortized cost and does not reflect
the unrealized gains or losses on such investments.
(3) The rate is low due to construction loan interest added to premises and
equipment assets.
As reflected above, average yield on earning assets amounted to 5.76%,
while the average cost of funds amounted to 3.27%. Net interest margin is
computed by subtracting interest expense from interest income and dividing the
resulting figure by average interest-earning assets. Net interest margin for the
year ended December 31, 1999 amounted to 3.48%.
To counter potential declines in the net interest margin and the
interest rate risk inherent in the balance sheet, Heartland National Bank will
periodically adjust the rates and terms of its interest-bearing liabilities in
response to general market rate changes and the competitive environment.
Management monitors Federal funds sold levels throughout the year, investing any
funds not necessary to maintain appropriate liquidity in higher yielding
investments such as short-term U.S. government and agency securities. Heartland
National Bank will continue to manage its balance sheet and its interest rate
risk based on changing market interest rate conditions.
Rate/Volume Analysis of Net Interest Income
A rate/volume analysis of net interest income cannot be provided as of
December 31, 1999 because at that date Heartland National Bank had been
operating for less than two years.
Non-Interest Income
Non-interest income consists of revenues generated from a broad range
of financial services, products and activities, including fee-based services,
service fees on deposit accounts and other activities. In addition, gains
realized from the sale of other real estate owned, and investments available for
sale are included in non-interest income.
Non-interest income for the year ended December 31, 1999 amounted to
$34,000 and represented 0.37% of average assets. Management expects non-interest
income as a percentage of average assets to increase significantly in 2000.
Non-Interest Expense
Non-interest expense for the year ended December 31, 1999 amounted to
$763,000. As a percent of total average assets, non-interest expense amounted to
8.23%. The components of non-interest expense for 1999 are set forth below.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Salaries and benefits...................... $411,000
Furniture and equipment.................... 81,000
Advertising and public relations........... 18,000
Legal and professional..................... 40,000
Other operating expenses................... 213,000
--------
Total non-interest expense............ $763,000
========
</TABLE>
-17-
<PAGE> 19
Provision for Loan Losses
During 1999, $111,633 was provided to the allowance for loan losses.
There were no charge-offs during 1999. As of December 31, 1999, management
considers the allowance for loan losses to be adequate to absorb expected future
losses. However, there can be no assurance that charge-offs in future periods
will not exceed the allowance for loan losses or that additional provisions to
the allowance will not be required.
FINANCIAL CONDITION
Loan Portfolio
The following table presents various categories of loans contained in
Heartland National Bank's loan portfolio at December 31, 1999:
<TABLE>
<CAPTION>
AS OF
TYPE OF LOAN DECEMBER 31, 1999
------------ -----------------
<S> <C>
Commercial ............................. $ 3,521,046
Consumer ............................... 756,748
Real estate ............................ 863,371
-----------
Subtotal ...................... 5,141,165
Less: allowance for loan losses (111,633)
-----------
Total (net of allowances) ..... $ 5,029,532
===========
</TABLE>
The following is a presentation of an analysis of maturities of loans
at December 31, 1999:
<TABLE>
<CAPTION>
DUE IN 1 DUE AFTER 1 TO DUE AFTER
TYPE OF LOAN YEAR OR LESS 5 YEARS 5 YEARS TOTAL
- ------------ ------------ -------- ------- -----
(in thousands)
<S> <C> <C> <C> <C>
Commercial .......... $2,040 $1,481 $ 0 $3,521
Consumer ............ 28 729 0 757
Real estate ......... 248 615 0 863
------ ------ ------ ------
Total ........... $2,316 $2,825 $ 0 $5,141
====== ====== ====== ======
</TABLE>
For the above loans, the following is a presentation of an analysis of
sensitivities to changes in interest rates at December 31, 1999:
<TABLE>
<CAPTION>
DUE IN 1 DUE AFTER 1 TO DUE AFTER
TYPE OF LOAN YEAR OR LESS 5 YEARS 5 YEARS TOTAL
- ------------ ------------ -------- ------- -----
(in thousands)
<S> <C> <C> <C> <C>
Predetermined fixed interest rate ..... $ 646 $1,961 $ 0 $2,607
Floating interest rate ................ 1,670 864 0 $2,534
------ ------ ------ ------
Total............................. $2,316 $2,825 $ 0 $5,141
====== ====== ====== ======
</TABLE>
As of December 31, 1999, all loans were accruing interest, no accruing
loans were contractually past due 90 days or more as to principal and interest
payments and no loans were defined as "troubled debt restructurings."
-18-
<PAGE> 20
As of December 31, 1999, no loans were classified for regulatory
purposes as doubtful, substandard or special mention which (i) represent or
result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity, or capital resources, or
(ii) represent material credits about which management is aware of any
information which causes management to have serious doubts as to the ability of
such borrowers to comply with the loan repayment terms. As of December 31, 1999,
there were no loans with respect to which known information about possible
credit problems of borrowers causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms.
Accrual of interest is discontinued on a loan when management
determines upon consideration of economic and business factors affecting
collection efforts that collection of interest is doubtful. Interest accrual was
not discontinued on any loans during 1999.
Summary of Loan Loss Experience
An analysis of Heartland National Bank's loan loss experience for
fiscal 1999 is furnished in the following table, as well as a breakdown of the
allowance for possible loan losses:
ANALYSIS OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
Balance at beginning of period..................... $ 0
Charge-offs........................................ 0
Recoveries......................................... 0
Additions charged to operations.................... 111,633
--------
Balance at end of period........................... $111,633
========
Ratio of net charge-offs during the period to
average loans outstanding during the period... 0%
========
</TABLE>
At December 31, 1999 the allowance was allocated as follows:
<TABLE>
<CAPTION>
PERCENT OF LOANS
IN EACH CATEGORY
AMOUNT TO TOTAL LOANS
------ --------------
(dollar amounts in thousands)
<S> <C> <C>
Commercial ................................ $ 41 68%
Consumer .................................. 10 15
Real Estate ............................... 10 17
Unallocated ............................... 51 0
---- ----
Total ............................ $112 100%
==== ====
</TABLE>
-19-
<PAGE> 21
Loan Loss Reserve
In considering the adequacy of Heartland National Bank's allowance for
possible loan losses, management has focused on the fact that as of December 31,
1999, 68% of outstanding loans are in the category of commercial loans.
Commercial loans are generally considered by management as having greater risk
than other categories of loans in Heartland National Bank's loan portfolio.
However, 78% of the aggregate principal amount of these commercial loans at
December 31, 1999 were made on a secured basis. Management believes that the
secured condition of the preponderant portion of its commercial loan portfolio
greatly reduces any risk of loss inherently present in commercial loans.
Heartland National Bank's consumer loan portfolio constitutes 15% of
outstanding loans at December 31, 1999. At December 31, 1999 the majority of
Heartland National Bank's consumer loans were secured by collateral primarily
consisting of automobiles, boats and other personal property. Management
believes that these loans involve less risk than commercial loans.
Real estate mortgage loans constituted 17% of outstanding loans at
December 31, 1999. All loans in this category represent residential real estate
mortgages where the amount of the original loan generally does not exceed 80% of
the appraised value of the collateral. These loans are considered by
management to be well secured with a low risk of loss.
Unsecured loans accounted for 26% of the commercial and consumer loans
outstanding at December 31, 1999. By their nature, unsecured loans pose a higher
risk than secured loans.
A review of the loan portfolio by an independent firm is conducted
annually. The purpose of this review is to assess the risk in the loan portfolio
and to determine the adequacy of the allowance for loan losses. The review
includes analyses of historical performance, the level of non-conforming and
rated loans, loan volume and activity, review of loan files and consideration of
economic conditions and other pertinent information. Upon completion, the report
is approved by the Board and management of Heartland National Bank. In addition
to the above review, Heartland National Bank's primary regulator, the OCC, also
conducts an annual examination of the loan portfolio. Upon completion, the OCC
presents its report of findings to the Board and management of Heartland
National Bank. Information provided from the above two independent sources,
together with information provided by the management of Heartland National Bank
and other information known to members of the Board, are utilized by the Board
to monitor, on a quarterly basis, the loan portfolio. Specifically, the Board
attempts to identify risks inherent in the loan portfolio (e.g., problem loans,
potential problem loans and loans to be charged off), assess the overall quality
and collectibility of the loan portfolio, and determine amounts of the allowance
for loan losses and the provision for loan losses to be reported based on the
results of their review.
-20-
<PAGE> 22
Deposits
The following table presents, for the year ended December 31, 1999, the
average amount of and average rate paid on each of the following deposit
categories:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
------------------------------------
DEPOSIT CATEGORY AVERAGE AMOUNT AVERAGE RATE PAID
- ---------------- -------------- -----------------
<S> <C> <C>
Non-interest bearing demand deposits ...... $ 693 --
NOW and money market deposits .............. $1,886 2.8%
Savings deposits ........................... $ 178 2.8%
Time deposits .............................. $1,391 5.5%
</TABLE>
The following table indicates amounts outstanding of time certificates
of deposit of $100,000 or more and respective maturities at December 31, 1999:
<TABLE>
<CAPTION>
MATURITIES OF
TIME CERTIFICATES OF DEPOSIT
AT DECEMBER 31, 1999
-----------------------------
AMOUNT AVERAGE RATE
------ ------------
(dollar amounts in thousands)
<S> <C> <C>
3 months or less ........... $1,276 4.95%
3-6 months ................. 600 5.46%
6-12 months ................ 600 5.48%
over 12 months ............. 900 5.52%
------ -----
Total ................. $3,376 5.44%
====== =====
</TABLE>
Investment Portfolio
As of December 31, 1999, investment securities comprised approximately 12%
of Heartland Bancshares' assets, federal funds sold comprised approximately 51%
of Heartland Bancshares' assets, and net loans comprised approximately 19% of
Heartland Bancshares' assets. Heartland National Bank invests primarily in
direct obligations of the United States, obligations guaranteed as to principal
and interest by the United States, obligations of agencies of the United States
and certificates of deposit issued by commercial banks. In addition, Heartland
National Bank enters into Federal Funds transactions with its principal
correspondent banks, and acts as a net seller of such funds. The sale of Federal
Funds amounts to a short-term loan from Heartland National Bank to another bank.
-21-
<PAGE> 23
The following table presents the estimated fair value of Heartland
National Bank's investments at December 31, 1999. All securities held at
December 31, 1999 were categorized as available for sale.
<TABLE>
<CAPTION>
AT
DECEMBER 31, 1999
-----------------
<S> <C>
Investments available for sale:
Obligations of U.S. Treasury
and other U.S. agencies............. $ 2,956,468
Federal Reserve Bank stock.......... 180,000
-----------
Total............................ $ 3,136,468
===========
</TABLE>
The following table indicates, as of December 31, 1999, the amount of
investments due by contractual maturity in (i) one year or less, (ii) one to
five years, (iii) five to ten years, and (iv) over ten years:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
AMOUNT YIELD(1)
------ --------
<S> <C> <C>
Investments available for sale:
Obligations of U.S. Treasury
and other U.S. agencies:
0 - 1 year .............................. $ 0 --
Over 1 through 5 years .................. 2,956,486 6.2%
Over 5 through 10 years ................. 0 --
Over 10 years ........................... 0 --
Federal Reserve Bank Stock, no maturity ... 180,000 6.0%
---------- ----
Total .............................. $3,136,468 6.2%
========== ====
</TABLE>
--------------------
(1) Heartland National Bank has not invested in any tax-exempt
obligations.
Interest Rate Sensitivity
Net interest income, Heartland National Bank's primary source of
earnings, fluctuates with significant interest rate movements. To lessen the
impact of these margin swings, the balance sheet should be structured so that
repricing opportunities exist for both assets and liabilities in roughly
equivalent amounts at approximately the same time intervals. Imbalances in these
repricing opportunities at any point in time constitute interest rate
sensitivity.
Interest rate sensitivity refers to the responsiveness of
interest-bearing assets and liabilities to changes in market interest rates. The
rate sensitive position, or gap, is the difference in the volume of rate
sensitive assets and liabilities, at a given time interval. The general
objective of gap management is to actively manage rate sensitive assets and
liabilities so as to reduce the impact of interest rate fluctuations on the net
interest margin. Management generally attempts to maintain a balance between
rate sensitive assets and liabilities as the exposure period is lengthened to
minimize Heartland National Bank overall interest rate risks.
-22-
<PAGE> 24
The asset mix of the balance sheet is continually evaluated in terms of
several variables: yield, credit quality, appropriate funding sources and
liquidity. To effectively manage the liability mix of the balance sheet, there
should be a focus on expanding the various funding sources. The interest rate
sensitivity position at year-end 1999 is presented in the following table. The
difference between rate sensitive assets and rate sensitive liabilities, or the
interest rate sensitivity gap, is shown at the bottom of the table. Since all
interest rates and yields do not adjust at the same velocity, the gap is only a
general indicator of rate sensitivity.
<TABLE>
<CAPTION>
After
three
months After six After one
but months year but
Within within but within
three six within five After five
months months one year years years Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans $ 2,913 $ 74 $ 180 $ 1,974 $ 0 $ 5,141
US Government and agency
securities 0 0 0 3,151 0 3,151
Federal funds sold 13,586 0 0 0 0 13,586
-------- -------- -------- -------- -------- --------
Total earning assets $ 16,499 $ 74 $ 180 $ 5,125 $ 0 $ 21,878
======== ======== ======== ======== ======== ========
SUPPORTING SOURCES OF
FUNDS
Interest-bearing demand
deposits and savings $ 841 $ 1,208 $ 2,320 $ 5,806 $ 0 $ 10,175
Certificates, less than $100 M 354 728 1,490 1,104 0 3,676
Certificates, $100M and over 1,276 600 600 900 0 3,376
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities $ 2,471 $ 2,536 $ 4,410 $ 7,810 $ 0 $ 17,228
======== ======== ======== ======== ======== ========
Interest-sensitivity gap $ 14,028 $ (2,462) $ (4,230) $ (2,685) $ 0 $ 4,650
Cumulative interest-sensitivity gap $ 14,028 $ 11,566 $ 7,336 $ 4,650 $ 0 $ 4,650
Interest-sensitivity gap ratio 6.68% 0.03% 0.05% 0.66% 0% 1.27%
Cumulative interest-sensitivity gap
ratio 6.68% 3.31% 1.78% 1.27% 0% 1.27%
</TABLE>
As evidenced by the table above, Heartland National Bank is
cumulatively asset sensitive. In an increasing interest rate environment, an
asset sensitive position (a gap ratio of greater than 1.0%) is generally more
advantageous since assets are repriced sooner than liabilities. Conversely, in a
declining interest rate environment, a liability sensitive position (a gap of
less than 1.0%) is generally more advantageous as liabilities are repriced
sooner than assets. With respect to Heartland National Bank, an increase in
interest rates would result in higher earnings while a decrease in interest
rates will reduce earnings. This assumes, however, that all other factors
affecting income remain constant.
As Heartland National Bank continues to grow, management will
continuously structure its rate sensitivity position to best hedge against
rapidly rising or falling interest rates. Heartland National
-23-
<PAGE> 25
Bank's Asset/Liability Committee meets on a quarterly basis and develops
management's strategy for the upcoming period. Such strategy includes
anticipations of future interest rate movements.
Liquidity
Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to maintain sufficient
funds to cover deposit withdrawals and payment of debt and operating
obligations. Heartland National Bank's liquidity position was initially
established with the net proceeds of the sale of $6,502,000 of the common stock
of Heartland Bancshares in its initial public offering. As Heartland National
Bank grows, liquidity needs can be met either by converting assets to cash or by
attracting new deposits. Bank deposits grew to $20.4 million at December 31,
1999. Below are the pertinent liquidity balances and ratios at December 31,
1999.
<TABLE>
<CAPTION>
AT
DECEMBER 31, 1999
-----------------
(DOLLAR AMOUNTS
IN THOUSANDS)
<S> <C>
Cash and cash equivalents.................... $ 15,227
Securities available for sale................ $ 3,136
CDs over $100,000 to total deposits ratio.... 17%
Loan to deposit ratio........................ 25%
Brokered deposits............................ $ 0
</TABLE>
Cash and cash equivalents are the primary source of liquidity. At
December 31, 1999, cash and cash equivalents amounted to $15.2 million,
representing 57% of total assets. Securities available for sale provide a
secondary source of liquidity. None of the $3.1 million in Heartland National
Bank's securities portfolio is scheduled to mature in 2000.
At December 31, 1999, large denomination certificates of deposits
accounted for 17% of total deposits. Large denomination CDs are generally more
volatile than other deposits. As a result, management continually monitors the
competitiveness of the rates it pays on its large denomination CDs and
periodically adjusts its rates in accordance with market demands. Significant
withdrawals of large denomination CDs may have a material adverse effect on
Heartland National Bank's liquidity. Management believes that since a majority
of the above certificates were obtained from Bank customers residing in
Highlands County, Florida, the volatility of such deposits is lower than if such
deposits were obtained from depositors residing outside of Highlands County, as
outside depositors are generally more likely to be interest rate sensitive.
Brokered deposits are deposit instruments, such as certificates of
deposit, deposit notes, bank investment contracts and certain municipal
investment contracts that are issued through brokers and dealers who then offer
and/or sell these deposit instruments to one or more investors. As of December
31, 1999, Heartland Bancshares had no brokered deposits in its portfolio.
Management knows of no trends, demands, commitments, events or
uncertainties that should result in or are reasonably likely to result in
Heartland Bancshares liquidity increasing or decreasing in any material way in
the foreseeable future.
-24-
<PAGE> 26
RETURN ON EQUITY AND ASSETS
Returns on average consolidated assets and average consolidated equity
for the year ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
<S> <C>
RETURN ON AVERAGE ASSETS................................ (4.2)%
RETURN ON AVERAGE EQUITY................................ (21.9)%
AVERAGE EQUITY TO AVERAGE ASSETS RATIO.................. 19.0%
DIVIDEND PAYOUT RATIO................................... 0.0%
</TABLE>
CAPITAL ADEQUACY
There are now two primary measures of capital adequacy for banks and
bank holding companies: (i) risk-based capital guidelines and (ii) the leverage
ratio.
The risk-based capital guidelines measure the amount of a bank's
required capital in relation to the degree of risk perceived in its assets and
its off-balance sheet items. Note that under the risk-based capital guidelines,
capital is divided into two "tiers." Tier 1 capital consists of common
shareholders' equity, non-cumulative and cumulative (bank holding companies
only) perpetual preferred stock and minority interest. Goodwill is subtracted
from the total. Tier 2 capital consists of the allowance for loan losses, hybrid
capital instruments, term subordinated debt and intermediate term preferred
stock. Banks are required to maintain a minimum risk-based capital ratio of
8.0%, with at least 4.0% consisting of Tier 1 capital.
The second measure of capital adequacy relates to the leverage ratio.
The OCC has established a 3.0% minimum leverage ratio requirement. Note that the
leverage ratio is computed by dividing Tier 1 capital into total assets. For
banks that are not rated CAMELS 1 by their primary regulator, (which includes
the subsidiary Bank), the minimum leverage ratio should be 3.0% plus an
additional cushion of at least 1 to 2 percent, depending upon risk profiles and
other factors.
A new rule was recently adopted by the Federal Reserve Board, the OCC
and the FDIC that adds a measure of interest rate risk to the determination of
supervisory capital adequacy. In connection with this new rule, the agencies
have also proposed a measurement process to measure interest rate risk. Under
this proposal, all items reported on the balance sheet, as well as off-balance
sheet items, would be reported according to maturity, repricing dates and cash
flow characteristics. A bank's reporting position would be multiplied by
duration-based risk factors and weighted according to rate sensitivity. The net
risk weighted position would be used in assessing capital adequacy. The
objective of this complex proposal is to determine the sensitivity of a bank to
various rising and declining interest rate scenarios.
-25-
<PAGE> 27
The table below illustrates Heartland National Bank's and Heartland
Bancshares' regulatory capital ratios at December 31, 1999:
<TABLE>
<CAPTION>
MINIMUM
DECEMBER 31, REGULATORY
HEARTLAND NATIONAL BANK 1999 REQUIREMENT
----------------------- ------------ -----------
<S> <C> <C>
Tier 1 risk-based capital ratio .... 26% 4%
Total risk-based capital ratio 27% 8%
Leverage ratio ..................... 25% 4%
HEARTLAND BANCSHARES - CONSOLIDATED
Tier 1 risk-based capital ratio .... 29% 4%
Total risk-based capital ratio 30% 8%
Leverage ratio ..................... 27% 4%
</TABLE>
The above ratios indicate that the capital positions of Heartland
Bancshares and Heartland National Bank are sound and that Heartland Bancshares
is well positioned for future growth.
-26-
<PAGE> 28
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants .............. Page 28
Consolidated Balance Sheets............................................29
Consolidated Statements of Operations..................................30
Consolidated Statements of Shareholders' Equity........................31
Consolidated Statements of Cash Flows..................................32
Notes to Consolidated Financial Statements.............................33
</TABLE>
27
<PAGE> 29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders
Heartland Bancshares, Inc.
Sebring, Florida
We have audited the accompanying consolidated balance sheets of
Heartland Bancshares, Inc. (the Company) and Subsidiary (Heartland National
Bank) as of December 31, 1999 and 1998, and the related consolidated statements
of operations, shareholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Heartland
Bancshares, Inc. and its subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ OSBURN, HENNING AND COMPANY
OSBURN, HENNING AND COMPANY
February 18, 2000
Orlando, Florida
28
<PAGE> 30
HEARTLAND BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,640,755 $ 20,879
Federal funds sold 13,586,000 --
------------ ------------
Total Cash and Cash Equivalents 15,226,755 20,879
Securities available for sale 3,136,468 --
Loans:
Commercial, financial and agricultural 3,521,046 --
Real estate - mortgage 863,371 --
Installment and consumer lines 756,748 --
------------ ------------
Total Loans 5,141,165 --
Less: Allowance for loan losses (111,633) --
------------ ------------
Net Loans 5,029,532 --
Property and equipment 2,767,509 645,775
Other assets 341,466 7,482
------------ ------------
TOTAL ASSETS $ 26,501,730 $ 674,136
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest-bearing demand $ 3,166,211 $ --
Savings, NOW and money market 10,174,983 --
Time deposits under $100,000 3,676,694 --
Time, $100,000 and over 3,376,000
------------ ------------
Total Deposits 20,393,888 --
Short-term borrowings -- 737,875
Other liabilities 92,702 18,680
------------ ------------
Total Liabilities 20,486,590 756,555
Commitments and Contingencies (Note 10)
Shareholders' Equity
Common stock, $.10 par value, 10,000,000 shares authorized; 652,030 shares and
1,000 shares issued and outstanding for
1999 and 1998, respectively 65,203 100
Preferred stock - $.01 par value; 1,000,000
shares authorized; no shares issued or
outstanding -- --
Additional paid-in capital 6,437,152 9,900
Retained earnings (deficit) (477,690) (92,419)
Accumulated other comprehensive
income (loss) (9,525) --
------------ ------------
Total Shareholders' Equity 6,015,140 (82,419)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 26,501,730 $ 674,136
============ ============
</TABLE>
See notes to financial statements.
29
<PAGE> 31
HEARTLAND BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
--------- --------
<S> <C> <C>
Interest Income
Interest and fees on loans $ 76,679 $ --
Interest on securities 21,592 --
Interest on federal funds sold 191,243 --
Interest on stock escrow account 95,201 --
--------- --------
Total Interest Income 384,715 --
--------- --------
Interest Expense
Interest on deposits 132,551 --
Interest on short-term borrowings 19,734 5,945
--------- --------
Total Interest Expense 152,285 5,945
--------- --------
Net Interest Income (Expense) 232,430 (5,945)
Provision for Loan Losses (111,633) --
--------- --------
Net Interest Income (Expense)
After Provision For Loan Losses 120,797 (5,945)
--------- --------
Noninterest Income
Service charges and fees 7,148 --
Other income 26,529 --
--------- --------
Total Noninterest Income 33,677 --
--------- --------
Noninterest Expense
Salaries and employee benefits 410,972 --
Occupancy expenses 41,216 --
Equipment expenses 39,408 --
Other operating expenses 271,649 86,474
--------- --------
Total Noninterest Expense 763,245 86,474
--------- --------
Loss Before Income Taxes (608,771) (92,419)
Income Tax Benefit (223,500) --
--------- --------
NET LOSS $(385,271) $(92,419)
========= ========
NET LOSS PER SHARE $ (1.78) $ (92.42)
========= ========
Average Shares Outstanding 216,420 1,000
========= ========
</TABLE>
See notes to financial statements.
30
<PAGE> 32
HEARTLAND BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Additional Retained Other Total
Stock Paid-in Earnings Comprehensive Shareholders'
Par Value Capital (Deficit) Income (Loss) Equity
--------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1998 $ -- $ -- $ -- $ -- $ --
Issuance of 1,000 shares
of common stock at $10
per share 100 9,900 -- -- 10,000
Net loss from inception
(August 3, 1998) through
December 31, 1998 -- -- (92,419) -- (92,419)
------- ----------- --------- ------- -----------
BALANCE DECEMBER 31, 1998 100 9,900 (92,419) -- (82,419)
Comprehensive Income:
Net loss for 1999 -- -- (385,271) -- (385,271)
Other comprehensive
income:
Establishment of
unrealized loss
on securities
available for sale -- -- -- (9,525) (9,525)
Total Comprehensive
-----------
Income (Loss) -- -- -- -- (394,796)
-----------
Issuance of 651,030 shares
of common stock at $10
per share 65,103 6,445,197 -- -- 6,510,300
Offering costs -- (17,945) -- -- (17,945)
------- ----------- --------- ------- -----------
BALANCE DECEMBER 31, 1999 $65,203 $ 6,437,152 $(477,690) $(9,525) $ 6,015,140
======= =========== ========= ======= ===========
</TABLE>
See notes to financial statements.
31
<PAGE> 33
HEARTLAND BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (385,271) $ (92,419)
Adjustments to reconcile net loss to net
cash used in operating activities:
Deferred income taxes (223,500) --
Provision for loan losses 111,633 --
Depreciation and amortization 52,733 --
Net accretion on securities available
for sale (1,466) --
Change in year-end balances of:
Interest receivable (88,234) --
Interest payable 61,170 --
Other accounts - net (11,213) 15,805
------------ ------------
Net Cash Used In Operating
Activities (484,148) (76,614)
------------ ------------
INVESTING ACTIVITIES
Purchases of securities available for sale (3,150,194) --
Net funding of loans (5,141,165) --
Acquisition of property and equipment (2,171,592) (645,775)
------------ ------------
Net Cash Used In Investing
Activities (10,462,951) (645,775)
------------ ------------
FINANCING ACTIVITIES
Net deposits 20,393,888 --
Sale of common stock 6,510,300 10,000
Offering costs (13,338) (4,607)
Draws under lines of credit -- 737,875
Repayment of lines of credit (737,875) --
------------ ------------
Net Cash Provided By Financing
Activities 26,152,975 743,268
------------ ------------
Net Increase in Cash and Cash
Equivalents 15,205,876 20,879
Cash and Cash Equivalents:
Beginning of year 20,879 --
------------ ------------
End of year $ 15,226,755 $ 20,879
============ ============
SUPPLEMENTAL DISCLOSURE
Interest paid $ 91,115 $ 5,073
============ ============
Income taxes paid $ -- $ --
============ ============
</TABLE>
See notes to financial statements.
32
<PAGE> 34
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATIONAL BACKGROUND AND BASIS OF PRESENTATION
Heartland Bancshares, Inc. (the Company) is a registered bank holding
company which was formed to organize and own 100% of a newly-formed
national bank, Heartland National Bank (the Bank). The Bank is a
nationally-chartered full service, commercial banking institution with
its main office in Sebring, Florida and a branch office in Lake Placid,
Florida. The Bank was in the organization phase from August, 1998 until
September 7, 1999 when it opened for business as a bank.
The accompanying consolidated financial statements include the accounts
of the Company and the Bank. All significant intercompany accounts and
balances have been eliminated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company has adopted Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 requires the
reporting of comprehensive income in addition to net income or loss.
Comprehensive income is comprised of net income or loss and items of
"other comprehensive income". The Bank's only item of other
comprehensive income is the unrealized loss on its available for sale
investment securities portfolio.
Securities Available for Sale
Securities which are used for asset/liability, liquidity, and
other funds management purposes are classified as securities
available for sale. These securities have indefinite holding
periods and are accounted for on a fair value basis with net
unrealized gains and losses included in other comprehensive
income.
Amortization and accretion of premiums and discounts are
recognized as adjustments to interest income. Realized gains
and losses are recognized using the specific identification
method.
Loans and Allowance For Loan Losses
Loans are stated at the amount of unpaid principal, reduced by
an allowance for loan losses. Interest on loans is calculated
by using the simple interest method on daily balances of the
principal amounts outstanding except for those classified as
nonaccrual loans. The accrual of interest is discontinued when
future collection of principal or interest in accordance with
the contractual terms may be doubtful.
33
<PAGE> 35
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans and Allowance For Loan Losses (Continued)
The allowance for loan losses is established through a
provision for loan losses charged against operations. Loans
are charged against the allowance for loan losses when
management believes that the collectibility of the principal
is unlikely. The allowance is an amount that management
believes will be adequate to absorb possible losses on
existing loans that may become uncollectible, based on
evaluations of the collectibility of loans, industry
historical loss experience, and other factors.
Loan fees, net of origination costs, are capitalized and
amortized as yield adjustments over the respective loan terms.
Interest and fees on loans includes loan fees of $4,724 in
1999.
Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation computed on the straight-line and accelerated
methods over the estimated useful lives of the assets. These
lives are summarized as follows:
<TABLE>
<CAPTION>
Asset Estimated Lives
----- ---------------
<S> <C>
Buildings 39 years
Land improvements 15 years
Office equipment and furnishings 5 - 10 years
Software 3 years
</TABLE>
Maintenance and repairs are charged to operations, and
improvements and additions are capitalized.
Income Taxes
The Company uses the liability method for accounting for
deferred income taxes. This method requires the recognition of
deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases.
Cash Flow Information
For purposes of the statements of cash flows, the Company
considers cash and due from banks and federal funds sold as
cash and cash equivalents.
34
<PAGE> 36
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Loss Per Share
The net loss per share is computed by dividing the net loss by
the weighted average number of shares of common stock
outstanding during the period. Unexercised stock options have
not been considered since they would have an antidilutive
effect.
Reclassifications
Certain items shown in the December 31, 1998 financial
statements have been reclassified to conform more closely to
the classifications in the 1999 financial statements. These
reclassifications had no effect on the equity or net loss of
the Company as previously shown.
NOTE 3 - SECURITIES
Amortized cost and estimated fair value of securities available for
sale as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Federal
U. S. U. S. Reserve
Treasury Government Bank
Securities Agencies Stock Total
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Amortized cost $ 500,998 $ 2,470,661 $180,000 $ 3,151,659
Gross unrealized:
Gains -- -- -- --
Losses (3,599) (11,592) -- (15,191)
---------- ----------- -------- -----------
Estimated fair value $ 497,399 $ 2,459,069 $180,000 $ 3,136,468
========== =========== ======== ===========
</TABLE>
The amortized cost and estimated fair value of securities at December
31, 1999 by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Securities
Available for Sale
------------------------------
Amortized Estimated
Cost Fair Value
---------- ----------
<S> <C> <C>
Due in:
One year or less $ -- $ --
After one through five years 2,971,659 2,956,468
Other securities 180,000 180,000
---------- ----------
$3,151,659 $3,136,468
========== ==========
</TABLE>
35
<PAGE> 37
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS
Activity in the allowance for loan losses during 1999 is as follows:
<TABLE>
<S> <C>
Beginning balance $ --
Provision 111,633
Net charge-offs --
-----------
Ending balance $ 111,633
===========
</TABLE>
The Bank had no non-accrual or other non-performing loans at December
31, 1999.
NOTE 5 - PROPERTY AND EQUIPMENT
The components of property and equipment, and the aggregate related
accumulated depreciation and amortization at December 31, 1999, are as
follows:
<TABLE>
<S> <C>
Land $ 890,786
Buildings 1,257,837
Furniture, equipment and software 668,744
-----------
2,817,367
Less accumulated depreciation and amortization (49,858)
-----------
$ 2,767,509
===========
</TABLE>
Depreciation and amortization expense during 1999 was $49,858.
NOTE 6 - DEPOSITS
At December 31, 1999, the scheduled maturities of time certificates of
deposit are as follows:
<TABLE>
(In Thousands)
--------------
<S> <C>
2000 $ 5,049
2001 1,349
2002 --
2003 --
2004 and thereafter 655
</TABLE>
36
<PAGE> 38
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - OTHER OPERATING EXPENSES AND PRE-OPENING COMPONENTS
The components of other operating expenses are as follows:
<TABLE>
<S> <C>
Various organizational expenses $ 69,153
Stationery and supplies 47,431
Legal and professional 39,593
Data and item processing 33,515
Marketing and business development 18,083
Insurance 13,126
Telephone 9,459
Regulatory fees 8,429
Loan expense 8,179
All other 24,681
---------
$ 271,649
=========
</TABLE>
As discussed in Note 1, the Bank's organizational activities began in
August 1998. Major operating components incurred before and after
opening are as follows:
<TABLE>
<CAPTION>
Before After
Opening Opening Total 1999
--------- --------- ----------
<S> <C> <C> <C>
Income $ 116,258 $ 302,134 $ 418,392
Interest expense (19,734) (132,551) (152,285)
Loan loss provision -- (111,633) (111,633)
--------- --------- ---------
96,524 57,950 154,474
--------- --------- ---------
Salaries and benefits 147,802 263,170 410,972
Occupancy -- 41,216 41,216
FF & E -- 39,408 39,408
Other expense 73,475 198,174 271,649
--------- --------- ---------
221,277 541,968 763,245
--------- --------- ---------
Pre-tax loss $(124,753) $(484,018) $(608,771)
========= ========= =========
</TABLE>
All of the 1998 expenses were before commencement of operations by the
Bank.
NOTE 8 - INCOME TAXES
Since the Company incurred tax losses in 1998 and 1999, no current
federal or state income tax is due or receivable and, accordingly, no
current income tax expense or benefit has been provided. The tax
benefit included in 1999 operations represents the deferred tax benefit
attributable to cumulative differences between the book and tax bases
of the Company's and the Bank's assets and liabilities, and to the net
operating loss incurred in 1999.
37
<PAGE> 39
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - INCOME TAXES (CONTINUED)
The more significant temporary differences and related deferred tax
assets and liabilities at December 31, 1999 are as follows:
Temporary Differences
<TABLE>
<S> <C>
Deferred tax on deductible differences:
Net operating losses $138,000
Pre-opening and organizational costs - net 65,200
Loan loss reserve 21,800
Unrealized loss on securities 5,666
--------
230,666
Deferred tax on taxable differences:
Property and equipment basis difference 1,500
--------
Net asset included in financial statements $229,166
========
</TABLE>
The difference between the recorded tax benefit and that which might be
expected by application of the federal statutory corporate income tax
rate of 34% is due primarily to the tax effects of state income tax.
The net operating loss of approximately $427,000 at December 31, 1999
may be carried forward to offset income taxes otherwise payable in
future years until its use or expiration in 2019.
The Company and the Bank file consolidated income tax returns. Tax is
allocated between the entities under a tax sharing agreement on an "as
though separate" basis.
NOTE 9 - LOANS TO RELATED PARTIES
During 1999, the Bank made loans to certain officers and directors, and
companies in which they held a 10 percent or more beneficial ownership.
The balance outstanding under these loans at December 31, 1999 was
$31,800. These loans were made in the normal course of business at
prevailing interest rates and terms.
38
<PAGE> 40
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Financial Instruments With Off-Balance-Sheet Risk
The financial statements do not reflect various commitments
and contingent liabilities that arise in the normal course of
business to meet the financing needs of customers. These
include commitments to extend credit and honor stand-by
letters of credit. These instruments involve, to varying
degrees, elements of credit, interest rate and liquidity risks
in excess of amounts reflected in the balance sheets. The
extent of the Bank's involvement in these commitments or
contingent liabilities is expressed by the contractual, or
notional, amounts of the instruments.
Commitments to extend credit, which amount to approximately
$3,100,000 at December 31, 1999, represent legally binding
agreements to lend to customers with fixed expiration dates or
other termination clauses. Since many commitments are expected
to expire without being funded, committed amounts do not
necessarily represent future liquidity requirements. The
amount of collateral obtained, if any, is based on
management's credit evaluation in the same manner as though an
immediate credit extension were to be granted.
Stand-by letters of credit are conditional commitments issued
by the Bank guaranteeing the performance of a customer to a
third party. The decision whether to guarantee such
performance and the extent of collateral requirements are made
considering the same factors as are considered in credit
extension. At December 31, 1999, the Bank had no outstanding
stand-by letters of credit.
The Bank expects no significant losses to be realized in the
performance of its obligations under any of the above
instruments.
Concentrations of Credit Risk
The Bank originates residential and commercial real estate
loans, agriculture loans, and other consumer and commercial
loans primarily in its Highlands County market area. In
addition, the Bank may participate in loans originated by
other banks or sell loans it originates to other banks.
Although the Bank has a diversified loan portfolio, a
substantial portion of its borrowers' ability to repay their
loans is dependent upon economic conditions in the market
areas of its borrowers.
39
<PAGE> 41
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Use of Estimates in Preparation of Financial Statements
The process of preparing financial statements in conformity with
generally accepted accounting principles requires the use of estimates
and assumptions regarding certain types of assets, liabilities,
revenues and expenses. For the Company, such estimates significantly
affect the amount at which the allowance for loan losses is carried,
the amount of the deferred tax assets that are dependent upon future
taxable income and the likelihood and timing of realization of such
assets, and other factors and amounts entering into the preparation of
the financial statements. All such estimates relate to unsettled
transactions and events as of the date of the financial statements and,
accordingly, upon settlement it is likely that actual amounts will
differ from currently estimated amounts.
NOTE 11 - DIVIDEND RESTRICTIONS
The payment of dividends by a national bank is subject to various
restrictions set forth by law. Such restrictions generally limit
dividends to an amount not exceeding net income for the current and two
preceding years, less any dividends paid during such period. In
addition, see Note 13 for indirect limitations on the payment of
dividends.
NOTE 12 - STOCK OPTION PLAN
The Company's board of directors approved a stock option plan
permitting the granting of options for up to 35,000 shares of the
Company's common stock to selected Bank officers and employees, and
options for 40,000 shares to the Company's directors, subject to
approval by the shareholders.
During 1999, options for 30,000 shares were granted to officers and
employees. Options granted generally become exercisable 20% in the year
of grant, and 20% over each of the next four years. The exercise price
of these options is the deemed fair value on the date of grant ($10).
Any options not exercised expire ten years after their date of grant.
Also during 1999, options for 40,000 shares were granted to the
Company's outside directors. The exercise price and other terms of
these options are the same as the officers' options, except that they
vest over a five year period beginning with the first anniversary of
the grant date.
Of the 70,000 options outstanding at December 31, 1999, 5,000 were
exercisable. The weighted average remaining contractual life at
December 31, 1999 is 9.5 years.
40
<PAGE> 42
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - STOCK OPTION PLAN (CONTINUED)
Under Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" (the Standard), the Company is permitted
to disclose rather than recognize any material compensation cost
associated with its options. Compensation cost for this purpose is
based on the fair value of options when granted, as determined under
the new Standard and accrued in accordance with their vesting schedule.
If the Company and the Bank were to recognize compensation costs
associated with these options, the impact on the net loss for 1999
would not have been material.
NOTE 13 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of
total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined)
to average assets (as defined). If such minimum amounts and ratios are
met, the Bank is considered "adequately capitalized". If a bank exceeds
the requirements of "adequately capitalized", and meets even more
stringent minimum standards, it is considered "well capitalized".
Management believes as of December 31, 1999, the Bank meets all capital
adequacy requirements to which it is subject.
41
<PAGE> 43
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - REGULATORY MATTERS (CONTINUED)
The table below shows the total risk-based, Tier I risk-based, and Tier
I leverage ratios of the Bank at December 31, 1999, and the minimum
amounts and ratios needed to meet the definition of "well capitalized".
<TABLE>
<CAPTION>
Minimum Amount
and Ratio to
Remain Well
Actual Capitalized
------------------ -------------------
Amount Ratio Amount Ratio
------ ----- ------ -----
(Thousands) (Thousands)
<S> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to
Risk Weighted Assets)
Consolidated $5,913 30.1% $1,962 10.0%
Subsidiary bank 5,354 27.3 1,962 10.0
Tier I Capital
(to Risk Weighted Assets)
Consolidated 5,801 29.6 1,177 6.0
Subsidiary bank 5,243 26.7 1,177 6.0
Tier I Capital
(to Average Assets)
Consolidated 5,801 26.7 1,085 5.0
Subsidiary bank 5,243 24.8 1,057 5.0
</TABLE>
NOTE 14 - HEARTLAND BANCSHARES, INC. (PARENT COMPANY-ONLY) FINANCIAL INFORMATION
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
---------- ---------
<S> <C> <C>
Assets
Cash and cash equivalents $ 558,335 $ 20,879
Investment in bank subsidiary, at equity 5,476,805 645,775
Other assets -- 7,482
---------- ---------
Total Assets $6,035,140 $ 674,136
========== =========
Liabilities $ 20,000 $ 756,555
Shareholders' Equity (Deficit) 6,015,140 (82,419)
---------- ---------
Total Liabilities and Shareholders' Equity $6,035,140 $ 674,136
========== =========
</TABLE>
42
<PAGE> 44
HEARTLAND BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - HEARTLAND BANCSHARES, INC. (PARENT COMPANY-ONLY) FINANCIAL INFORMATION
(CONTINUED)
Condensed Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998
----------- ---------
<S> <C> <C>
Income $ 116,258 $ --
----------- ---------
Expenses:
Miscellaneous operating expense 32,723 27,555
Income taxes 20,000 --
----------- ---------
52,723 27,555
----------- ---------
Income (Loss) Before Equity in Loss
of Subsidiary 63,535 (27,555)
Equity in loss of subsidiary (448,806) (64,864)
----------- ---------
Net Loss $ (385,271) $ (92,419)
=========== =========
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1999 1998
----------- ---------
<S> <C> <C>
Operating Activities:
Net loss $ (385,271) $ (92,419)
Deferred income tax 20,000 --
Equity recognition of subsidiary's loss 513,670 --
Amortization 2,875 --
Net change in other balance sheet
accounts (18,680) 18,680
----------- ---------
Net Cash Provided By (Used In)
Operating Activities 132,594 (73,739)
----------- ---------
Investing Activities:
Investment in bank stock (6,000,000) --
Land acquired for bank -- (645,775)
----------- ---------
Net Cash Used In Investing Activities (6,000,000) (645,775)
----------- ---------
Financing Activities:
Issuance of common stock at $10 per share 6,510,300 10,000
Offering costs (13,338) (4,607)
Reimbursement for land acquired on behalf
of Bank 645,775 --
Proceeds from note payable -- 735,000
Repayment of note payable (737,875) --
----------- ---------
Net Cash Provided By Financing
Activities 6,404,862 740,393
----------- ---------
Net Increase in Cash 537,456 20,879
Cash and Cash Equivalents at:
Beginning of Year 20,879 --
----------- ---------
End of Year $ 558,335 $ 20,879
=========== =========
</TABLE>
43
<PAGE> 45
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no occurrence requiring a response to this Item.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of Heartland Bancshares and
Heartland National Bank are as follows:
<TABLE>
<CAPTION>
Position with Position with
Name Age(1) Heartland Bancshares Heartland National Bank
- ---- --- -------------------- -----------------------
<S> <C> <C> <C>
James C. Clinard................. 46 President, President,
Chief Executive Officer Chief Executive Officer
and Class I Director and Director
James B. Belflower............... 48 Class I Director Senior Lending Officer
and Director
David S. Lethem.................. 41 Chief Financial Officer Chief Financial Officer
Bert J. Harris, III.............. 47 Class I Director Director
Issac G. Nagib................... 45 Class II Director Director
S. Allen Skipper................. 46 Class II Director Director
Malcolm C. Watters, Jr........... 52 Class II Director Director
William R. Grigsby............... 66 Class III Director Director
William R. Handley............... 45 Class III Director Director
Edward L. Smoak.................. 52 Class III Director Director
Lawrence B. Wells................ 45 Class III Director Director
</TABLE>
- ---------------------
(1) As of March 1, 2000
With the exception of Mr. Belflower, all of the directors of Heartland
Bancshares have served as directors since the incorporation of the company in
September 1998. Mr. Belflower has been a member of the Board of Directors since
February 2000. Heartland Bancshares has a classified Board of Directors whereby
one-third of the members will be elected each year at the company's Annual
Meeting of Shareholders. Upon such election, each director of Heartland
Bancshares serves for a term of three years. Heartland Bancshares' officers are
appointed by its Board of Directors and hold office at the will of the Board.
Each member of the Board of Directors of Heartland National Bank is
elected each year at the Bank's Annual Meeting of Shareholders. As Heartland
Bancshares is the sole shareholder of Heartland National Bank, bank directors
are effectively elected by the Board of Directors of the holding company.
Heartland National Bank's officers are appointed by its Board of Directors and
hold office at the will of the Board.
-44-
<PAGE> 46
JAMES C. CLINARD has served the President and Chief Executive Officer
of Heartland Bancshares since its formation in August 1998. He was previously
employed by Barnett Bank of Highlands County from 1976 until Barnett Bank was
acquired by NationsBank (now Bank of America) in 1998. Mr. Clinard served as
Executive Vice President/Senior Retail Executive in his last six years with
Barnett Bank.
JAMES B. BELFLOWER has served as the Executive Vice President and
Senior Lending Officer of Heartland National Bank since February 1999. Prior to
joining Heartland National Bank, Mr. Belflower served for seven years as Senior
Vice President and Senior Lending Officer of Barnett Bank of Highlands County.
DAVID S. LETHEM has served as the Chief Financial Officer of Heartland
Bancshares, Inc. since January 2000. Prior to joining Heartland, Mr. Lethem
served as the Manager of Securities Operations for Life Investors of America,
Inc. from August 1999 until October 1999. From February 1999 until August 1999,
Mr. Lethem was the Internal Audit Manager for McLeod USA, Inc. Mr. Lethem also
served as Chief Financial Officer and Cashier for a community bank owned by
Marquette Bancshares, Inc. from 1992 until October 1998.
BERT J. HARRIS, III has practiced law as a partner in the law firm of
Swaine, Harris, Sheehan and McClure, P.A. since 1990. Mr. Harris and his firm
served as bank counsel for Barnett Bank of Highlands County for over ten years
and also represented NationsBank/Highlands County, SunTrust Bank/Central Florida
and Community Bank of Lake Placid.
ISSAC G. NAGIB began his career in physical therapy as Senior Physical
Therapist at Mercy Hospital, Champaign, Illinois in 1980. In 1984, Dr. Nagib
moved to Highlands County, Florida to serve in the position of Director of
Physical Therapy at Highlands Regional Hospital in Sebring. In 1987, Dr. Nagib
left Highlands Regional Hospital and founded Heartland Rehabilitation &
Associates, Inc. Today, he operates offices in Sebring, Lake Placid, and in the
Highlands Regional Medical Center in Sebring.
S. ALLEN SKIPPER earned his Bachelor of Science degree in 1976 and his
Medical Degree in 1980, both from the University of South Florida. Dr. Skipper
began his practice in Sebring, Florida in 1987 as a General and Vascular Surgeon
and currently serves as Chief of Surgery and Trustee at Highlands Regional
Medical Center.
MALCOLM C. WATTERS, JR. has been self-employed in the citrus business
since 1970. Mr. Watters serves as Vice President and Director of Lake Placid
Citrus Cooperative, a cooperative of citrus growers in Highlands County.
WILLIAM R. GRIGSBY has been involved since 1972 in citrus production in
Highlands County, Florida. He is currently a Managing Partner in the following
operations: Southern Farms, a 7,000 acre citrus development in Highlands County,
Florida and SunRay Farms, a 3,600 acre citrus development in Highlands County,
Florida.
WILLIAM R. HANDLEY is the owner of Homes by Handley, Inc., a
construction company he founded in 1984.
-45-
<PAGE> 47
EDWARD L. SMOAK has been a managing partner in his family citrus and
cattle business since 1970, as well as owning substantial citrus properties
individually. He served as a Commissioner on the Florida Citrus Commission for
eight years and has served as a Director in the Lake Placid Citrus Cooperative
since 1985.
LAWRENCE B. WELLS began a career in the insurance industry in 1974 with
Florida Farm Bureau and formed his own independent agency in Lake Placid,
Florida in 1983, which today has offices in Lake Placid and Sebring.
There are no family relationships between any director or executive
officer and any other director or executive officer of the Heartland Bancshares.
Heartland Bancshares is not subject to the requirements of Section 16
of the Securities Exchange Act of 1934.
ITEM 10. EXECUTIVE COMPENSATION.
The following tables provide certain summary information for the fiscal
year ended December 31, 1999 concerning compensation paid or accrued by
Heartland Bancshares to or on behalf of Heartland Bancshares' Chief Executive
Officer. None of the executive officers of Heartland Bancshares received
compensation in excess of $100,000 during fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
--------------------------- ------------------
Securities
Name Year Salary Bonus Underlying Options
---- ---- ------ ----- ------------------
<S> <C> <C> <C> <C>
James C. Clinard..... 1999 $92,767 -- 20,000
1998(1) $ 0 -- --
</TABLE>
- -------------------------
(1) Mr. Clinard has served as Chief Executive Officer of Heartland
Bancshares since its incorporation in August 1998.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
Number of Percentage of total
shares underlying options granted to Exercise price
Name options granted employees in 1999 per share Expiration date
- ---- --------------- ----------------- --------- ---------------
<S> <C> <C> <C> <C>
James C. Clinard......... 20,000 66.7% $10.00 9/7/09
</TABLE>
46
<PAGE> 48
No stock options were exercised by any optionee during fiscal 1999. The
following table provides information regarding the number and value of options
held by the Chief Executive Officer at December 31, 1999:
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
at Fiscal Year End at Fiscal Year End
Name Exercisable / Unexercisable Exercisable / Unexercisable
- ---- --------------------------- ---------------------------
<S> <C> <C>
James C. Clinard....... 3,000 / 17,000 $0 / $0 (1)
</TABLE>
- ---------------------
(1) Dollar values calculated by determining the difference between the
estimated fair market value of Heartland Bancshares' common stock at
December 31, 1999 ($10.00) and the exercise price of such options.
Because no organized trading market exists for the common stock of the
Bank, the fair market value was computed by reference to the offering
price of the common stock in the company's initial public offering.
Employment Agreement with Chief Executive Officer
On October 2, 1998, Heartland Bancshares and Heartland National Bank
entered into an employment agreement with James C. Clinard pursuant to which Mr.
Clinard is employed as President and Chief Executive Officer of Heartland
National Bank for a term expiring on September 7, 2004, the fifth anniversary of
opening date of Heartland National Bank. Under the employment agreement, Mr.
Clinard receives a salary at an annual rate of $100,000, which may be increased
from time to time in the sole discretion of the Board of Directors of Heartland
National Bank. Mr. Clinard will also be eligible to receive a bonus which will
not exceed 30% of his annual base salary. In addition, Mr. Clinard has been
issued an option pursuant to the employment agreement to purchase 15,000 shares
of common stock of Heartland Bancshares at a price of $10.00 per share.
In the event of a "change of control" of Heartland Bancshares, Mr.
Clinard will be entitled to give written notice to Heartland Bancshares of
termination of his employment agreement and to receive a cash payment equal to
200% of the amount of compensation received by Mr. Clinard in the year prior to
termination. The employment agreement contains a non-compete provision which
provides that if Mr. Clinard terminates the employment agreement prior to the
expiration of the term of the agreement, for a period of 24 months thereafter he
may not, without the prior written consent of Heartland National Bank, serve as
an executive officer of any bank, bank holding company, or other financial
institution in any county in which Heartland National Bank operates a branch
facility.
The employment agreement provides that Heartland National Bank may
terminate the employment of Mr. Clinard with or without cause, but that in the
latter case Mr. Clinard will receive a severance payment equal to 12 months'
salary.
47
<PAGE> 49
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information as of March 1, 2000
with respect to ownership of the outstanding common stock of Heartland
Bancshares by (i) all persons known by Heartland Bancshares to beneficially own
more than 5% of the outstanding shares of common stock of Heartland Bancshares,
(ii) each director of Heartland Bancshares, and (iii) all executive officers and
directors of Heartland Bancshares, as a group.
<TABLE>
<CAPTION>
Number of Shares Percent
Name Beneficially Owned(1) of Total(2)
- ---- -------------------- -----------
<S> <C> <C>
James C. Clinard............................ 18,000(3) 2.7%
James B. Belflower.......................... 7,000(4) 1.1%
Bert J. Harris, III......................... 10,000 1.5%
Issac G. Nagib.............................. 15,000(5) 2.3%
S. Allen Skipper............................ 10,000(6) 1.5%
Malcolm C. Watters, Jr...................... 10,000(7) 1.5%
William R. Grigsby.......................... 25,000(8) 3.8%
William R. Handley.......................... 15,750(9) 2.4%
Edward L. Smoak............................. 25,000(10) 3.8%
Lawrence B. Wells........................... 10,000(11) 1.5%
All directors and executive 146,250(12) 22.2%
officers, as a group (11 persons).....
</TABLE>
- ---------------------
(1) In accordance with Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, a person is deemed to be the beneficial owner of a
security for purposes of the rule if he or she has or shares voting
power or dispositive power with respect to such security or has the
right to acquire such ownership within sixty days. As used herein,
"voting power" is the power to vote or direct the voting of shares, and
"dispositive power" is the power to dispose or direct the disposition
of shares, irrespective of any economic interest therein.
(2) In calculating the percentage ownership for a given individual or
group, the number of shares of the company's common stock outstanding
includes unissued shares subject to options, warrants, rights or
conversion privileges exercisable within sixty days held by such
individual or group, but such unissued shares are not deemed
outstanding in calculating the percentage ownership for other persons
or groups.
(3) Includes 10,000 shares held in Mr. Clinard's individual retirement
account, 4,900 shares held jointly with spouse and 3,000 shares subject
to presently exercisable stock options.
(4) Consists of 5,000 shares held in Mr. Belflower's individual retirement
account and 2,000 shares subject to presently exercisable stock
options.
(5) Includes 14,900 shares held jointly with spouse.
(6) Includes 9,900 shares held jointly with spouse.
(7) Includes 9,900 shares held jointly with spouse.
(8) Includes 24,900 shares held by WCW Holding, Ltd., a family limited
partnership of which Mr. Grigsby is the general partner.
(9) Includes 5,000 shares held in Mr. Handley's Individual Retirement
Account, 4,900 shares held jointly with spouse, and 5,000 shares held
in the Individual Retirement Account of Mr. Handley's spouse, as to
which beneficial ownership is disclaimed.
(10) Includes 24,900 shares held in the Edward L. Smoak Revocable Trust.
(11) Includes 9,900 shares held jointly with spouse.
(12) Includes 5,500 shares subject to presently exercisable options and
5,000 shares as to which beneficial ownership is disclaimed.
48
<PAGE> 50
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The property on which Heartland National Bank's Lake Placid office is
located was purchased by Heartland Bancshares from Edward L. Smoak, a director
of Heartland National Bank and Heartland Bancshares, for a purchase price of
$246,000. Prior to purchasing the property, the organizers of Heartland National
Bank obtained an appraisal from each of two state-certified general appraisers.
Each of the appraisals reflected a value in excess of $246,000, and the
organizers believed the price paid for the property did not exceed its fair
market value.
Heartland National Bank extends loans from time to time to certain of
Heartland Bancshares' directors, their associates and members of the immediate
families of the directors and executive officers of Heartland Bancshares. These
loans are made in the ordinary course of business on substantially the same
terms, including interest rates, collateral and repayment terms, as those
prevailing at the time for comparable transactions with persons not affiliated
with Heartland Bancshares or Heartland National Bank, and do not involve more
than the normal risk of collectibility or present other unfavorable features.
49
<PAGE> 51
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are filed with or incorporated by
reference into this report. The exhibits which are denominated by an asterisk
(*) were previously filed as a part of, and are hereby incorporated by reference
from (i) a Registration Statement on Form SB-2 for Heartland Bancshares filed
with the SEC on November 12, 1998 ("SB-2"); and (ii) Amendment No. 1 to SB-2,
filed with the SEC on January 6, 1999 ("SB-2/A"). The exhibit numbers correspond
to the exhibit numbers in the referenced document.
Exhibit No. Description of Exhibit
----------- ----------------------
*3.1 - Amended and Restated Articles of Incorporation of Heartland
Bancshares (SB-2)
*3.2 - Amended and Restated Bylaws of Heartland Bancshares (SB-2)
*4.1 - Specimen Common Stock Certificate (SB-2/A)
*10.1 - Employment Agreement dated as of October 2, 1998 by and between
Heartland Bancshares and James C. Clinard (SB-2)
*10.1.1 - Amendment No. 1 to Employment Agreement of James C. Clinard,
dated December 1, 1998 (SB-2/A).
*10.2 - Contract for sale and purchase of land for the banking office in
Sebring, Florida dated August 21, 1998 (SB-2/A)
*10.3 - Contract for sale and purchase of land for the banking office in
Lake Placid, Florida, dated October 2, 1998. (SB-2/A)
10.4 - 1999 Stock Option Plan
10.5 - Form of Incentive Stock Option Agreement
10.6 - Form of Nonqualified Stock Option Agreement
21.1 - Subsidiaries of the Registrant
27.1 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. No reports on Form 8-K were required to be
filed for the quarter ended December 31, 1999.
50
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 28, 2000 By: /s/ James C. Clinard
--------------------------------------------
James C. Clinard
President and Chief Executive Officer
(Principal Executive Officer)
Dated: March 28, 2000 By: /s/ David S. Lethem
--------------------------------------------
David S. Lethem
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James C. Clinard President, Chief Executive Officer March 28, 2000
- ------------------------------- and Director
James C. Clinard
/s/ James B. Belflower Director March 28, 2000
- -------------------------------
James B. Belflower
/s/ William R. Grigsby Director March 28, 2000
- -------------------------------
William R. Grigsby
/s/ William R. Handley Director March 29, 2000
- -------------------------------
William R. Handley
Director March , 2000
- -------------------------------
Bert J. Harris, III
Director March , 2000
- -------------------------------
Issac G. Nagib
/s/ S. Allen Skipper Director March 27, 2000
- -------------------------------
S. Allen Skipper
/s/ Edward L. Smoak Director March 27, 2000
- -------------------------------
Edward L. Smoak
/s/ Malcolm C. Watters, Jr. Director March 28, 2000
- -------------------------------
Malcolm C. Watters, Jr.
/s/ Lawrence B. Wells Director March 28, 2000
- -------------------------------
Lawrence B. Wells
</TABLE>
51
<PAGE> 53
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders as
of the date of filing this report. An annual report and proxy materials will be
furnished to security holders subsequent to the filing of this Annual Report on
Form 10-KSB, and the Registrant will furnish copies of such material to the
Commission when they are sent to security holders.
52
<PAGE> 54
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No Description
-------- -----------
<S> <C>
10.4 1999 Stock Option Plan
10.5 Form of Incentive Stock Option Agreement
10.6 Form of Nonqualified Stock Option Agreement
21.1 Subsidiaries of Registrant
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
HEARTLAND BANCSHARES, INC.
EXHIBIT 10.4
<PAGE> 2
HEARTLAND BANCSHARES, INC.
1999 STOCK OPTION PLAN
EFFECTIVE AS OF SEPTEMBER 3, 1999
1. PURPOSE
The primary purpose of the Heartland Bancshares, Inc. 1999 Stock Option
Plan (the "Plan") is to encourage and enable eligible directors, officers and
key employees of Heartland Bancshares, Inc. (the "Company") and its subsidiaries
to acquire proprietary interests in the Company through the ownership of Common
Stock of the Company. The Company believes that directors, officers and key
employees who participate in the Plan will have a closer identification with the
Company by virtue of their ability as shareholders to participate in the
Company's growth and earnings. The Plan also is designed to provide motivation
for participating directors, officers and key employees to remain in the employ
of and to give greater effort on behalf of the Company. It is the intention of
the Company that the Plan provide for the award of "incentive stock options"
qualified under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") and the regulations promulgated thereunder, as well as the award of
non-qualified stock options. Accordingly, the provisions of the Plan related to
incentive stock options shall be construed so as to extend and limit
participation in a manner consistent with the requirements of Section 422 of the
Code.
2. DEFINITIONS
The following words or terms shall have the following meanings:
(a) "Agreement" shall mean a stock option agreement between the
Company and an Eligible Employee or Eligible Participant pursuant to the terms
of this Plan.
(b) "Board of Directors" shall mean the Board of Directors of the
Company.
(c) "Committee" shall mean the committee appointed by the Board of
Directors to administer the Plan, if any, as set forth in Section 5 of the Plan.
(d) "Company" shall mean Heartland Bancshares, Inc., a Florida
corporation.
(e) "Eligible Employee(s)" shall mean key employees regularly
employed by the Company or a Subsidiary (including officers, whether or not they
are directors) as the Board of Directors or the Committee shall select from time
to time.
(f) "Eligible Participant(s)" shall mean directors, officers and
key employees of the Company and its Subsidiaries.
<PAGE> 3
(g) "Market Price" shall mean the closing price of the Company's
Common Stock on the date in question, as quoted by the Nasdaq National Market or
the Nasdaq SmallCap Market (or other nationally recognized quotation service).
If the Company's Common Stock is not traded on the Nasdaq Stock Market but is
registered on a national securities exchange, "Market Price" shall mean the
closing sales price of the Company's Common Stock on such national securities
exchange. If the Company's shares of Common Stock are not traded on a national
securities exchange or through any other nationally recognized quotation
service, then "Market Price" shall mean the fair market value of the Company's
Common Stock as determined by the Board of Directors or the Committee, acting in
good faith, under any method consistent with the Code, or Treasury Regulations
thereunder, as the Board of Directors or the Committee shall in its discretion
select and apply at the time of the grant of the option concerned. Subject to
the foregoing, the Board of Directors or the Committee, in fixing the market
price, shall have full authority and discretion and be fully protected in doing
so.
(h) "Optionee" shall mean an Eligible Employee or Eligible
Participant having a right to purchase Common Stock under an Agreement.
(i) "Option(s)" shall mean the right or rights granted to Eligible
Employees or Eligible Participants to purchase Common Stock under the Plan.
(j) "Plan" shall mean this Heartland Bancshares, Inc. 1999 Stock
Option Plan.
(k) "Shares," "Stock," or "Common Stock" shall mean shares of the
$.10 par value common stock of the Company.
(l) "Subsidiary" or "Subsidiaries" shall mean any corporation(s)
of which the Company owns or controls, directly or indirectly, a majority of the
voting stock.
(m) "Ten Percent Owner" shall mean an individual who, at the time
an Option is granted, owns or controls, directly or indirectly, more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or a Subsidiary.
3. EFFECTIVE DATE
The effective date of the Plan (the "Effective Date") shall be the date
the Plan is adopted by the Board of Directors. The Plan must subsequently be
approved by the shareholders of the Company by the affirmative vote of the
holders of not less than a majority of the Shares voted at a meeting at which a
quorum is present, which shareholder vote must be taken no later than twelve
months after the date the Plan is adopted by the Board of Directors. In the
event shareholder approval of the adoption of the Plan is not obtained within
the aforesaid twelve month period, any Options granted under the Plan shall be
non-qualified stock options.
2
<PAGE> 4
4. SHARES RESERVED FOR PLAN
The shares of the Company's Common Stock to be sold to Eligible
Employees and Eligible Participants under the Plan may at the election of the
Board of Directors be either treasury shares or shares originally issued for
such purpose. A maximum of one hundred thirty thousand Shares shall be reserved
and made available for issuance pursuant to the Plan, provided, however, that
such Shares shall be subject to the adjustments provided in Section 8(h). Any
Shares subject to an Option which for any reason expires or is terminated
unexercised may again be subject to an Option under the Plan.
5. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors or the
Committee. The Committee shall be comprised of not less than two members
appointed by the Board of Directors of the Company from among its members, each
of whom qualifies as a "Non-Employee Director" as such term is defined in Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor regulation.
Within the limitations described herein, the Board of Directors of the
Company or the Committee shall administer the Plan, select the Eligible
Employees and Eligible Participants to whom Options will be granted, determine
the number of shares to be optioned to each Eligible Employee and Eligible
Participant and interpret, construe and implement the provisions of the Plan.
The Board of Directors or the Committee shall also determine the price to be
paid for the Shares upon exercise of each Option, the period within which each
Option may be exercised, and the terms and conditions of each Option granted
pursuant to the Plan. The Board of Directors and Committee members shall be
reimbursed for out-of-pocket expenses reasonably incurred in the administration
of the Plan.
If the Plan is administered by the Board of Directors, a majority of the
members of the Board of Directors shall constitute a quorum, and the act of a
majority of the members of the Board of Directors present at any meeting at
which a quorum is present, or acts approved in writing by all members of the
Board of Directors shall be the acts of the Board of Directors. If the Plan is
administered by the Committee, a majority of the members of the Committee shall
constitute a quorum, and the acts of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by all of the
members of the Committee shall be the acts of the Committee.
6. ELIGIBILITY
Options granted pursuant to Section 8 shall be granted only to Eligible
Employees. Options granted pursuant to Section 9 may be granted to Eligible
Employees and to Eligible Participants.
3
<PAGE> 5
7. DURATION OF THE PLAN
The Plan shall remain in effect until all Shares subject to or which may
become subject to the Plan shall have been purchased pursuant to Options granted
under the Plan; provided that Options under the Plan must be granted within ten
years from the Effective Date.
8. QUALIFIED INCENTIVE OPTIONS
It is intended that Options granted under this Section 8 shall be
qualified incentive stock options under the provisions of Section 422 of the
Code and the regulations thereunder or corresponding provisions of subsequent
revenue laws and regulations in effect at the time such Options are granted.
Such Options shall be evidenced by stock option agreements in such form and not
inconsistent with this Plan as the Committee or the Board of Directors shall
approve from time to time, which Agreements shall contain in substance the
following terms and conditions:
(a) Price. The purchase price for shares purchased upon exercise
will be equal to the Market Price on the day the Option is granted; provided,
that the purchase price of stock deliverable upon the exercise of a qualified
incentive stock option granted to a Ten Percent Owner under this Section 8 shall
be not less than 110% of the Market Price on the day the Option is granted, as
determined by the Board of Directors or the Committee, but in no case less than
the par value of such stock.
(b) Number of Shares. The Agreement shall specify the number of
Shares which the Optionee may purchase under such Option, as determined by the
Board of Directors or the Committee.
(c) Exercise of Options. Shares subject to an Option may be
purchased in whole or in part from time to time by the Optionee of such Option
in accordance with the terms of the Agreement governing the Option, but in no
event later than ten years from the date of grant of the Option. Notwithstanding
the foregoing, Shares subject to an Option which is a qualified incentive stock
option granted to a Ten Percent Owner under this Section 8 may be purchased from
time to time but in no event later than five years from the date of grant of the
Option.
(d) Medium and Time of Payment. Stock purchased pursuant to an
Agreement shall be paid for in full at the time of purchase. Payment of the
purchase price shall be in cash or, in lieu of payment of all or part of the
purchase price in cash, the Optionee may surrender to the Company Common Stock
valued at the Market Price on the date of exercise of the Option in accordance
with the terms of the Agreement. Upon receipt of payment, the Company shall,
without transfer or issue tax, deliver to the Optionee (or other person entitled
to exercise the Option) a certificate or certificates for such Shares.
(e) Rights as a Shareholder. An Optionee shall have no rights as a
shareholder with respect to any Shares covered by an Option until the date of
issuance of the stock certificate to the
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<PAGE> 6
Optionee for such Shares. Except as otherwise expressly provided in the Plan, no
adjustments shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued.
(f) Nonassignability of Option. No Option shall be assignable or
transferable by an Optionee except by will or by the laws of descent and
distribution. An Option may only be exercised, during the lifetime of the
Optionee of such Option, by such Optionee.
(g) Effect of Termination of Employment or Death. In the event an
Optionee during his or her lifetime ceases to be an employee of the Company or
of any Subsidiary of the Company for any reason (including retirement) other
than death or permanent and total disability, any Option or unexercised portion
thereof which was otherwise exercisable by such Optionee on the date of
termination of employment shall expire unless exercised within a period of three
months from the date on which such Optionee ceased to be an employee, but in no
event after the term provided in such Optionee's Agreement.
In the event an Optionee ceases to be an employee of the Company or of
any Subsidiary of the Company for any reason (including retirement) other than
death or permanent and total disability prior to the time that an Option or
portion thereof becomes exercisable, such Option or portion thereof which is not
then exercisable shall terminate and be null and void. Whether authorized leave
of absence for military or government service shall constitute termination of
employment for the purpose of this Plan shall be determined by the Board of
Directors or the Committee, which determination shall be final and conclusive.
In the event an Optionee ceases to be an employee of the Company or any
Subsidiary of the Company by reason of death or permanent and total disability,
any Option or unexercised portion thereof which was otherwise exercisable by
such Optionee on the date such Optionee ceased employment shall expire unless
exercised within a period of one year from the date on which such Optionee
ceased to be an employee, but in no event after the term provided in such
Optionee's Agreement. In the event that an Optionee during his or her lifetime
ceases to be an employee of the Company or any Subsidiary of the Company by
reason of death or permanent and total disability, any Option or portion thereof
which was not exercisable on the date such Optionee ceased employment may, in
the discretion of the Board of Directors or the Committee, be accelerated and
become immediately exercisable for a period of one year from the date on which
the Optionee ceased to be an employee, but in no event shall the exercise period
extend past the term provided in the Optionee's Agreement.
"Permanent and total disability" as used in this Plan shall be as
defined in Section 22(e)(3) of the Code.
In the event of the death of an Optionee, the Option shall be
exercisable by his or her personal representatives, heirs or legatees, as
provided herein.
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<PAGE> 7
(h) Recapitalization. In the event dividends are payable in Common
Stock or in the event there are splits, subdivisions or combinations of shares
of Common Stock, the number of Shares available under the Plan shall be
increased or decreased proportionately, as the case may be, and the number and
Option exercise price of Shares deliverable upon the exercise thereafter of any
Option theretofore granted shall be increased or decreased proportionately, as
the case may be, as determined to be proper and appropriate by the Board of
Directors or the Committee.
(i) Reorganization. In the event the Company is merged or
consolidated with another corporation and the Company is not the surviving
corporation, or in case the property or stock of the Company is acquired by
another corporation, or in case of a separation, reorganization,
recapitalization or liquidation of the Company, the Board of Directors of the
Company, or the Board of Directors of any corporation assuming the obligations
of the Company hereunder, shall either (i) make appropriate provision for the
protection of any outstanding Options by the substitution on an equitable basis
of appropriate stock of the Company, or of the merged, consolidated or otherwise
reorganized corporation which will be issuable in respect to the shares of
Common Stock of the Company, provided only that the excess of the aggregate fair
market value of the Shares subject to option immediately after such substitution
over the purchase price thereof is not more than the excess of the aggregate
fair market value of the Shares subject to option immediately before such
substitution over the purchase price thereof, or (ii) provide written notice to
the Optionee that the Option (including, in the discretion of the Board of
Directors, any portion of such Option which is not then exercisable) must be
exercised within sixty days of the date of such notice or it will be terminated.
If any adjustment under this Section 8(i) would create a fractional Share or a
right to acquire a fractional Share, such shall be disregarded and the number of
Shares available under the Plan and the number of Shares covered under any
Options previously granted pursuant to the Plan shall be the next lower number
of Shares, rounding all fractions downward. An adjustment made under this
Section 8(i) by the Board of Directors shall be conclusive and binding on all
affected persons.
Except as otherwise expressly provided in this Plan, the Optionee shall
have no rights by reason of any subdivision or consolidation of shares of stock
of any class, or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class, or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of assets or
stock of another corporation; and any issue by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or prices of Shares subject to an Option.
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
(j) Annual Limitation. The aggregate fair market value (determined
at the time the Option is granted) of the Shares with respect to which incentive
stock options are exercisable for the first
6
<PAGE> 8
time by an Optionee during any calendar year (under all incentive stock option
plans of the Company and its Subsidiaries) shall not exceed $100,000. Any excess
over such amount shall be deemed to be related to and part of a non-qualified
stock option granted pursuant to Section 9.
(k) General Restriction. Each Option shall be subject to the
requirement that if at any time the Board of Directors shall determine, in its
reasonable discretion, that the listing, registration or qualification of the
Shares subject to such Option upon any securities exchange or under any state or
federal law, or the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such Option or the issue or purchase of Shares thereunder, such Option may not
be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors. Alternatively, such
Options shall be issued and exercisable only upon such terms and conditions and
with such restrictions as shall be necessary or appropriate to effect exemption
from such listing, registration, or other qualification requirement.
9. NON-QUALIFIED OPTIONS
The Board of Directors or the Committee may grant to Eligible Employees
or Eligible Participants Options under the Plan which are not qualified
incentive stock options under the provisions of Section 422 of the Code. Such
non-qualified options shall be evidenced by Agreements in such form and not
inconsistent with this Plan as the Board of Directors or the Committee shall
approve from time to time, which Agreements shall contain in substance the same
terms and conditions as set forth in Section 8 hereof with respect to qualified
incentive stock options; provided, however, that:
(i) the limitations set forth in Sections 8(a) and 8(c)
with respect to Ten Percent Owners shall not be applicable to non-qualified
options granted to any Ten Percent Owner;
(ii) the limitations set forth in Section 8(g) with
respect to termination of employment or death shall not be applicable to
non-qualified option grants, and any such limitations shall be determined on a
case by case basis by the Board of Directors or the Committee at the time of the
non-qualified option grant;
(iii) the limitation set forth in Section 8(j) with respect
to the annual limitation of incentive stock options shall not be applicable to
non-qualified option grants; and
(iv) non-qualified options may be granted at a purchase
price equal to not less than 75% of the Market Price on the day the Option is
granted.
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<PAGE> 9
10. AMENDMENT OF THE PLAN
The Plan may at any time or from time to time be terminated, modified or
amended at a meeting of the shareholders of the Company at which a quorum is
present by the affirmative vote of the holders of a majority of the Shares voted
on such issue. The Board of Directors may at any time and from time to time
modify or amend the Plan in any respect, except that without shareholder
approval the Board of Directors may not (1) increase the maximum number of
Shares for which Options may be granted under the Plan (other than increases due
to changes in capitalization as referred to in Section 8(h) hereof), or (2)
change the class of persons eligible for qualified incentive options. The
termination or any modification or amendment of the Plan shall not, without the
written consent of an Optionee, affect his or her rights under an Option or
right previously granted to him or her. With the written consent of the Optionee
affected, the Board of Directors or the Committee may amend outstanding option
agreements in a manner not inconsistent with the Plan. Without employee consent,
the Board of Directors may at any time and from time to time modify or amend
outstanding option agreements in such respects as it shall deem necessary in
order that incentive options granted hereunder shall comply with the appropriate
provisions of the Code and regulations thereunder which are in effect from time
to time respecting "Qualified Incentive Options." The Company's Board of
Directors may also suspend the granting of Options pursuant to the Plan at any
time and may terminate the Plan at any time; provided, however, no such
suspension or termination shall modify or amend any Option granted before such
suspension or termination unless (1) the affected participant consents in
writing to such modification or amendment or (2) there is a dissolution or
liquidation of the Company.
11. BINDING EFFECT
All decisions of the Board of Directors or the Committee involving the
implementation, administration or operation of the Plan or any offering under
the Plan shall be binding on the Company and on all persons eligible or who
become eligible to participate in the Plan.
12. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Common Stock
pursuant to Options exercised hereunder will be used for general corporate
purposes.
8
<PAGE> 1
HEARTLAND BANCSHARES, INC.
EXHIBIT 10.5
<PAGE> 2
HEARTLAND BANCSHARES, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (this "Option Agreement") is made
and entered into as of the __________ day of ___________________, _______ by and
between HEARTLAND BANCSHARES, INC. (the "Company") and
_______________________________ ("Participant");
WITNESSETH:
The Board of Directors of the Company has adopted that certain 1999
Stock Option Plan, as amended (the "Plan"), a copy of which is attached hereto
as Exhibit "A" and incorporated herein by reference. Pursuant to the terms of
the Plan and that certain employment agreement dated February 25, 1999, by and
among the Company, Heartland National Bank (the "Bank") and Participant (the
"Employment Agreement"), the Board of Directors has selected Participant to
participate in the Plan and desires to grant to Participant certain incentive
stock options to purchase shares of the Company's authorized $.10 par value
common stock ("Stock"), subject to the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual promises, agreements and
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. INCORPORATION OF PLAN PROVISIONS
This Option Agreement is subject to and is to be construed in all
respects in a manner which is consistent with the terms of the Plan, the
provisions of which are hereby incorporated by reference into this Option
Agreement. Unless specifically provided otherwise, all terms used in this Option
Agreement shall have the same meaning as in the Plan.
2. GRANT OF OPTION
Subject to the further terms and conditions of this Option Agreement,
Participant is hereby granted an option to purchase __________________
(___________) shares of Stock, effective as of the date first written above.
This stock option is intended to be an Incentive Stock Option as provided in ss.
422 of the Internal Revenue Code. In the event that there is a conflict between
the terms of the Employment Agreement and the terms of this Option Agreement,
the terms of this Option Agreement shall control.
3. FAIR MARKET VALUE OF STOCK
The Board of Directors has determined, in good faith and in its best
judgment, that the fair market value per share of Stock as of the date this
stock option is granted is $10.00.
<PAGE> 3
4. OPTION PRICE
The Board of Directors has determined that the price for each share of
Stock purchased under this Option Agreement shall be $10.00.
5. EXPIRATION OF OPTION
The option to acquire Stock pursuant to this Option Agreement shall
expire (to the extent not previously exercised) upon the first to occur of the
following:
(i) _________________________ (the tenth anniversary of
the date of grant of the option);
(ii) The date which is sixty days following the date which
Participant ceases his employment with the Company or any subsidiary of the
Company, otherwise than as a result of Participant's death or total disability;
(iii) The date which is the first anniversary of the date
upon which Participant ceases to be employed by the Company, or any subsidiary
of the Company, by reason of Participant's death or total disability; or
(iv) The date upon which Participant ceases his employment
with the Company or any subsidiary of the Company, for any reason (including
death or total disability) other than termination of the Employment Agreement by
the Company or the Bank without cause (as defined in the Employment Agreement),
with respect to any portion of this option that is not exercisable on such date.
6. EXERCISE OF OPTION
(a) Subject to subsection (b) of this Article 6, unless this
option earlier lapses or expires pursuant to Article 5 hereof, this option shall
be exercisable with respect to the full number of shares subject to this Option
Agreement as follows:
_____________________________________________
_____________________________________________
_____________________________________________
(b) Notwithstanding subsection (a) of this Article 6, in the event
the Employment Agreement is terminated by the Company or the Bank without cause
(as defined in the Employment Agreement), this option shall become fully
exercisable (to the extent not previously exercised).
(c) To the extent this option becomes exercisable in accordance
with the foregoing, Participant may exercise this stock option, in whole or in
part, from time to time. The option exercise price may be paid by Participant
either (i) in cash, (ii) by surrender of shares of Stock owned by Participant
for more than six months on the date of surrender and which have a fair market
value on the date of surrender equal to the aggregate exercise price of the
shares as to which such option shall be exercised, or (iii) shares of Stock
issued or issuable in connection with the exercise of this option.
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<PAGE> 4
Notwithstanding the foregoing, Participant shall be permitted to pay
the exercise price of this option in shares of Stock pursuant to clauses (ii)
and (iii) above only if an organized trading market in the Stock exists on the
date of exercise of this option. In addition, any payment of the option exercise
price pursuant to the aforementioned clause (iii) shall be made only with the
prior consent of the Board of Directors of the Company.
For the purposes of this Article 6, an "organized trading market" shall
be deemed to exist on the date of exercise of the option if: (a) the Stock is
listed on a national securities exchange, or (b) the Stock has been quoted on
the National Association of Securities Dealers Automated Quotation System
("Nasdaq") for the 15 trading days preceding the date of exercise of the option,
or (c) bid and asked quotations for the Stock have been published by the
National Quotation Bureau or other recognized inter-dealer quotation publication
(other than Nasdaq) during 20 of the 30 trading days preceding the date of
exercise of the option. In the event that an organized trading market for the
Stock exists on the date of exercise of the option, Participant shall be given
credit against the option exercise price hereunder for such shares surrendered
equal to (i) if the Stock is listed on a national securities exchange or is
quoted on the Nasdaq National Market, the last actual sales transaction price
reported on the day preceding exercise of the option, or, if there were no
actual sales transactions reported for such date, on the date next preceding
such date on which actual sales transactions were reported, or (ii) if the Stock
is quoted on Nasdaq (other than the Nasdaq National Market) or by the National
Quotation Bureau or other recognized inter-dealer quotation publication, the
average of the high and low price quotations on the day preceding exercise of
the option, or, if there were no price quotations for such date, on the date
next preceding such date on which there were high and low price quotations for
the Stock.
7. MANNER OF EXERCISE
This stock option may be exercised by written notice to the Secretary
of the Company specifying the number of shares to be purchased and signed by
Participant or such other person who may be entitled to acquire Stock under this
Option Agreement. If any such notice is signed by a person other than
Participant, such person shall also provide such other information and
documentation as the Secretary of the Company may reasonably require to assume
that such person is entitled to acquire Stock under the terms of the Plan and
this Option Agreement. After receipt of the notice and any other assurances
requested by the Company under this Article 7, and upon receipt of the full
option price, the Company shall issue to the person giving notice of exercise
under this Option Agreement the number of shares specified in such notice.
8. RESTRICTIONS ON TRANSFERABILITY
The stock option granted hereunder shall not be transferable by
Participant otherwise than by will or by the laws of descent and distribution,
and such stock option shall be exercisable during Participant's lifetime only by
Participant.
9. FURTHER RESTRICTIONS ON EXERCISE AND SALE OF STOCK
The Board of Directors may, in its sole discretion, prohibit this
Option from being exercised
3
<PAGE> 5
by the holder hereof in the event that (i) there is not on file with the
Securities and Exchange Commission an effective Registration Statement covering
the option shares on Form S-8, or similar form promulgated by the Securities and
Exchange Commission, and (ii) the Board is not reasonably satisfied that the
offer and sale of such option shares to the option holder will be exempt in fact
from the registration requirements of the Securities Act of 1933, as amended,
and such state securities laws as shall be applicable. The Board of Directors
may condition the exercise of this Option upon its receipt of such
representations, factual assurances and legal opinions as it shall deem
necessary to determine and document the availability of any such exemption and
may further condition such exercise upon such undertakings by the holder hereof
or such restriction upon the transferability of the shares to be acquired
hereunder as it shall determine to be necessary to effectuate and protect the
claim to any such exemption.
Nothing contained in this section shall be construed to obligate the
Company to, or to grant any right to the holder of this Option to, cause the
Company to file any Registration Statement; or, if any such Registration
Statement is filed, to prepare any additional prospectus, to file any amendments
to the Registration Statement, or to continue said Registration Statement in
effect.
10. REORGANIZATION AND RECAPITALIZATION
In the event that dividends are payable in Common Stock of the Company
or in the event there are splits, subdivisions or combinations of shares of
Common Stock of the Company, the number of Shares available under the Plan shall
be increased or decreased proportionately, as the case may be, and the number of
Shares deliverable upon the exercise thereafter of any Option theretofore
granted shall be increased or decreased proportionately, as the case may be,
without change in the aggregate purchase price.
In case the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or in case the property or
stock of the Company is acquired by another corporation, or in case of a
separation, reorganization, recapitalization or liquidation of the Company, the
Board of Directors of the Company, or the Board of Directors of any corporation
assuming the obligations of the Company hereunder, shall either (i) make
appropriate provision for the protection of any outstanding Options by the
substitution on an equitable basis of appropriate stock of the Company, or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to the shares of Common Stock of the Company, provided only
that the excess of the aggregate fair market value of the shares subject to
option immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the shares
subject to option immediately before such substitution over the purchase price
thereof, or (ii) upon written notice to the Participant provide that the Option
(including the shares not then exercisable) must be exercised within sixty days
of the date of such notice or it will be terminated.
4
<PAGE> 6
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
executed by a member of the Board of Directors or a duly authorized officer of
the Company, and Participant has executed this Option Agreement as of the date
first written above.
HEARTLAND BANCSHARES, INC.
By:
------------------------------------
Name:
------------------------------
Title:
------------------------------
"PARTICIPANT"
---------------------------------------
NAME:
5
<PAGE> 1
HEARTLAND BANCSHARES, INC.
EXHIBIT 10.6
<PAGE> 2
HEARTLAND BANCSHARES, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Option Agreement") is made and
entered into as of the ______ day of _______________, _________ by and between
HEARTLAND BANCSHARES, INC. (the "Company") and _____________________________
("Participant");
WITNESSETH:
The Board of Directors of the Company has adopted that certain 1999
Stock Option Plan, as amended (the "Plan"), a copy of which is attached hereto
as Exhibit "A" and incorporated herein by reference. Pursuant to the terms of
the Plan and in consideration of the efforts of Participant on behalf of the
Company, the Board of Directors has selected Participant to participate in the
Plan and desires to grant to Participant certain nonqualified stock options to
purchase shares of the Company's authorized $.10 par value common stock
("Stock"), subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises, agreements and
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. INCORPORATION OF PLAN PROVISIONS
This Option Agreement is subject to and is to be construed in all
respects in a manner which is consistent with the terms of the Plan, the
provisions of which are hereby incorporated by reference into this Option
Agreement. Unless specifically provided otherwise, all terms used in this Option
Agreement shall have the same meaning as in the Plan.
2. GRANT OF OPTION
Subject to the further terms and conditions of this Option Agreement,
Participant is hereby granted an option to purchase _________________________
(_________) shares of Stock, effective as of the date first written above. This
stock option is not intended to be an Incentive Stock Option as provided in ss.
422 of the Internal Revenue Code.
3. FAIR MARKET VALUE OF STOCK
The Board of Directors has determined, in good faith and in its best
judgment, that the fair market value per share of Stock as of the date this
stock option is granted is $10.00.
4. OPTION PRICE
The Board of Directors has determined that the price for each share of
Stock purchased under this Option Agreement shall be $10.00.
<PAGE> 3
5. EXPIRATION OF OPTIONS
The option to acquire Stock pursuant to this Option Agreement shall
expire (to the extent not previously fully exercised) upon the first to occur of
the following:
(a) ____________________________ (the tenth anniversary
of the date of grant of the option);
(b) The date which is three months following the date
which Participant ceases his employment with the Company or any subsidiary of
the Company, otherwise than as a result of Participant's death or total
disability;
(c) The date which is the first anniversary of the date
upon which Participant ceases to be employed by the Company, or any subsidiary
of the Company, by reason of Participant's death or total disability; or
(d) The date upon which Participant ceases his employment
with the Company or any subsidiary of the Company, for any reason, including
death or total disability, with respect to any portion of this option that is
not then exercisable on the date Participant ceases his employment with the
Company.
6. EXERCISE OF OPTION
Unless options hereunder shall earlier lapse or expire pursuant to
Article 5 hereof, this option shall be exercisable with respect to the full
number of shares subject to this Option Agreement as follows:
_____________________________________________
_____________________________________________
_____________________________________________
To the extent such options become exercisable in accordance with the
foregoing, Participant may exercise this stock option, in whole or in part, from
time to time. The option exercise price may be paid by Participant either (i) in
cash, (ii) by surrender of shares of Stock owned by Participant for more than
six months on the date of surrender and which have a fair market value on the
date of surrender equal to the aggregate exercise price of the shares as to
which such option shall be exercised, or (iii) shares of Stock issued or
issuable in connection with the exercise of this option.
Notwithstanding the foregoing, Participant shall be permitted to pay
the exercise price of this option in shares of Stock pursuant to clauses (ii)
and (iii) above only if an organized trading market in the Stock exists on the
date of exercise of this option. In addition, any payment of the option exercise
price pursuant to the aforementioned clause (iii) shall be made only with the
prior consent of the Board of Directors of the Company.
For the purposes of this Article 6, an "organized trading market" shall
be deemed to exist on the date of exercise of the option if: (a) the Stock is
listed on a national securities exchange, or (b) the Stock has been quoted on
the National Association of Securities Dealers Automated Quotation System
("Nasdaq") for the 15 trading days preceding the date of exercise of the option,
or (c) bid and asked quotations for the Stock have been published by the
National Quotation Bureau or other
2
<PAGE> 4
recognized inter-dealer quotation publication (other than Nasdaq) during 20 of
the 30 trading days preceding the date of exercise of the option. In the event
that an organized trading market for the Stock exists on the date of exercise of
the option, Participant shall be given credit against the option exercise price
hereunder for such shares surrendered equal to (i) if the Stock is listed on a
national securities exchange or is quoted on the Nasdaq National Market, the
last actual sales transaction price reported on the day preceding exercise of
the option, or, if there were no actual sales transactions reported for such
date, on the date next preceding such date on which actual sales transactions
were reported, or (ii) if the Stock is quoted on Nasdaq (other than the Nasdaq
National Market) or by the National Quotation Bureau or other recognized
inter-dealer quotation publication, the average of the high and low price
quotations on the day preceding exercise of the option, or, if there were no
price quotations for such date, on the date next preceding such date on which
there were high and low price quotations for the Stock.
7. MANNER OF EXERCISE
This stock option may be exercised by written notice to the Secretary
of the Company specifying the number of shares to be purchased and signed by
Participant or such other person who may be entitled to acquire Stock under this
Option Agreement. If any such notice is signed by a person other than
Participant, such person shall also provide such other information and
documentation as the Secretary of the Company may reasonably require to assume
that such person is entitled to acquire Stock under the terms of the Plan and
this Option Agreement. After receipt of the notice and any other assurances
requested by the Company under this Article 7, and upon receipt of the full
option price, the Company shall issue to the person giving notice of exercise
under this Option Agreement the number of shares specified in such notice.
8. RESTRICTIONS ON TRANSFERABILITY
The stock option granted hereunder shall not be transferable by
Participant otherwise than by will or by the laws of descent and distribution,
and such stock option shall be exercisable during Participant's lifetime only by
Participant.
9. FURTHER RESTRICTIONS ON EXERCISE AND SALE OF STOCK
The Board of Directors may, in its sole discretion, prohibit this
Option from being exercised by the holder hereof in the event that (i) there is
not on file with the Securities and Exchange Commission an effective
Registration Statement on Form S-8, or similar form promulgated by the
Securities and Exchange Commission, covering the option shares, and (ii) the
Board is not reasonably satisfied that the offer and sale of such option shares
to the option holder will be exempt in fact from the registration requirements
of the Securities Act of 1933, as amended, and such state securities laws as
shall be applicable. The Board of Directors may condition the exercise of this
Option upon its receipt of such representations, factual assurances and legal
opinions as it shall deem necessary to determine and document the availability
of any such exemption and may further condition such exercise upon such
undertakings by the holder hereof or such restriction upon the transferability
of the shares to be acquired hereunder as it shall determine to be necessary to
effectuate and protect the claim to any such exemption.
3
<PAGE> 5
Nothing contained in this section shall be construed to obligate the
Company to, or to grant any right to the holder of this Option to, cause the
Company to file any Registration Statement; or, if any such Registration
Statement is filed, to prepare any additional prospectus, to file any amendments
to the Registration Statement, or to continue said Registration Statement in
effect.
10. REORGANIZATION AND RECAPITALIZATION
In the event that dividends are payable in Common Stock of the Company
or in the event there are splits, subdivisions or combinations of shares of
Common Stock of the Company, the number of Shares available under the Plan shall
be increased or decreased proportionately, as the case may be, and the number of
Shares deliverable upon the exercise thereafter of any Option theretofore
granted shall be increased or decreased proportionately, as the case may be,
without change in the aggregate purchase price.
In case the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or in case the property or
stock of the Company is acquired by another corporation, or in case of a
separation, reorganization, recapitalization or liquidation of the Company, the
Board of Directors of the Company, or the Board of Directors of any corporation
assuming the obligations of the Company hereunder, shall either (i) make
appropriate provision for the protection of any outstanding Options by the
substitution on an equitable basis of appropriate stock of the Company, or of
the merged, consolidated or otherwise reorganized corporation which will be
issuable in respect to the shares of Common Stock of the Company, provided only
that the excess of the aggregate fair market value of the shares subject to
option immediately after such substitution over the purchase price thereof is
not more than the excess of the aggregate fair market value of the shares
subject to option immediately before such substitution over the purchase price
thereof, or (ii) upon written notice to the Participant provide that the Option
(including the shares not then exercisable) must be exercised within sixty days
of the date of such notice or it will be terminated.
[SIGNATURE PAGE FOLLOWS]
4
<PAGE> 6
IN WITNESS WHEREOF, the Company has caused this Option Agreement to be
executed by a member of the Board of Directors or a duly authorized officer of
the Company, and Participant has executed this Option Agreement as of the date
first written above.
HEARTLAND BANCSHARES, INC.
By:
--------------------------------------
James C. Clinard
President and Chief Executive Officer
"PARTICIPANT"
----------------------------------------
Name:
5
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Heartland National Bank, a national banking association.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1999 FINANCIAL STATEMENTS OF HEARTLAND BANCSHARES, INC., AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-13-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,641
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,586
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 3,136
<LOANS> 5,141
<ALLOWANCE> (112)
<TOTAL-ASSETS> 26,502
<DEPOSITS> 20,394
<SHORT-TERM> 0
<LIABILITIES-OTHER> 93
<LONG-TERM> 0
0
0
<COMMON> 65
<OTHER-SE> 5,950
<TOTAL-LIABILITIES-AND-EQUITY> 26,502
<INTEREST-LOAN> 77
<INTEREST-INVEST> 22
<INTEREST-OTHER> 286
<INTEREST-TOTAL> 385
<INTEREST-DEPOSIT> 133
<INTEREST-EXPENSE> 153
<INTEREST-INCOME-NET> 232
<LOAN-LOSSES> 112
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 763
<INCOME-PRETAX> (609)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (385)
<EPS-BASIC> (1.78)
<EPS-DILUTED> (1.78)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 112
<ALLOWANCE-DOMESTIC> 112
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 51
</TABLE>
