##### Table of Contents



WASHINGTON, D.C. 20549
 FORM 10-QSB
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For Quarterly Period Ended
    
    Commission File Number:June 30,2005
    
    333-67107
 HEARTLAND BANCSHARES, INC.
 (Exact name of small business issuer as specified in its charter)
 Florida
    
    65-0854929(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 320 U.S. Highway 27 North, Sebring, Florida
    
    33870(Address of principal executive offices)
    
    (Zip Code)
  Not Applicable(Former name, former address and former fiscal year, if changed since last report)
  Common Stock, $0.10 par value
    
    664,153Class
    
    Outstanding as of July 19, 2005
  Yeso
    
    Noþ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Controls and ProceduresItem 6. ExhibitsSIGNATURESSECTION 302 CERTIFICATION OF THE CEOSECTION 302 CERTIFICATION OF THE CFOSECTION 906 CERTIFICATION OF THE CEO AND CFO    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
  
 June 30, 2005
    
    December 31, 2004ASSETSCash and due from banks
    
    $
    7,749,504
    
    
    $
    4,679,972Federal funds sold
    
    
    15,047,553
    
    
    
    5,608,493Total cash and cash equivalents
    
    
    22,797,057
    
    
    
    10,288,465Securities Available for Sale
    
    
    12,984,118
    
    
    
    3,813,800Securities Held to Maturity
    
    
    18,924,133
    
    
    
    18,900,607Loans Held for Sale
    
    
    1,825,450
    
    
    
    1,673,505Loans:Commercial, financial and agricultural
    
    
    17,934,236
    
    
    
    28,244,523Real estate  mortgage
    
    
    76,236,431
    
    
    
    57,872,091Installment and consumer loans
    
    
    28,223,788
    
    
    
    24,293,461Total loans
    
    
    122,394,455
    
    
    
    112,083,580Less: Allowance for loan losses
    
    
    (1,183,965
    )
    
    
    (1,036,845
    )Net loans
    
    
    121,210,490
    
    
    
    111,046,735Property and equipment
    
    
    2,826,516
    
    
    
    2,631,264Other assets
    
    
    3,165,664
    
    
    
    1,241,116TOTAL ASSETS
    
    $
    183,733,428
    
    
    $
    147,921,987LIABILITIES AND SHAREHOLDERS EQUITYLiabilitiesDeposits:Non-interest bearing demand
    
    $
    40,970,569
    
    
    $
    30,957,574Savings, NOW, and money market
    
    
    82,528,687
    
    
    
    69,893,302Time deposits under $100,000
    
    
    21,767,946
    
    
    
    19,308,974Time deposits over $100,000
    
    
    19,425,401
    
    
    
    15,878,938Total deposits
    
    
    164,692,603
    
    
    
    136,038,788Securities sold under repurchase agreements
    
    
    5,862,532
    
    
    
    616,154Long-term debt
    
    
    
    
    
    
    2,350,000Subordinated debentures
    
    
    3,351,000
    
    
    
    Other liabilities
    
    
    416,973
    
    
    
    541,508Total liabilities
    
    
    174,323,108
    
    
    
    139,546,450Shareholders EquityCommon stock, $.10 par value, 10,000,000 shares
authorized, 664,153 and 663,560 shares issued and outstanding
    
    
    66,415
    
    
    
    66,356Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued or outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    6,599,068
    
    
    
    6,589,639Retained earnings
    
    
    2,765,188
    
    
    
    1,726,243Accumulated other comprehensive income (loss)
    
    
    (20,351
    )
    
    
    (6,701
    )Total shareholders equity
    
    
    9,410,320
    
    
    
    8,375,537TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY
    
    $
    183,733,428
    
    
    $
    147,921,987




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##### Table of Contents



Three Months Ended June 30,2005
    
    2004Interest incomeInterest and fees on loans
    
    $
    2,066,889
    
    
    $
    1,367,531Interest on securities
    
    
    246,719
    
    
    
    36,379Interest on federal funds sold
    
    
    95,095
    
    
    
    121,245Other interest income
    
    
    1,257
    
    
    
    Total interest income
    
    
    2,409,960
    
    
    
    1,525,155Interest expenseInterest on deposits
    
    
    492,984
    
    
    
    284,053Interest on borrowings
    
    
    58,051
    
    
    
    9,258Total interest expense
    
    
    551,035
    
    
    
    293,311Net interest income
    
    
    1,858,925
    
    
    
    1,231,844Provision for loan losses
    
    
    87,294
    
    
    
    41,546Net interest income
after provision for loan losses
    
    
    1,771,631
    
    
    
    1,190,298Noninterest incomeService charges and fees
    
    
    95,546
    
    
    
    77,848Gain on securities sales/calls
    
    
    
    
    
    
    (75
    )Gain on sale of loans
    
    
    126,404
    
    
    
    95,668Other income
    
    
    57,347
    
    
    
    26,968Total noninterest income
    
    
    279,297
    
    
    
    200,409Noninterest expenseSalaries and employee benefits
    
    
    563,467
    
    
    
    472,895Occupancy expenses
    
    
    81,516
    
    
    
    65,903Furniture and equipment expenses
    
    
    63,256
    
    
    
    50,650Other operating expenses
    
    
    505,645
    
    
    
    384,451Total noninterest expense
    
    
    1,213,884
    
    
    
    973,899Income before income taxes
    
    
    837,044
    
    
    
    416,808Income taxes
    
    $
    316,216
    
    
    $
    171,023Net Income
    
    $
    520,828
    
    
    $
    245,785Net Income Per Share:Basic
    
    $
    0.78
    
    
    $
    0.37Diluted
    
    $
    0.73
    
    
    $
    0.36Weighted Average Shares Outstanding:Basic
    
    
    664,153
    
    
    
    663,560Diluted
    
    
    708,897
    
    
    
    690,830




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##### Table of Contents



Six Months Ended June 30,2005
    
    2004Interest incomeInterest and fees on loans
    
    $
    3,932,172
    
    
    $
    2,655,769Interest on securities
    
    
    431,595
    
    
    
    60,321Interest on federal funds sold
    
    
    164,326
    
    
    
    226,298Other interest income
    
    
    1,257
    
    
    
    Total interest income
    
    
    4,529,350
    
    
    
    2,942,388Interest expenseInterest on deposits
    
    
    891,154
    
    
    
    552,474Interest on borrowings
    
    
    87,448
    
    
    
    18,074Total interest expense
    
    
    978,602
    
    
    
    570,548Net interest income
    
    
    3,550,748
    
    
    
    2,371,840Provision for loan losses
    
    
    146,028
    
    
    
    71,060Net interest income
after provision for loan losses
    
    
    3,404,720
    
    
    
    2,300,780Noninterest incomeService charges and fees
    
    
    172,865
    
    
    
    170,225Gain (loss) on securities sales/calls
    
    
    
    
    
    
    (75
    )Gain on sale of loans
    
    
    231,480
    
    
    
    151,470Other income
    
    
    124,320
    
    
    
    47,676Total noninterest income
    
    
    528,665
    
    
    
    369,296NON INTEREST EXPENSESalaries and employee benefits
    
    
    1,066,609
    
    
    
    942,944Occupancy expenses
    
    
    136,929
    
    
    
    120,222Furniture and equipment expenses
    
    
    114,956
    
    
    
    119,961Other operating expenses
    
    
    962,348
    
    
    
    738,781Total noninterest expense
    
    
    2,280,842
    
    
    
    1,921,908Income before income taxes
    
    
    1,652,543
    
    
    
    748,168Income taxes
    
    $
    613,598
    
    
    $
    291,803Net Income
    
    $
    1,038,945
    
    
    $
    456,365Net Income Per Share:Basic
    
    $
    1.57
    
    
    $
    0.69Fully diluted
    
    $
    1.47
    
    
    $
    0.66Weighted Average Shares Outstanding:Basic
    
    
    663,810
    
    
    
    660,876Fully diluted
    
    
    708,554
    
    
    
    688,146




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##### Table of Contents



AccumulatedCommon
    
    Additional
    
    
    
    
    
    Other
    
    TotalStock Par
    
    Paid-in
    
    Retained
    
    Comprehensive
    
    ShareholdersValue
    
    Capital
    
    Earnings
    
    Income (Loss)
    
    EquityBALANCE, December 31, 2003
    
    $
    65,703
    
    
    $
    6,486,652
    
    
    $
    494,108
    
    
    $
    (10,271
    )
    
    $
    7,036,192Additional stock issued
    
    
    653
    
    
    
    102,987
    
    
    
    
    
    
    
    
    
    
    
    103,640Comprehensive Income:Net income for the six months ended
June 30, 2004
    
    
    
    
    
    
    
    
    
    
    456,365
    
    
    
    
    
    
    
    456,365Other comprehensive income:Change in unrealized gain on
securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,388
    )
    
    
    (13,388
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    442,977BALANCE, June 30, 2004
    
    $
    66,356
    
    
    $
    6,589,639
    
    
    $
    950,473
    
    
    $
    (23,659
    )
    
    $
    7,582,809BALANCE, December 31, 2004
    
    $
    66,356
    
    
    $
    6,589,639
    
    
    $
    1,726,243
    
    
    $
    (6,701
    )
    
    $
    8,375,537Additional stock issued
    
    
    59
    
    
    
    9,429
    
    
    
    
    
    
    
    
    
    
    
    9,488Comprehensive Income:Net income for the six months ended
June 30, 2005
    
    
    
    
    
    
    
    
    
    
    1,038,945
    
    
    
    
    
    
    
    1,038,945Other comprehensive income:Change in unrealized loss on
securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,650
    )
    
    
    (13,650
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,025,295BALANCE, June 30, 2005
    
    $
    66,415
    
    
    $
    6,599,068
    
    
    $
    2,765,188
    
    
    $
    (20,351
    )
    
    $
    9,410,320




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##### Table of Contents



Six Months Ended June 30,2005
    
    2004Operating ActivitiesNet income
    
    $
    1,038,945
    
    
    $
    456,365Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Deferred income taxes
    
    
    (37,000
    )
    
    
    (23,999
    )Provision for loan losses
    
    
    146,028
    
    
    
    71,060Depreciation and amortization
    
    
    136,331
    
    
    
    135,512Gain/Loss on call securities
    
    
    
    
    
    
    (75
    )BOLI income
    
    
    (33,114
    )Net accretion/amortization on securities available for sale
    
    
    7,873
    
    
    
    84,648Change in balances of:Loans held for sale
    
    
    (151,945
    )
    
    
    309,992Bank owned life insurance
    
    
    (1,650,000
    )
    
    
    Other assets
    
    
    (81,465
    )
    
    
    (383,589
    )Other liabilities
    
    
    (124,535
    )
    
    
    (517,290
    )Net cash provided by (used in) operating activities
    
    
    (748,882
    )
    
    
    132,624Investing ActivitiesNet funding of loans
    
    
    (12,136,325
    )
    
    
    (8,664,588
    )Purchase of securities available for sale
    
    
    (10,050,335
    )
    
    
    Purchase of securities held to maturity
    
    
    
    
    
    
    (14,932,511
    )Principal collections, maturities and calls on securities available for sale
    
    
    865,036
    
    
    
    5,566,294Acquisition of property and equipment (net)
    
    
    (331,583
    )
    
    
    (45,456
    )Net cash used in investing activities
    
    
    (21,653,207
    )
    
    
    (18,076,261
    )Financing ActivitiesNet increase in deposits
    
    
    28,653,815
    
    
    
    20,093,575Proceeds from sale of stock
    
    
    9,488
    
    
    
    103,640Repayment of long-term debt
    
    
    (2,350,000
    )
    
    
    Subordinated debentures
    
    
    3,351,000
    
    
    
    Other borrowings
    
    
    5,246,378
    
    
    
    1,976,805Net cash provided by financing activities
    
    
    34,910,681
    
    
    
    22,174,020Net increase in cash and cash equivalents
    
    
    12,508,592
    
    
    
    4,230,383Cash and cash equivalents:Beginning of period
    
    
    10,288,465
    
    
    
    11,768,627End of period
    
    $
    22,797,057
    
    
    $
    15,999,010SUPPLEMENTAL DISCLOSUREInterest paid
    
    $
    959,188
    
    
    $
    571,400Income taxes paid
    
    $
    773,000
    
    
    $
    803,000




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##### Table of Contents



Six Months
    
    Three MonthsEnded June 30,
    
    Ended June 30,2005
    
    2004
    
    2005
    
    2004Weighted average shares outstanding
    
    
    663,810
    
    
    
    660,876
    
    
    
    664,153
    
    
    
    663,560Dilutive shares from effect of outstanding options
    
    
    44,744
    
    
    
    27,270
    
    
    
    44,744
    
    
    
    27,270Shares used for diluted computations
    
    
    708,554
    
    
    
    688,146
    
    
    
    708,897
    
    
    
    690,830




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##### Table of Contents



Six Months Ended June 30,
    
    Three Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Compensation as reported
    
    $
    1,066,609
    
    
    $
    942,944
    
    
    $
    563,467
    
    
    $
    472,895Pro forma effect of options
    
    
    19,077
    
    
    
    2,875
    
    
    
    9,548
    
    
    
    1,437Pro forma compensation
    
    $
    1,085,686
    
    
    $
    945,819
    
    
    $
    573,015
    
    
    $
    474,422Net income, as reported
    
    $
    1,038,945
    
    
    $
    456,365
    
    
    $
    520,828
    
    
    $
    245,785Pro forma effect of options
    
    
    (19,077
    )
    
    
    (2,875
    )
    
    
    (9,548
    )
    
    
    (1,437
    )Pro forma net income
    
    $
    1,019,868
    
    
    $
    453,490
    
    
    $
    511,280
    
    
    $
    244,348Basic earnings per share, as reported
    
    $
    1.57
    
    
    $
    0.69
    
    
    $
    0.78
    
    
    $
    0.37Pro forma effect of options
    
    
    (0.02
    )
    
    
    (0.00
    )
    
    
    (0.01
    )
    
    
    (0.00
    )Pro forma basic earnings per share
    
    $
    1.55
    
    
    $
    0.69
    
    
    $
    0.77
    
    
    $
    0.37Diluted earnings per share, as reported
    
    $
    1.47
    
    
    $
    0.66
    
    
    $
    0.73
    
    
    $
    0.36Pro forma effect of options
    
    
    (0.03
    )
    
    
    (0.00
    )
    
    
    (0.01
    )
    
    
    (0.00
    )Pro forma diluted earnings per share
    
    $
    1.44
    
    
    $
    0.66
    
    
    $
    0.72
    
    
    $
    0.36




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##### Table of Contents



Managements Discussion and Analysis of Financial Condition and Results of
Operations.
  Financial Condition
  Asset Quality
   Liquidity
  At
    
    AtJune 30, 2005
    
    December 31, 2004Cash and cash equivalents
    
    $
    22,797,057
    
    
    $
    10,288,465Securities available for sale
    
    $
    12,984,118
    
    
    $
    3,813,800CDs over $100,000 to total deposits ratio
    
    
    11.8
    %
    
    
    11.7
    %Loan to deposit ratio
    
    
    75.4
    %
    
    
    82.4
    %
    Capital Adequacy




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##### Table of Contents



WellJune 30,
    
    December 31,
    
    capitalized2005
    
    2004
    
    requirementHeartland National BankTier 1 risk-based capital ratio
    
    
    9.3
    %
    
    
    9.4
    %
    
    
    6.0
    %Total risk-based capital ratio
    
    
    10.2
    %
    
    
    10.3
    %
    
    
    10.0
    %Leverage ratio
    
    
    7.0
    %
    
    
    7.4
    %
    
    
    5.0
    %Heartland
Bancshares  ConsolidatedTier 1 risk-based capital ratio
    
    
    9.7
    %
    
    
    7.4
    %
    
    
    6.0
    %Total risk-based capital ratio
    
    
    10.6
    %
    
    
    8.3
    %
    
    
    10.0
    %Leverage ratio
    
    
    7.2
    %
    
    
    5.8
    %
    
    
    5.0
    %




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##### Table of Contents



Results of Operations
  (a)
    
    Net interest income represents the difference between interest
received on interest earning assets and interest paid on interest bearing
liabilities. The following tables set forth the main components of interest
earning assets and interest bearing liabilities for the six months and quarter
ended June 30, 2005, as compared to the comparable periods ended June 30, 2004.
 Six Months Ended June 30,
 InterestInterest Earning
    
    Average
    
    Income/
    
    Yield/Assets/Interest
    
    Balance
    
    Cost
    
    CostBearing Liabilities
    
    2005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004(dollars in thousands)Federal funds sold
    
    $
    12,086
    
    
    $
    13,484
    
    
    $
    165
    
    
    $
    60
    
    
    
    2.73
    %
    
    
    0.89
    %Securities
    
    
    27,200
    
    
    
    18,603
    
    
    
    432
    
    
    
    226
    
    
    
    3.18
    %
    
    
    2.43
    %Loans
    
    
    117,671
    
    
    
    85,918
    
    
    
    3,932
    
    
    
    2,656
    
    
    
    6.68
    %
    
    
    6.18
    %Total
    
    $
    156,957
    
    
    $
    118,005
    
    
    
    4,529
    
    
    
    2,942
    
    
    
    5.77
    %
    
    
    4.99
    %Deposits
    
    $
    115,469
    
    
    $
    115,098
    
    
    
    891
    
    
    
    552
    
    
    
    1.54
    %
    
    
    0.96
    %Borrowings
    
    
    4,958
    
    
    
    3,156
    
    
    
    87
    
    
    
    18
    
    
    
    3.51
    %
    
    
    1.14
    %Total
    
    $
    120,427
    
    
    $
    118,254
    
    
    
    978
    
    
    
    570
    
    
    
    1.62
    %
    
    
    0.97
    %Net interest income/spread
    
    
    
    
    
    $
    3,551
    
    
    $
    2,372
    
    
    
    4.15
    %
    
    
    4.02
    %Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.52
    %
    
    
    4.14
    %
 Three Months Ended June 30,
 InterestInterest Earning
    
    Average
    
    Income/
    
    Yield/Assets/Interest
    
    Balance
    
    Cost
    
    CostBearing Liabilities
    
    2005
    
    2004
    
    2005
    
    2004
    
    2005
    
    2004(dollars in thousands)Federal funds sold
    
    $
    12,950
    
    
    $
    15,809
    
    
    $
    96
    
    
    $
    36
    
    
    
    2.96
    %
    
    
    .91
    %Securities
    
    
    30,270
    
    
    
    19,720
    
    
    
    247
    
    
    
    121
    
    
    
    3.26
    %
    
    
    2.45
    %Loans
    
    
    120,435
    
    
    
    87,507
    
    
    
    2,067
    
    
    
    1,368
    
    
    
    6.87
    %
    
    
    6.25
    %Total
    
    $
    163,655
    
    
    $
    123,036
    
    
    
    2,410
    
    
    
    1,525
    
    
    
    5.89
    %
    
    
    4.97
    %Deposits
    
    $
    119,503
    
    
    $
    119,710
    
    
    
    493
    
    
    
    284
    
    
    
    1.65
    %
    
    
    .95
    %Borrowings
    
    
    6,136
    
    
    
    3,524
    
    
    
    58
    
    
    
    9
    
    
    
    3.78
    %
    
    
    1.02
    %Total
    
    $
    125,639
    
    
    $
    123,234
    
    
    
    551
    
    
    
    293
    
    
    
    1.75
    %
    
    
    .95
    %Net interest income/spread
    
    
    
    
    
    $
    1,859
    
    
    $
    1,272
    
    
    
    4.14
    %
    
    
    4.14
    %Net yield on earning assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.54
    %
    
    
    4.14
    %




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##### Table of Contents



(b)
    
    At December 31, 2004, the allowance for loan losses was $1,036,845. During
the six months ended June 30, 2005, an additional $146,028 was provided to the
allowance for loan losses based on the volume of loan growth, bringing the
balance to $1,182,873. There were charge-offs of $326 in the first six months of
2005 and recoveries of $1,418, bringing the balance to $1,183,965. As of June
30, 2005, management considered the allowance for loan losses to be adequate.
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.(c)
    
    Non-interest income, which consists primarily of service fees on
deposit accounts and other miscellaneous fees, amounted to $528,665, or an
annualized 0.62% of average assets, for the six months ended June 30, 2005 and
$279,297, or an annualized 0.63% of average assets, for the quarter ended June
30, 2005, as compared to $369,296 and $200,409, respectively for the six months
and the quarter ended June 30, 2004. This increase can be attributed mainly to
the increase in fees on the sale of loans.(d)
    
    Non-interest expense for the six months and quarter ended June 30,
2005 amounted to
$2,280,842 and $1,213,884,
respectively, as compared to $1,921,908 and $973,899 for the same periods in
2004. The components of non-interest expense for the six months and quarter
ended June 30, 2005 and June 30, 2004 are set forth below:
 
 Six Months Ended
    
    
    Six Months Ended
    
    
    Increase/June 30, 2005
    
    
    June 30, 2004
    
    
    DecreaseSalaries and benefits
    
    $
    1,066,609
    
    
    $
    942,944
    
    
    $
    123,665Occupancy expenses
    
    
    136,929
    
    
    
    120,222
    
    
    
    16,707Equipment expenses
    
    
    114,956
    
    
    
    119,961
    
    
    
    (5,005
    )General operating expenses
    
    
    962,348
    
    
    
    738,781
    
    
    
    223,567Total non-interest expense
    
    $
    2,280,842
    
    
    $
    1,921,908
    
    
    $
    358,934
 Three Months Ended
    
    
    Three Months Ended
    
    
    Increase/June 30, 2005
    
    
    June 30, 2004
    
    
    DecreaseSalaries and benefits
    
    $
    563,467
    
    
    $
    472,895
    
    
    $
    90,572Occupancy expenses
    
    
    81,516
    
    
    
    65,903
    
    
    
    15,613Equipment expenses
    
    
    63,256
    
    
    
    50,650
    
    
    
    12,606General operating expenses
    
    
    505,645
    
    
    
    384,451
    
    
    
    121,194Total non-interest expense
    
    $
    1,213,884
    
    
    $
    973,899
    
    
    $
    239,985
  Off-Balance Sheet Arrangements
     Cautionary Note Regarding Forward-Looking Statements




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##### Table of Contents



Item 3. Controls and Procedures
   
 Item 6. Exhibits
 (a)
    
    Exhibits. The following exhibits are filed with this Report:
 Exhibit No.
    
    Description31.1
    
    
    -
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    -
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232
    
    
    -
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




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##### Table of Contents



SIGNATURES
  HEARTLAND BANCSHARES, INC.Date: 8/10/05
    
    By:
    
    /s/ James C. ClinardJames C. Clinard, President and Chief Executive Officer(principal executive officer)Date: 8/10/05
    
    By:
    
    /s/ Martha J. KelleyMartha J. Kelley, Chief Financial Officer(principal financial and accounting officer)