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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-QSB



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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE
ACT OF 1934



|                           |  |                        
|-------------------------- |  | -----------------------
|For Quarterly Period Ended |  | Commission File Number:
|March 31, 2004             |  | 333-67107              



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HEARTLAND BANCSHARES, INC.

(Exact name of small business issuer as specified in its charter)



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|                                |  |                    
|------------------------------- |  | -------------------
|Florida                         |  | 65-0854929         
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)



320 U.S. Highway 27
North, Sebring, Florida 33870

(Address of principal executive offices)



Issuers telephone number: (863) 386-1300



Not Applicable

(Former name, former address and former fiscal year, if changed since last report)



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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



As of May 3, 2004, there were 663,560 shares of the issuers common stock, $0.10 par value, issued and outstanding.



Transitional Small Business Disclosure Format     Yes ̈No  x



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PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



HEARTLAND BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)



|                                                                                                              |  |                |             |   |                   |   |             |  
|------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                              |  | March 31, 2004 |             |   | December 31, 2003 |  
|ASSETS                                                                                                        |  |                |             |   |                   |   |             |  
|Cash and due from banks                                                                                       |  | $              | 3,663,041   |   |                   | $ | 5,048,023   |  
|Federal funds sold                                                                                            |  |                | 16,538,319  |   |                   |   | 6,720,604   |  
|                                                                                                              |  |                |             |   |                   |   |             |  
|Total cash and cash equivalents                                                                               |  |                | 20,201,360  |   |                   |   | 11,768,627  |  
|Securities Available for Sale                                                                                 |  |                | 6,937,995   |   |                   |   | 7,796,709   |  
|Securities Held to Maturity                                                                                   |  |                | 9,993,493   |   |                   |   | 8,002,437   |  
|Other securities                                                                                              |  |                | 512,200     |   |                   |   | 441,900     |  
|Loans:                                                                                                        |  |                |             |   |                   |   |             |  
|Commercial, financial and agricultural                                                                        |  |                | 20,695,533  |   |                   |   | 20,990,891  |  
|Real estate  mortgage                                                                                        |  |                | 44,750,960  |   |                   |   | 41,305,918  |  
|Installment and consumer loans                                                                                |  |                | 20,045,900  |   |                   |   | 19,528,144  |  
|                                                                                                              |  |                |             |   |                   |   |             |  
|Total loans                                                                                                   |  |                | 85,492,393  |   |                   |   | 81,824,953  |  
|Less: Allowance for loan losses                                                                               |  |                | (808,736    | ) |                   |   | (779,222    | )
|                                                                                                              |  |                |             |   |                   |   |             |  
|Net loans                                                                                                     |  |                | 84,683,657  |   |                   |   | 81,045,731  |  
|Property and equipment                                                                                        |  |                | 2,707,328   |   |                   |   | 2,745,568   |  
|Other assets                                                                                                  |  |                | 1,026,183   |   |                   |   | 962,327     |  
|                                                                                                              |  |                |             |   |                   |   |             |  
|TOTAL ASSETS                                                                                                  |  | $              | 126,062,216 |   |                   | $ | 112,763,299 |  
|                                                                                                              |  |                |             |   |                   |   |             |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                          |  |                |             |   |                   |   |             |  
|Liabilities                                                                                                   |  |                |             |   |                   |   |             |  
|Deposits:                                                                                                     |  |                |             |   |                   |   |             |  
|Non-interest bearing demand                                                                                   |  | $              | 28,652,121  |   |                   | $ | 21,679,621  |  
|Savings, NOW, and money market                                                                                |  |                | 55,321,794  |   |                   |   | 51,709,094  |  
|Time deposits under $100,000                                                                                  |  |                | 20,700,293  |   |                   |   | 18,537,522  |  
|Time deposits over $100,000                                                                                   |  |                | 10,640,321  |   |                   |   | 10,792,541  |  
|                                                                                                              |  |                |             |   |                   |   |             |  
|Total deposits                                                                                                |  |                | 115,314,529 |   |                   |   | 102,718,778 |  
|Securities sold under repurchase agreements                                                                   |  |                | 1,830,172   |   |                   |   | 1,493,033   |  
|Long-term debt                                                                                                |  |                | 1,225,000   |   |                   |   | 725,000     |  
|Other liabilities                                                                                             |  |                | 333,994     |   |                   |   | 790,296     |  
|                                                                                                              |  |                |             |   |                   |   |             |  
|Total liabilities                                                                                             |  |                | 118,703,695 |   |                   |   | 105,727,107 |  
|Shareholders Equity                                                                                          |  |                |             |   |                   |   |             |  
|Common stock, $.10 par value, 10,000,000 shares authorized, 663,560 and 657,030 shares issued and outstanding |  |                | 66,356      |   |                   |   | 65,703      |  
|Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued or outstanding                 |  |                |            |   |                   |   |            |  
|Additional paid-in capital                                                                                    |  |                | 6,589,639   |   |                   |   | 6,486,652   |  
|Retained earnings (deficit)                                                                                   |  |                | 704,688     |   |                   |   | 494,108     |  
|Accumulated other comprehensive income                                                                        |  |                | (2,162      | ) |                   |   | (10,271     | )
|                                                                                                              |  |                |             |   |                   |   |             |  
|Total shareholders equity                                                                                    |  |                | 7,358,521   |   |                   |   | 7,036,192   |  
|                                                                                                              |  |                |             |   |                   |   |             |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                    |  | $              | 126,062,216 |   |                   | $ | 112,763,299 |  
|                                                                                                              |  |                |             |   |                   |   |             |  



1



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HEARTLAND BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)



|                                                    |  |                              |           |      |   |          
|--------------------------------------------------- |  | ---------------------------- | --------- | ---- | - | ---------
|                                                    |  | Three Months Ended March 31,
|                                                    |  | 2004                         |           | 2003
|Interest income                                     |  |                              |           |      |   |          
|Interest and fees on loans                          |  | $                            | 1,288,238 |      | $ | 1,049,964
|Interest on federal funds sold                      |  |                              | 23,942    |      |   | 31,305   
|Interest on securities                              |  |                              | 105,053   |      |   | 117,170  
|                                                    |  |                              |           |      |   |          
|Total interest income                               |  |                              | 1,417,233 |      |   | 1,198,439
|                                                    |  |                             
|Interest expense                                    |  |                              |           |      |   |          
|Interest on deposits                                |  |                              | 268,421   |      |   | 282,820  
|Interest on borrowings                              |  |                              | 8,816     |      |   | 3,286    
|                                                    |  |                              |           |      |   |          
|Total interest expense                              |  |                              | 277,237   |      |   | 286,106  
|                                                    |  |                              |           |      |   |          
|Net interest income                                 |  |                              | 1,139,996 |      |   | 912,333  
|Provision for loan losses                           |  |                              | 29,514    |      |   | 47,559   
|                                                    |  |                              |           |      |   |          
|Net interest income after provision for loan losses |  |                              | 1,110,482 |      |   | 864,774  
|                                                    |  |                             
|Noninterest income                                  |  |                              |           |      |   |          
|Service charges and fees                            |  |                              | 92,377    |      |   | 83,812   
|Gain on securities sales/calls                      |  |                              |          |      |   |         
|Other income                                        |  |                              | 76,510    |      |   | 26,269   
|                                                    |  |                              |           |      |   |          
|Total noninterest income                            |  |                              | 168,887   |      |   | 110,081  
|                                                    |  |                             
|Noninterest expense                                 |  |                              |           |      |   |          
|Salaries and employee benefits                      |  |                              | 470,049   |      |   | 377,728  
|Occupancy expenses                                  |  |                              | 54,319    |      |   | 49,304   
|Furniture and equipment expenses                    |  |                              | 69,311    |      |   | 55,055   
|Other operating expenses                            |  |                              | 354,330   |      |   | 210,539  
|                                                    |  |                              |           |      |   |          
|Total noninterest expense                           |  |                              | 948,009   |      |   | 692,626  
|                                                    |  |                              |           |      |   |          
|Income before income taxes                          |  |                              | 331,360   |      |   | 282,229  
|Income taxes                                        |  | $                            | 120,780   |      | $ | 108,450  
|                                                    |  |                              |           |      |   |          
|Net Income                                          |  | $                            | 210,580   |      | $ | 173,779  
|                                                    |  |                              |           |      |   |          
|Net Income Per Share:                               |  |                              |           |      |   |          
|Basic                                               |  | $                            | 0.32      |      | $ | 0.27     
|                                                    |  |                              |           |      |   |          
|Fully diluted                                       |  | $                            | 0.31      |      | $ | 0.26     
|                                                    |  |                              |           |      |   |          
|Weighted Average Shares Outstanding:                |  |                              |           |      |   |          
|Basic                                               |  |                              | 658,255   |      |   | 652,030  
|                                                    |  |                              |           |      |   |          
|Fully diluted                                       |  |                              | 685,525   |      |   | 671,063  
|                                                    |  |                              |           |      |   |          



2



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HEARTLAND BANCSHARES, INC

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

Three Months Ended March 31, 2004 and 2003

(unaudited)



|                                                           |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          |         |   |  |   |           |  
|---------------------------------------------------------- |  | -------------------- | ------ | ------------------------ | - | ------------------------- |  | - | ------------------------------------------ | - |  | ------------------------ | ------- | - |  | - | --------- | -
|                                                           |  | CommonStock ParValue |        | AdditionalPaid-inCapital |   | RetainedEarnings(Deficit) |  |   | AccumulatedOtherComprehensiveIncome (Loss) |   |  | TotalShareholdersEquity |        
|BALANCE, December 31, 2001                                 |  | $                    | 65,203 |                          | $ | 6,437,152                 |  | $ | (255,897                                   | ) |  | $                        | 140,655 |   |  | $ | 6,387,113 |  
|                                                           |  |                      |        |                          |  
|Comprehensive Income:                                      |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          |         |   |  |   |           |  
|Net income for the three months ended March 31, 2003       |  |                      |        |                          |   |                           |  |   | 173,778                                    |   |  |                          |         |   |  |   | 173,778   |  
|                                                           |  |                      |        |                          |  
|Other comprehensive income:                                |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          |         |   |  |   |           |  
|Change in unrealized gain on securities available for sale |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          | (34,705 | ) |  |   | (34,705   | )
|                                                           |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          |         |   |  |   |           |  
|Total comprehensive income (loss)                          |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          |         |   |  |   | 139,073   |  
|                                                           |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          |         |   |  |   |           |  
|BALANCE, March 31, 2003                                    |  | $                    | 65,203 |                          | $ | 6,437,152                 |  | $ | (82,119                                    | ) |  | $                        | 105,950 |   |  | $ | 6,526,186 |  
|                                                           |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          |         |   |  |   |           |  
|BALANCE, December 31, 2003                                 |  | $                    | 65,703 |                          | $ | 6,486,652                 |  | $ | 494,108                                    |   |  | $                        | (10,271 | ) |  | $ | 7,036,192 |  
|                                                           |  |                      |        |                          |  
|Additional stock issued                                    |  |                      | 653    |                          |   | 102,987                   |  |   |                                            |   |  |                          |         |   |  |   | 103,640   |  
|                                                           |  |                      |        |                          |  
|Comprehensive Income:                                      |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          |         |   |  |   |           |  
|Net income for the three months ended March 31, 2004       |  |                      |        |                          |   |                           |  |   | 210,580                                    |   |  |                          |         |   |  |   | 210,580   |  
|                                                           |  |                      |        |                          |  
|Other comprehensive income:                                |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          |         |   |  |   |           |  
|Change in unrealized gain on securities available for sale |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          | 8,109   |   |  |   | 8,109     |  
|                                                           |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          |         |   |  |   |           |  
|Total comprehensive income                                 |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          |         |   |  |   | 218,689   |  
|                                                           |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          |         |   |  |   |           |  
|BALANCE, March 31, 2003                                    |  | $                    | 66,356 |                          | $ | 6,589,639                 |  | $ | 704,688                                    |   |  | $                        | (2,162  | ) |  | $ | 7,358,521 |  
|                                                           |  |                      |        |                          |   |                           |  |   |                                            |   |  |                          |         |   |  |   |           |  



3



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HEARTLAND BANCSHARES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)



|                                                                                            |  |                              |            |   |      |   |            |  
|------------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                            |  | Three Months Ended March 31, |           
|                                                                                            |  | 2004                         |            |   | 2003 |  
|Operating Activities                                                                        |  |                              |            |   |      |   |            |  
|Net income                                                                                  |  | $                            | 210,580    |   |      | $ | 173,779    |  
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |                              |            |   |      |   |            |  
|Deferred income taxes                                                                       |  |                              | (4,693     | ) |      |   | 15,060     |  
|Provision for loan losses                                                                   |  |                              | 29,514     |   |      |   | 47,559     |  
|Depreciation and amortization                                                               |  |                              | 66,185     |   |      |   | 54,783     |  
|Gain on called securities                                                                   |  |                              |           |   |      |   |           |  
|Net accretion/amortization on securities available for sale                                 |  |                              | 39,372     |   |      |   | 56,958     |  
|Change in balances of:                                                                      |  |                              |            |   |      |   |            |  
|Other assets                                                                                |  |                              | (59,394    | ) |      |   | 69,427     |  
|Other liabilities                                                                           |  |                              | (460,993   | ) |      |   | (76,163    | )
|                                                                                            |  |                              |            |   |      |   |            |  
|Net cash provided by (used in) operating activities                                         |  |                              | (179,429   | ) |      |   | 341,403    |  
|                                                                                            |  |                              |            |   |      |   |            |  
|Investing Activities                                                                        |  |                              |            |   |      |   |            |  
|Net funding of loans                                                                        |  |                              | (3,667,440 | ) |      |   | (5,148,282 | )
|Purchase of securities available for sale                                                   |  |                              | (2,064,300 | ) |      |   | (5,179,697 | )
|Principal collections, maturities and calls on securities available for sale                |  |                              | 835,316    |   |      |   | 3,127,697  |  
|Acquisition of property and equipment                                                       |  |                              | (27,944    | ) |      |   | (156,651   | )
|                                                                                            |  |                              |            |   |      |   |            |  
|Net cash used in investing activities                                                       |  |                              | (4,924,368 | ) |      |   | (7,356,933 | )
|                                                                                            |  |                              |            |   |      |   |            |  
|Financing Activities                                                                        |  |                              |            |   |      |   |            |  
|Net increase in deposits                                                                    |  |                              | 12,595,751 |   |      |   | 13,743,859 |  
|Proceeds from sale of stock                                                                 |  |                              | 103,640    |   |      |   |           |  
|Other borrowings                                                                            |  |                              | 837,139    |   |      |   | (488,743   | )
|                                                                                            |  |                              |            |   |      |   |            |  
|Net cash provided by financing activities                                                   |  |                              | 13,536,530 |   |      |   | 13,255,116 |  
|                                                                                            |  |                              |            |   |      |   |            |  
|Net increase in cash and cash equivalents                                                   |  |                              | 8,432,733  |   |      |   | 6,239,586  |  
|Cash and cash equivalents:                                                                  |  |                              |            |   |      |   |            |  
|Beginning of year                                                                           |  |                              | 11,768,627 |   |      |   | 12,988,255 |  
|                                                                                            |  |                              |            |   |      |   |            |  
|End of quarter                                                                              |  | $                            | 20,201,360 |   |      | $ | 19,227,841 |  
|                                                                                            |  |                              |            |   |      |   |            |  
|SUPPLEMENTAL DISCLOSURE                                                                     |  |                              |            |   |      |   |            |  
|Interest paid                                                                               |  | $                            | 268,730    |   |      | $ | 286,106    |  
|                                                                                            |  |                              |            |   |      |   |            |  
|Income taxes paid                                                                           |  | $                            | 4,000      |   |      | $ | 2,500      |  
|                                                                                            |  |                              |            |   |      |   |            |  



4



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NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Three Months Ended March 31, 2004



NOTE 1  ORGANIZATION



Heartland Bancshares, Inc. is a Florida corporation with headquarters in Sebring, Florida. The company was formed in August 1998 to organize and own 100%
of the capital stock of Heartland National Bank. Heartland National Bank is a nationally chartered full service institution with an office in Sebring, Florida, an office in Lake Placid, Florida, and an office in Avon Park, Florida. Heartland
National Bank opened for business on September 7, 1999.



The
accompanying consolidated financial statements include the accounts of Heartland Bancshares, Inc. and Heartland National Bank. All significant inter-company accounts and balances have been eliminated.



NOTE 2  BASIS OF PRESENTATION



The accompanying unaudited condensed financial statements have been prepared
in accordance with the instructions of Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring entries) considered necessary for a fair presentation of the companys financial results have been made. Operating results for the three months ended March 31, 2004, may not be indicative of the
results that may be expected for the year ending December 31, 2004.



NOTE 3 -
EARNINGS PER SHARE



Basic earnings per share have been
computed using the weighted average number of shares outstanding during the respective periods. Fully diluted earnings per share have been computed using the weighted average number of shares used for basic earnings per share, adjusted for the
dilutive effect of stock options outstanding, assuming use of the treasury stock method. These amounts are as follows:



|                                                   |  |                                    |  |                                   
|-------------------------------------------------- |  | ---------------------------------- |  | ----------------------------------
|                                                   |  | Three Months Ending March 31, 2004 |  | Three Months Ending March 31, 2003
|Weighted average shares outstanding                |  | 658,255                            |  | 652,030                           
|Dilutive shares from effect of outstanding options |  | 27,270                             |  | 19,033                            
|                                                   |  |                                    |  |                                   
|Shares used for fully diluted computations         |  | 685,525                            |  | 671,063                           
|                                                   |  |                                    |  |                                   



NOTE 4 - PRO FORMA EFFECT OF STOCK
OPTIONS



As permitted by applicable accounting principles,
management has elected to disclose rather than to record the compensatory effect of stock options granted to employees and directors. The pro forma effect has been estimated by use of the Black - Scholes option pricing model, assuming no volatility,
no dividends and average lives and exercise probability by option class. At March 31, 2004, there were options outstanding for 77,500 shares of common stock, compared to 82,500 as of March 31, 2003. No options were granted, exercised or forfeited
during the three months ended March 31, 2004 or 2003.



5



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NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Three Months Ended March 31, 2004

(continued)



Had the effect of these options been recorded by Heartland Bancshares, compensation and net income on a consolidated basis would have been as follows:



|                                              |  |                              |         |   |      |   |         |  
|--------------------------------------------- |  | ---------------------------- | ------- | - | ---- | - | ------- | -
|                                              |  | Three Months Ended March 31, |        
|                                              |  | 2004                         |         |   | 2003 |  
|Compensation, as reported                     |  | $                            | 470,049 |   |      | $ | 377,728 |  
|Pro forma effect of options                   |  |                              | 1,438   |   |      |   | 16,330  |  
|                                              |  |                              |         |   |      |   |         |  
|Pro forma compensation                        |  | $                            | 471,487 |   |      | $ | 394,058 |  
|                                              |  |                              |         |   |      |   |         |  
|Net income, as reported                       |  | $                            | 210,580 |   |      | $ | 173,779 |  
|Pro forma effect of options                   |  |                              | (1,438  | ) |      |   | (13,235 | )
|                                              |  |                              |         |   |      |   |         |  
|Pro forma net income                          |  | $                            | 209,142 |   |      | $ | 160,544 |  
|                                              |  |                              |         |   |      |   |         |  
|Basic earnings per share, as reported         |  | $                            | 0.32    |   |      | $ | 0.27    |  
|Pro forma effect of options                   |  |                              | (0.00   | ) |      |   | (0.02   | )
|                                              |  |                              |         |   |      |   |         |  
|Pro forma basic earnings per share            |  | $                            | 0.32    |   |      | $ | 0.25    |  
|                                              |  |                              |         |   |      |   |         |  
|Fully diluted earnings per share, as reported |  | $                            | 0.31    |   |      | $ | 0.26    |  
|Pro forma effect of options                   |  |                              | (0.00   | ) |      |   | (0.02   | )
|                                              |  |                              |         |   |      |   |         |  
|Pro forma fully diluted earnings per share    |  | $                            | 0.31    |   |      | $ | 0.24    |  
|                                              |  |                              |         |   |      |   |         |  



6



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Item 2.    Managements Discussion and Analysis of
Financial Condition and Results of Operations.



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 National Bank opened for business in September 1999, and presently
operates an office in Sebring, Florida, an office in Lake Placid, Florida, and an office in Avon Park, Florida. Heartland National Bank is a full service commercial bank, without trust powers. Heartland 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, 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.



Critical Accounting Policy



The accounting and financial reporting policies of Heartland Bancshares and
Heartland National Bank conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. Heartland Bancshares has determined that its policy regarding the determination of its
allowance for loan losses is a critical accounting policy in that it requires significant judgments and involves complex estimates and the application of the policy has a significant impact on Heartland Bancshares financial statements.



The allowance for loan losses is an estimate of the losses
that may be sustained in Heartland National Banks portfolio. The allowance has two basic components: (1) specific loss estimates for individually classified and impaired loans, and (2) general loss estimates on loans for which no impairment
has been identified and large groups of smaller balance homogeneous loans. Specific loss estimates on individual loans include subjective evaluations related to secondary sources of repayment for the loan which are principally collateral
liquidation. The general loss allocations use historical loss ratio experience which may not be indicative of the actual losses present in the loan portfolio at a given point in time.



While the basic methodology of Heartland National Banks loan loss allowance estimation process has not changed,
management continuously re-evaluates the use of historical loss factors, national and local economic trends, credit concentrations and other relevant factors in determining the adequacy of the allowance for loan loss.



This estimation process associated with the allowance for loan losses can
have significant effects in the estimated loan loss expense of a given period. Generally, the allowance for loan losses increases as the outstanding balance of loans increase or the level of classified or impaired loans increases. Loans or portions
of loans that are deemed uncollectible are charged against and reduce the allowance.



Financial Condition



Management continuously
monitors the financial condition of Heartland National Bank in order to maintain sufficient capital to support the operations of Heartland National Bank and Heartland Bancshares and to protect the depositors of Heartland National Bank. Significant
items affecting Heartland National Banks financial condition are discussed below.



Asset Quality



A major key to long-term
earnings growth is the maintenance of a high-quality loan portfolio. Heartland National Banks directive in this regard is carried out through its policies and procedures for extending credit to Heartland National Banks customers. The
goal of these policies and procedures is to provide a sound basis for new credit extensions and an early recognition of problem assets to allow the most flexibility in their timely disposition.



7



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At March 31, 2004, management had identified no non-performing assets. Additions to the allowance for
loan losses are made periodically to maintain the allowance at an appropriate level based upon managements analysis of potential risk in the loan portfolio. The amount of the loan loss provision is determined by an evaluation of the level of
loans outstanding, the level of non-performing loans, historical loan loss experience, delinquency trends, the amount of actual losses charged to the reserve in a given period, and assessment of present and anticipated economic conditions.



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 operating obligations. Liquidity needs are met either by converting assets to cash or by attracting new deposits. Heartland
National Bank had deposits of $115.3 million at March 31, 2004. Below are the pertinent liquidity balances and ratios at March 31, 2004 and December 31, 2003.



|                                          |  |                   |            |   |                      |   |            |  
|----------------------------------------- |  | ----------------- | ---------- | - | -------------------- | - | ---------- | -
|                                          |  | At March 31, 2004 |            |   | At December 31, 2003 |  
|Cash and cash equivalents                 |  | $                 | 20,201,360 |   |                      | $ | 11,768,627 |  
|Securities available for sale             |  | $                 | 6,937,995  |   |                      | $ | 7,796,709  |  
|CDs over $100,000 to total deposits ratio |  |                   | 9.2        | % |                      |   | 10.5       | %
|Loan to deposit ratio                     |  |                   | 74.1       | % |                      |   | 79.7       | %



Cash and cash
equivalents are the primary source of liquidity. At March 31, 2004, cash and cash equivalents amounted to $20.2 million, representing 16.0% of total assets, as compared to $19.2 million, or 18.5% of total assets, at March 31, 2003. Securities
available for sale provide a secondary source of liquidity. Management believes it is likely that a substantial amount of U. S. Government Agency securities will be called prior to their contractual maturity dates, thus providing additional sources
of liquidity.



At March 31, 2004, large denomination
certificates accounted for 9.2% of total deposits as compared to 10.5% at December 31, 2003. 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 could have a material adverse effect on Heartland National Banks liquidity. Management
believes that since a majority of the above certificates were obtained from Heartland National 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 considered to be more likely to be rate sensitive.



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.



Off-Balance Sheet Arrangements



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.



8



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Commitments to extend credit amounted to approximately $23.5 million at March 31, 2004. These 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.



Stand-by letters of credit are conditional
commitments issued by the Bank guaranteeing the performance of a customer to a third party. At March 31, 2004, the Bank has outstanding stand-by letters of credit with face amounts of approximately $146,000.



The company expects no significant losses to be realized in the performance
of its obligations under any of the above instruments.



Capital Adequacy



There are 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 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. Under the risk-based capital guidelines, capital is divided into two tiers. Tier 1 capital consists of common shareholders equity, non-cumulative perpetual preferred stock and any related surplus and
minority interest in the equity accounts of consolidated subsidiaries. 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 is the leverage ratio, which is computed by dividing Tier 1 capital by average total assets during the most recent
quarter. The OCC has established a 4.0% minimum leverage ratio requirement for all banks that are not rated CAMELS 1.



The table below illustrates Heartland National Banks and Heartland Bancshares regulatory capital ratios at March 31, 2004 and December 31,
2003:



|                                    |  |                |   |  |                   |   |  |                               |  
|----------------------------------- |  | -------------- | - |  | ----------------- | - |  | ----------------------------- | -
|                                    |  | March 31, 2004 |   |  | December 31, 2003 |   |  | Minimum regulatoryrequirement |  
|Heartland National Bank             |  |                |   |  |                   |   |  |                               |  
|Tier 1 risk-based capital ratio     |  | 9.3            | % |  | 9.1               | % |  | 4.0                           | %
|Total risk-based capital ratio      |  | 10.2           | % |  | 10.1              | % |  | 8.0                           | %
|Leverage ratio                      |  | 7.1            | % |  | 7.1               | % |  | 4.0                           | %
|                                    |  |                |  
|Heartland Bancshares  Consolidated |  |                |   |  |                   |   |  |                               |  
|Tier 1 risk-based capital ratio     |  | 8.2            | % |  | 8.4               | % |  | 4.0                           | %
|Total risk-based capital ratio      |  | 9.1            | % |  | 9.3               | % |  | 8.0                           | %
|Leverage ratio                      |  | 6.2            | % |  | 6.5               | % |  | 4.0                           | %



9



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Results of Operations



Heartland Bancshares had net income of $210,580 in the first quarter of 2004, compared to $173,779 in the first quarter of 2003. The following is a brief
discussion of the more significant components of net income:



| | (a) | Net interest income represents the difference between interest received on interest earning assets and interest paid on interest bearing liabilities. The following table sets forth
the main components of interest earning assets and interest bearing liabilities for the quarter ended March 31, 2004, as compared to the quarter ended March 31, 2003.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                                     |      |                              |         |                       |      |             |      |   |       |  |   |       |  |      |   |  |      |  
|---------------------------------------------------- | ---- | ---------------------------- | ------- | --------------------- | ---- | ----------- | ---- | - | ----- |  | - | ----- |  | ---- | - |  | ---- | -
|                                                     |      | Three Months Ended March 31, |        
|Interest Earning Assets/Interest Bearing Liabilities |      | Average Balance              |         | Interest Income/ Cost |      | Yield/ Cost |     
|                                                     | 2004 |                              | 2003    |                       | 2004 |             | 2003 |   | 2004  |  |   | 2003  | 
|                                                     |      | (dollars in thousands)       |        
|Federal funds sold                                   |      | $                            | 10,800  |                       | $    | 10,972      |      | $ | 24    |  | $ | 31    |  | 0.89 | % |  | 1.16 | %
|Securities                                           |      |                              | 16,766  |                       |      | 14,599      |      |   | 105   |  |   | 117   |  | 2.51 | % |  | 3.25 | %
|Loans                                                |      |                              | 83,257  |                       |      | 62,500      |      |   | 1,288 |  |   | 1,050 |  | 6.19 | % |  | 6.81 | %
|                                                     |      |                              |         |                       |      |             |      |   |       |  |   |       |  |      |   |  |      |  
|Total                                                |      | $                            | 110,823 |                       | $    | 88,071      |      |   | 1,417 |  |   | 1,198 |  | 5.11 | % |  | 5.52 | %
|                                                     |      |                              |         |                       |      |             |      |   |       |  |   |       |  |      |   |  |      |  
|Deposits                                             |      | $                            | 108,673 |                       | $    | 87,745      |      |   | 268   |  |   | 283   |  | 0.97 | % |  | 1.31 | %
|Borrowings                                           |      |                              | 2,166   |                       |      | 1,146       |      |   | 9     |  |   | 3     |  | 1.66 | % |  | 1.16 | %
|                                                     |      |                              |         |                       |      |             |      |   |       |  |   |       |  |      |   |  |      |  
|Total                                                |      | $                            | 110,839 |                       | $    | 88,891      |      |   | 277   |  |   | 286   |  | 1.00 | % |  | 1.31 | %
|                                                     |      |                              |         |                       |      |             |      |   |       |  |   |       |  |      |   |  |      |  
|Net interest income/spread                           |      |                              |         |                       |      |             |      | $ | 1,140 |  | $ | 912   |  | 4.11 | % |  | 4.21 | %
|                                                     |      |                              |         |                       |      |             |      |   |       |  |   |       |  |      |   |  |      |  
|Net yield on earning assets                          |      |                              |         |                       |      |             |      |   |       |  |   |       |  | 4.14 | % |  | 3.99 | %
|                                                     |      |                              |         |                       |      |             |      |   |       |  |   |       |  |      |   |  |      |  



| | (b) | At December 31, 2003, the allowance for loan losses amounted to $779,222. During the three months ended March 31, 2004, an additional $29,514 was provided to the allowance for loan
losses, bringing the balance to $808,736. There were no charge-offs in the first quarter of 2004. As of March 31, 2004, 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.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | Non-interest income, which consists primarily of service fees on deposit accounts and other miscellaneous fees, amounted to $168,887, or an annualized 0.57% of average assets, for
the three months ended March 31, 2004 as compared to $110,081, or an annualized 0.46% of average assets, for the quarter ended March 31, 2003.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10



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| | (d) | Non-interest expense for the three months ended March 31, 2004 amounted to $948,009 as compared to $692,626 for the same period in 2003. The components of non-interest expense for
the three months ended March 31, 2004 and March 31, 2003 are set forth below:
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                           |  |                                   |         |                                   |   |                    |  |   |        
|-------------------------- |  | --------------------------------- | ------- | --------------------------------- | - | ------------------ |  | - | -------
|                           |  | Three Months Ended March 31, 2004 |         | Three Months Ended March 31, 2003 |   | Increase/ Decrease
|Salaries and benefits      |  | $                                 | 470,049 |                                   | $ | 377,728            |  | $ | 92,321 
|Occupancy expenses         |  |                                   | 54,319  |                                   |   | 49,304             |  |   | 5,015  
|Equipment expenses         |  |                                   | 69,311  |                                   |   | 55,055             |  |   | 14,256 
|General operating expenses |  |                                   | 354,330 |                                   |   | 210,539            |  |   | 143,791
|                           |  |                                   |         |                                   |   |                    |  |   |        
|Total non-interest expense |  | $                                 | 948,009 |                                   | $ | 692,626            |  | $ | 255,383
|                           |  |                                   |         |                                   |   |                    |  |   |        



Increases in operating
expenses for the three months ended March 31, 2004 as compared to March 31, 2003 can be mostly attributed to the addition of personnel related to an increase in the volume of business and the costs associated with a data processing conversion.



Heartland Bancshares is not aware of any current
recommendation by any regulatory authority which, if implemented, would have a material effect on Heartland Bancshares liquidity, capital resources or results of operations.



Cautionary Note Regarding Forward-Looking Statements



Heartland Bancshares may, from time to time, make written or oral forward-looking statements, including statements contained
in Heartland Bancshares filings with the Securities and Exchange Commission and its reports to stockholders. Such forward-looking statements are made based on managements belief as well as assumptions made by, and information currently
available to, management pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Heartland Bancshares actual results may differ materially from the results anticipated in these forward-looking
statements due to a variety of factors, including governmental monetary and fiscal policies, deposit levels, loan demand, loan collateral values, securities portfolio values and interest rate risk management; the effects of competition in the
banking business from other commercial banks, savings and loan associations, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market mutual funds and other financial
institutions operating in Heartland Bancshares market area and elsewhere, including institutions operating through the Internet; changes in government regulations relating to the banking industry, including regulations relating to branching
and acquisitions; failure of assumptions underlying the establishment of reserves for loan losses, including the value of collateral underlying delinquent loans, and other factors. Heartland Bancshares cautions that such factors are not exclusive.
Heartland Bancshares does not undertake to update any forward-looking statements that may be made from time to time by, or on behalf of, Heartland Bancshares.



11



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Item 3.    Controls and Procedures



Management has developed and implemented a policy and procedures for
reviewing disclosure controls and procedures and internal controls over financial reporting on a quarterly basis. Management, including the principal executive and financial officers, evaluated the effectiveness of the design and operation of
disclosure controls and procedures as of March 31, 2004 and, based on their evaluation, the Heartland Bancshares principal executive and financial officers have concluded that these controls and procedures are operating effectively. There were
no significant changes in the Heartland Bancshares internal control over financial reporting during the companys last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the companys
internal control over financial reporting. Management noted no significant deficiencies in the design or operation of the companys internal control over financial reporting and the companys auditors were so advised.



Disclosure controls and procedures are Heartland Bancshares controls
and other procedures that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by Heartland Bancshares
in the reports that it files under the Exchange Act is accumulated and communicated to management, including the principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.



Part II.    Other
Information



Item
6.    Exhibits and Reports on Form 8-K



| | (a) | Exhibits. The following exhibits are filed with this Report or incorporated herein by reference:
| | --- | ------------------------------------------------------------------------------------------------



|            |  |   |  |                                                                                                                                                                                                                                               
|----------- |  | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  |   |  | Description                                                                                                                                                                                                                                   
|            |  |  
|3.1         |  | - |  | Amended and Restated Articles of Incorporation of Heartland Bancshares (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form SB-2 of Heartland Bancshares filed with
the SEC on November 12, 1998 (the Form SB-2).
|            |  |  
|3.2         |  | - |  | Amended and Restated Bylaws of Heartland Bancshares (incorporated by reference to Exhibit 3.2 to the Form SB-2).                                                                                                                              
|            |  |  
|31.1        |  | - |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                       
|            |  |  
|31.2        |  | - |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                       
|            |  |  
|32          |  | - |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                       



| | (b) | Reports on Form 8-K. No report on Form 8-K was filed during the quarter ended March 31, 2004.
| | --- | ---------------------------------------------------------------------------------------------



12



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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



|                   |  |  |  |                            |  |                                                                                      
|------------------ |  |  |  | -------------------------- |  | -------------------------------------------------------------------------------------
|                   |  |  |  | HEARTLAND BANCSHARES, INC.
|                   |  |  | 
|Date: May 12, 2004 |  |  |  | By:                        |  | /s/ James C. Clinard                                                                 
|                   |  |  |  |                            |  | James C. Clinard, President and Chief Executive Officer (principal executive officer)
|                   |  |  | 
|Date: May 12, 2004 |  |  |  | By:                        |  | /s/ Martha J. Kelley                                                                 
|                   |  |  |  |                            |  | Martha J. Kelley, Chief Financial Officer                                            
|                   |  |  |  |                            |  | (principal financial and accounting officer)                                         



13



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EXHIBIT INDEX



|               |  |   |  |                                                                        
|-------------- |  | - |  | -----------------------------------------------------------------------
|Exhibit Number |  |   |  | Exhibit Name                                                           
|31.1           |  | - |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|31.2           |  | - |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|32             |  | - |  | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



14