March 18, 2001



Dear Shareholders and Friends:

      The year 2000 started with virtually no Y2K problems,  increasing interest
rates,  and  ended  with an  historical  presidential  election  and  decreasing
interest  rates.  We are  proud to  report  that for the  first  year of the new
millennium,  Heartland Bancshares, Inc. continued to grow faster than projected,
and with the exception of loan loss reserves  discussed  below,  showed positive
earnings  numbers.  We ended the year with total assets of $165 million,  up $55
million or 50% from the December 31, 1999 total of $110 million.

      For our third full year of operation ending December 31, 2000, we recorded
net income of $751,000 or $.57 per share.  Strong growth in net interest income,
58.5% over 1999,  was partially  offset by an increase in the provision for loan
losses to $1.7  million  for 2000  compared  to  $656,000  in 1999.  Higher  net
charge-offs  and increased  levels of  non-performing  loans,  combined with the
identification of credits, that while performing,  were demonstrating weaknesses
as interest  rates  increased,  prompted  management to build the allowance to a
higher level.

      Despite  changing  interest rates,  our net interest  margin  increased to
4.58% for 2000 compared to 4.45% for 1999, which compares favorably to banks our
age.  We were able to  maintain  this  level  primarily  through  growth in core
deposits and loans.

      During the year, we opened two new branch offices, one in Bargersville and
a second  Greenwood  location.  Despite  the opening of two new  facilities  and
increasing  our staff from 45 at December  31, 1999 to 72 at December  31, 2000,
our efficiency ratio was 57% for 2000 and 1999.

      In last  year's  annual  report,  I  announced  two new areas of the bank;
Heartland  Investment  Services, a full service brokerage department that opened
in November,  1999 and the Certificate of Deposit  Brokerage Program that opened
in January,  2000.  Both had good years,  which  contributed to our Non Interest
Income increasing from $297,000 for 1999 to $767,000 for 2000.

      According  to the U. S.  Census  Bureau for the period  from 1990 to 1999,
Johnson County remained the  third-fastest  growing county in the state with the
cities of Franklin and Greenwood  ranked sixth and eighth  respectively in terms
of growth.  This  growth  along with the  continued  acceptance  of our style of
banking  has  vaulted  us to third  place in terms of  deposit  market  share in
Johnson County according to June 30, 2000 FDIC statistics.  We are very proud of
this achievement in three short years in a market of 15 financial institutions.

      Our disappointment  still lies with the performance of our stock price. In
a move to reward our faithful shareholders,  we announced a 5% stock dividend in
September.  The last trade  price in 1999 was at $8  compared  to the last trade
price in 2000 of $7.94. If you held 100 shares at 12/31/99,  your value was $800
compared to 105 shares (including the 5% stock dividend) at 12/31/2000,  a value
of $834 or an increase of slightly over 4%.

<PAGE>

      We attribute much of our growth and community acceptance to our tremendous
personal  customer  service.  But we are also aware of a growing  segment of the
population that prefers to bank by electronic  means. As a result, we contracted
with an Internet  banking  provider during the summer of 2000 and recently began
offering  electronic  banking to our customers.  NETteller is a state of the art
on-line  banking  product that  presently  puts us in front of the  competition.
During the year 2001, we plan to aggressively market this product.

      Also during  2001,  plans have been made to lease a facility  that will be
constructed  on property  adjacent to our main office and will house  commercial
and  mortgage  lending  representatives,  as well as all of the loan and deposit
operations functions. We plan to occupy this facility in the third quarter.

      With prospects of interest rates declining, 2001 should be a good year. We
will continue to monitor our loan quality closely and control overhead.  We feel
we are staffed and positioned to continue to build a strong and profitable  bank
for our  shareholders and a bank our customers can depend on for quality service
and products.

      As  always,  we thank our staff,  shareholders,  and  customers  for their
support and confidence in Heartland Bancshares, Inc.








Steve Bechman                             Jeffrey L. Goben
President                                 Executive Vice President






<PAGE>


MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND
RESULTS OF  OPERATIONS.  (Dollar  amounts  are in  thousands,  except
per share data.)


SUMMARY

Heartland  Bancshares,   Inc.   ("Heartland")  is  a  one-bank  holding  company
incorporated May 27, 1997. Heartland's primary asset is its wholly owned banking
subsidiary,   Heartland  Community  Bank  ("the  Bank"),  an   Indiana-chartered
commercial  bank. The Bank received  regulatory  approval to open in the fall of
1997 and commenced  banking  operation  December 17, 1997.  Heartland's  primary
business consists of attracting deposits from the general public and originating
real estate,  commercial and consumer loans and purchasing  investments  through
its four offices located in Franklin, Greenwood, and Bargersville, Indiana.

Due to the limited length of actual  operations  since the bank's  inception and
the rapid  growth  experienced  during  that  period,  it is  difficult  to make
meaningful  comparisons between the amounts outstanding at December 31, 2000 and
those at the previous  period end. We do not anticipate that future growth rates
will be as rapid as those experienced during the start-up period.

At December 31, 2000,  Heartland  had $164,916 in total  assets,  an increase of
$54,777 or 49.7% from  December  31, 1999 total of  $110,139.  Those assets were
primarily  comprised of loans of $132,549 and  securities of $22,199 at December
31,  2000  compared  to  December  31,  1999  totals  of  $91,045  and  $13,677,
respectively.  Total  deposits at December  31, 2000 were  $139,220  compared to
$88,519 at December 31, 1999. Total shareholders' equity was $12,658 and $11,643
at December 31, 2000 and  December  31, 1999.  The increase in equity was due to
the comprehensive income for the year ended December 31, 2000.

The Bank's  deposits are insured to the maximum  extent  permitted by law by the
Federal  Deposit  Insurance  Corporation  ("FDIC").   The  Bank  is  subject  to
comprehensive regulation,  examination and supervision by the Indiana Department
of Financial  Institutions  ("DFI") and the FDIC.  Heartland is  registered as a
bank holding  company with the Board of Governors of the Federal  Reserve System
("FRB") and is subject to its regulation, examination and supervision.

Heartland's  profitability  depends primarily upon the difference between income
on its loans and investments  and the cost of its deposits and borrowings.  This
difference is referred to as the spread or net interest  margin.  The difference
between the amount of interest  earned on loans and investments and the interest
incurred on deposits  and  borrowings  is  referred to as net  interest  income.
Interest  income from loans and investments is a function of the amount of loans
and  investments  outstanding  during the period and the interest  rates earned.
Interest  expense related to deposits and borrowings is a function of the amount
of deposits and borrowings  outstanding during the period and the interest rates
paid.

Dollar amounts in thousands except per share data.
<PAGE>


 Note. Dollar amounts in thousands except per share data.

RESULTS OF OPERATIONS

Heartland has  experienced  rapid growth in loans and deposits during the period
of time since inception. Changes in interest income and interest expense between
the two periods  discussed  relate  primarily to the difference in average loans
and deposits unless otherwise stated in the following discussion.

Heartland  recorded net income of $751 for the year ended  December 31, 2000, or
$.57 per share,  and net income of $973,  or $.73 per share,  for the year ended
December  31,  1999.  The  decrease  in net income is  attributable  to a higher
provision for loan losses and growth of non-interest expenses,  partially offset
by the growth of net interest and  non-interest  income.  Heartland  also bore a
full income tax load in 2000, as existing net operating loss  carryforwards were
fully utilized in 1999.

Comprehensive  income consists of net income and other comprehensive income such
as unrealized gains and losses on securities  available for sale, which are also
recognized as separate components of equity. Comprehensive income was $1,015 for
the year ended  December 31, 2000  compared to $727 for the year ended  December
31, 1999.

Interest  income of $12,476 was earned during the year ended  December 31, 2000,
compared  to $7,478  for the year  ended  December  31,  1999 and was  primarily
generated  from  securities  and loans.  The  increase is  primarily  due to the
increase  in  average  loans  and  securities  outstanding  during  the year and
secondarily due to increases in yields earned on loans and securities.  Interest
expense of $6,347 was  incurred  during the year  ended  December  31,  2000 and
$3,612 during the year ended  December 31, 1999.  Interest  expense is primarily
related to deposits  during 2000 and 1999.  The increase is primarily due to the
increase in average deposits and other borrowings outstanding during the year.

Net interest  income for the year ended December 31, 2000 was $6,129 compared to
$3,866 for the year ended December 31, 1999.

Dollar amounts in thousands except per share data.

<PAGE>


The  following  tables  depict for the years ended  December  31, 2000 and 1999,
certain  information  related  to  Heartland's  average  balance  sheets and its
average  yields on assets and costs of  liabilities.  Such yields are derived by
dividing income or expense by the average balance of the corresponding assets or
liabilities. Average balances have been derived from daily averages.
<TABLE>
<CAPTION>
                                  Year Ended                Year Ended
                              December 31, 2000         December 31, 1999
                               Average/   Yield/         Average/   Yield/
                               Balance     Rate          Balance     Rate
                               -------     ----          -------     ----
<S>                           <C>          <C>          <C>          <C>
Interest earning assets
   Short-term investments     $  3,409     5.75%        $  1,818     5.28%
   Taxable securities           16,435     6.79           12,057     6.00
   Non-taxable securities          669     3.74              605     3.64
   Loans                       113,182     9.84           72,340     9.17
                              --------                  --------
Total interest earning
 assets                       $133,695     9.33         $ 86,820     8.61
                              ========                  ========

Interest bearing liabilities
   Interest-bearing demand,
     Money Market and Savings
      Deposits                 $37,843     4.35%        $ 21,285     3.96%
   Time deposits                65,807     6.16           47,088     5.45
   Short-term borrowings         6,791     5.05            1,151     4.26
   Other borrowings              4,665     6.50            2,745     5.68
                              --------                  --------
Total interest bearing
 liabilities                  $115,106     5.51         $ 72,269     5.00
                              ========                  ========
</TABLE>

<TABLE>
<CAPTION>
                                                        2000       1999
                                                        ----       ----
<S>                                                     <C>        <C>
Average yield on interest-earning assets                9.33%      8.61%
Average rate paid on interest-bearing liabilities       5.51       5.00
Net interest spread                                     3.82       3.61
Net interest margin (net interest earnings divided
 by average total interest-earning assets)              4.58       4.45
Return on average assets                                 .54       1.09
Return on average equity                                6.21       8.54
</TABLE>

The increase in average yield on  interest-earning  assets to 9.33% in 2000 from
8.61% in 1999 was driven by rising interest rates and the percentage increase of
loans to total  earning  assets  during 2000.  The average rate paid on interest
bearing  liabilities  increased  to 5.51% in 2000 from  5.00% in 1999  primarily
because the of general increases in market interest rates.

The net interest  margin  increased to 4.58% in 2000 from 4.45% in 1999. The net
interest  margin is calculated by dividing net interest  income by average total
interest  earning  assets.  The  increase is  primarily  due to the  increase in
average  yields on loans in excess of the  increase in rates on deposits and the
increase in the percentage of loans to total earning assets.

Dollar amounts in thousands except per share data.
<PAGE>


The  provision  for loan losses was $1,744 for the year ended  December 31, 2000
and $656 for the year ended December 31, 1999. Net charge-offs  were $442 during
the year ended  December  31,  2000 and $33 during the year ended  December  31,
1999.  More than  one-half  of the net  charge-offs  for the year 2000 came from
three  commercial loan  relationships  where losses exceeded $50.  Consumer loan
losses,  primarily  deficiency  balances when  automobiles were repossessed also
increased to over $100. Non  performing  loans at December 31, 2000 increased to
$992  from  $137  at  the  end  of  1999.  These  factors,   combined  with  the
identification of credits that, while performing,  were demonstrating weaknesses
as interest  rates  increased  prompted  management  to build the allowance to a
higher  level.  The  allowance  for loan losses was 2.01% at  December  31, 2000
compared  to 1.50% at  year-end  1999 and  covers  non-performing  loans 2.4x at
year-end 2000, compared to 9.9x in 1999.

Non-interest  income was $767 for the year ended  December 31, 2000 and $297 for
the year ended December 31, 1999 and consists primarily,  of miscellaneous fees,
service  charges  and other  income.  In  November  1999,  the Bank  established
Heartland Investment Services, a full-service brokerage department.  Income from
the department  consists  primarily of commissions  from the sale of non-deposit
investment  products  such as stocks  and  mutual  funds.  Commission  income on
investment  sales combined with  commission  income earned from the CD brokerage
program for the year ended December 31, 2000 was $314.  Commission income during
the year ended December 31, 1999 was not significant.

Gains related to the sale,  service  released,  of residential real estate loans
declined to $81 in 2000 from $95 in 1999,  as interest  rates rose and the fixed
rate, residential real estate loan market softened. Net securities gains in 2000
were $6 compared to losses of $2 in 1999

Salaries  and benefits  expense for the year ended  December 31, 2000 was $2,283
compared to $1,373 for the year ended December 31, 1999. The number of full time
equivalent  employees was  increased to staff the two new branch  offices and to
maintain customer service through the rapid growth of loans and deposits.

Occupancy and equipment expenses of $344 and $205 were incurred during the years
ended  December 31, 2000 and 1999.  Those  expenses  consist  primarily of lease
payments  for  the  branch  facilities,  depreciation  and  utilities  expenses.
Occupancy and equipment expenses increased during 2000 due to the opening of the
two new branch offices.

Data processing expenses were $472 for the year ended December 31, 2000 compared
to $304 for the year ended  December 31, 1999.  The increase in data  processing
expenses is  correlated  with the  increase in loans and  deposits.  Many of the
expenses are volume based charges.

Professional  fees increased to $175 during 2000 from $73 during 1999 due to the
outsourcing of internal audit  procedures,  increased loan collection issues and
increased legal fees.

Dollar amounts in thousands except per share data.
<PAGE>

The remaining expenses of $655 for the year ended December 31, 2000 and $397 for
the year  ended  December  31,  1999,  relate to  various  other  items  such as
printing, supplies, advertising, loan expenses, postage, insurance and training.
The  increase is  primarily  due to the increase in volume of loans and deposits
and the opening of the two new branches during 2000.

Income tax expense  increased  to $472 for 2000  compared  to $182 in 1999.  The
effective  tax  rate for 2000 was  38.6%,  compared  to 15.8% in 1999.  In 1999,
Heartland realized a $275 benefit from a net operating loss carryforward. Absent
this, the 1999 effective tax rate would have been 39.6%.


LENDING ACTIVITIES

The following  table sets forth  information  concerning the  composition of the
Bank's loan portfolio in dollar  amounts stated in thousands and  percentages of
loans at December 31.

<TABLE>
<CAPTION>
                                         2000                      1999
                                           Percent of                Percent of
                                  Amount  Gross loans       Amount   Gross loans
                                  ------  -----------       ------   -----------
<S>                              <C>          <C>          <C>           <C>
TYPE OF LOAN
Commercial loans and leases      $ 63,766     48.11%       $ 42,778      46.99%
Real estate construction and
 land development                  24,719     18.65          17,109      18.79
Residential mortgages
 (1-4 family homes)                21,942     16.55          15,069      16.55
Consumer                           22,122     16.69          16,089      17.67
                                   ------     -----        --------     ------
Gross loans                      $132,549    100.00%       $ 91,045     100.00%
                                 ========    ======        ========     ======
</TABLE>

COMMERCIAL  LENDING.  Commercial  loans include loans secured by commercial real
estate;  and loans for business  purchases,  operations,  inventory and lines of
credit. At December 31, 2000,  commercial loans totaled $63,766 or 48.11% of the
Bank's total loan portfolio.  Commercial loans totaled $42,778, or 46.99% of the
Bank's loan portfolio at December 31, 1999.

REAL ESTATE  CONSTRUCTION AND LAND DEVELOPMENT  LOANS. Real estate  construction
and land development loans are secured by real estate and include commercial and
residential  construction loans and loans to develop land. At December 31, 2000,
real estate construction and land development loans totaled $24,719 or 18.65% of
the bank's  total  loan  portfolio  compared  to $17,109 or 18.79% of the bank's
total loan portfolio at December 31, 1999.

RESIDENTIAL MORTGAGE LOANS. Residential mortgage loans are predominantly secured
by single-family homes. To reduce its exposure to changes in interest rates, the
Bank currently originates adjustable rate first mortgage loans ("ARMs"),  second
mortgage loans and home equity lines of credit,  also with adjustable  rates. At
December 31, 2000, the Bank's residential  mortgage loans totaled  approximately
$21,942 or 16.55% of the  Bank's  total loan  portfolio  compared  to $15,069 or
16.55% of the Bank's total loans at December 31, 1999.

The Bank has negotiated with third party mortgage companies an agreement whereby
the Bank would receive a fee for originating  fixed rate 1-4 family  residential
real estate mortgages. Underwriting and servicing would be the responsibility of
the third party mortgage company.

Dollar amounts in thousands except per share data.
<PAGE>

CONSUMER LENDING. The Bank makes various types of consumer loans including loans
to  depositors  secured  by  pledges  of their  deposit  accounts,  new and used
automobile  loans,  and secured and unsecured  personal  loans.  At December 31,
2000, the Bank's consumer loans totaled  approximately  $22,122 or 16.69% of the
Bank's  total loan  portfolio  compared to $16,089 or 17.67% of the Bank's total
loans at December 31, 1999.


NONPERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES

Nonperforming assets consist of non-accrual and nonperforming loans, real estate
owned (acquired in foreclosure), and other repossessed assets. Non-accrual loans
include loans on which interest  recognition has been suspended because they are
90 days past due as to interest or principal and loans where there is a question
about the Bank's  ability to collect all principal  and interest.  Nonperforming
loans include accruing loans that are contractually  past due 90 days or more as
to interest or principal payments.  Nonperforming assets totaled $1,351 and $137
at December 31, 2000 and 1999.

Due to risks inherent in lending,  management estimates that a certain amount of
loan  balances  outstanding  at  December  31,  2000  and  1999 may not be fully
collected.  Although the Bank's  management  emphasizes the early  detection and
charge-off  of loan losses,  it is  inevitable  that at any time certain  losses
exist in the portfolio,  which have not been specifically identified. To reflect
the expense for such losses, a provision for loan losses is charged to earnings.
Actual losses, when identified,  are deducted from the allowance so established.
Over time, all net loan losses must be charged to earnings. The determination of
the adequacy of the allowance for loan loss is based on management's  continuing
review and evaluation of the loan  portfolio,  and its judgment as to the impact
of current  economic  conditions  on the  portfolio.  Management  estimates  the
allowance  balance  required based on known and inherent risks in the portfolio,
information about specific borrower situations and estimated  collateral values,
economic  conditions,  and other factors.  Allocations  may be made for specific
loans,  but the entire allowance is available for any loan that, in management's
judgment, should be charged-off.

To help  identify and  minimize  potential  future loan  losses,  on an on-going
basis, management evaluates the credit quality of individual loans and borrowers
and  assigns  a  risk  grade  based  on  the  various  factors  included  in the
evaluation.  Loans receiving substandard risk grades are monitored regularly for
repayment  performance and changes in the borrowers' ability to repay the loans.
These  loans  do  not   necessarily   meet  the  definition  of  non-accrual  or
nonperforming  loans and a substandard  grade does not indicate that  management
expects a future loan loss.  The  outstanding  balance of loans with an assigned
risk grade of substandard was $10,120 and $1,174 at December 31, 2000 and 1999.

Dollar amounts in thousands except per share data.

<PAGE>

At December 31, 2000, the balance of the allowance for loan losses was $2,667 or
2.0% of gross  loans  outstanding,  compared  to $1,365  or 1.5% of gross  loans
outstanding at December 31, 1999. The provision  charged to earnings in the year
ended December 31, 2000 was $1,744  compared to $656 for the year ended December
31, 1999.  Charge-offs  were $446 in the year ended December 31, 2000 and $34 in
the year ended December 31, 1999.


DEPOSIT ACTIVITIES

The Bank offers  several  types of deposit  programs  designed  to attract  both
short-term and long-term  savings by providing a wide assortment of accounts and
rates.  The Bank also  obtains  time  deposits on a bid basis from  customers or
potential  customers  wishing to deposit amounts of at least $100. Time deposits
from public entities such as state and local  government  entities,  schools and
hospitals  totaled  $14,183 or 10.2% of total  deposits at December 31, 2000 and
$9,168 or 10.4% at December 31, 1999.

Interest earned on statement  savings  accounts is paid from the date of deposit
to the date of withdrawal, compounded and credited quarterly. Interest earned on
money market demand  deposit  accounts is compounded and credited  monthly.  The
interest  rates on these  accounts are reviewed by  management of the Bank daily
and adjusted as often as deemed necessary.


BANK Liquidity and Interest Rate Sensitivity

Liquidity is a measure of the Bank's ability to meet its customers'  present and
future  deposit   withdrawals   and/or  increased  loan  demand  without  unduly
penalizing earnings. Interest rate sensitivity involves the relationship between
rate  sensitive  assets and  liabilities  and is an  indication  of the probable
effects of interest rate movements on the Bank's net interest  income.  The Bank
manages  both its  liquidity  and  interest  sensitivity  through a  coordinated
asset/liability management program directed by the Asset Liability Committee.

Liquidity is provided by projecting  loan demand and other  financial  needs and
then maintaining  sufficient funding sources and assets readily convertible into
cash to meet these  requirements.  The Bank has provided for its liquidity needs
by maintaining adequate balances in money market assets,  through growth in core
deposits,  maturing loans and  investments  in its  securities  portfolio and by
maintaining various short-term borrowing sources. At December 31, 2000, the Bank
had $22,199 or 13.5% of total assets in securities available-for-sale.  The Bank
also had $169 of federal  funds sold and an  additional  $5,000  available  from
unused  federal funds  purchased  agreement with a large  commercial  bank and a
guaranteed line of credit from the Federal Home Loan Bank of Indianapolis.

Management believes that expected deposit growth, maturing investment securities
and unused  borrowing  sources will be adequate to meet the liquidity  needs for
the foreseeable future.

Dollar amounts in thousands except per share data.

<PAGE>

The Bank  attempts to manage its rate  sensitivity  position  through the use of
variable-rate loans and by matching funds acquired,  having a specific maturity,
with loans, securities or money market investments with similar maturities.  The
Bank  employs a variety of  measurement  techniques  to identify  and manage its
exposure to changing  interest rates. A simulation  model is used to measure the
Bank's net interest income volatility to changes in the level of interest rates,
interest rate spreads,  the shape of the yield curve and changing product growth
patterns and investment strategies. Additionally, a rate sensitivity position is
computed for various repricing intervals by calculating rate sensitivity gaps.


CAPITAL ADEQUACY

Heartland  and  the  Bank  are  subject  to  regulatory   capital   requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve  quantitative and qualitative  measures of
assets,   liabilities  and  certain  off-balance-sheet  items  calculated  under
regulatory accounting practices.

The most restrictive capital adequacy  requirement in place during 1999 and 2000
was  from the  agreement  with the FDIC in  conjunction  with the  approval  for
deposit  insurance.  It required  that a minimum  total  capital to total assets
ratio of 8% be  maintained  for the first three years of  operation.  The Bank's
corresponding  capital  ratio at December 31, 2000 was 8.3% compared to 10.5% at
December 31, 1999. This  requirement  ended December 17, 2000 in accordance with
the  agreement  with the  Federal  Deposit  Insurance  Corporation.  The  Bank's
regulators in March 2001  requested  that the Bank sign a regulatory  agreement,
which would  (among  other  provisions)  require the Bank to maintain a ratio of
Tier 1 capital to total  assets of not less than 7.5% and  refrain  from  paying
dividends that would cause that ratio  requirement  to be violated.  In addition
the regulatory  agreement would require that the Bank refrain from taking action
that  would  result  in  the  Bank's  assets  growing  by  more  than  5% in any
three-month  period.  Although  the Bank has not yet  agreed to these  requests,
management anticipates that regulatory restrictions on the Bank's capital, asset
growth and dividend-paying  ability will result from these requests. At December
31, 2000, the Bank's Tier 1 capital to total assets ratio was 8.26%. See note 12
to the consolidated financial statements.

In addition  Heartland may not incur  indebtedness if its parent company debt to
equity  ratio would  exceed 30% without the consent of the FRB. At December  31,
2000, Heartland's parent company debt to equity ratio was 7.9%.

Dollar amounts in thousands except per share data.

<PAGE>

PARENT COMPANY LIQUIDITY

Heartland,  the parent  company of the Bank,  borrowed  $1,000 during the fourth
quarter  of 2000  from a  commercial  bank  lender  under a credit  line for the
purpose of  contributing  the  borrowed  proceeds  to the capital of the Bank in
order to support the Bank's  continued  growth.  See note 7 to the  consolidated
financial  statements.  Due to the additional provisions for loan losses made in
the fourth  quarter,  Heartland  at December 31, 2000 was in violation of one of
the  financial  covenants  included  in its  loan  agreement  with  the  lender.
Consequently, the lender is no longer obligated to advance additional amounts to
Heartland and could, at its option,  accelerate the repayment of all amounts due
under the loan.  The  lender  has  advised  Heartland  that it will not  advance
additional  funds to  Heartland  under the credit  line and has  requested  that
Heartland  commence repaying the $1,000 principal amount in 12 quarterly amounts
of $83 principal amount each (plus  interest),  payable on each quarter end date
commencing March 31, 2001.

Heartland  expects  to rely upon  dividends  from the Bank as the  source of its
funds to meet its  obligations to its bank lender under the loan  agreement.  At
February 28, 2001,  the Bank's Tier 1 capital to total assets ratio was 7.9% and
it could have paid  dividends of $784 without  violating  the  provisions of the
regulatory agreement as discussed under the "Capital Adequacy" caption above. If
the Bank's Tier 1 capital to total  assets  ratio should fall below the required
7.5% or the Bank  otherwise  cannot  lawfully  or  prudently  pay  dividends  to
Heartland for the purpose of Heartland's payment of its debt to its bank lender,
Heartland would be required to obtain the lender's consent to delayed  repayment
terms or obtain  alternative  sources of funds to satisfy its obligations to its
lender. Heartland believes that its existing indebtedness can be refinanced with
other  lenders in the event that  discussions  with its  existing  lender do not
result in a mutually  agreeable  restructured loan agreement and Heartland is in
discussions with one other lender in this connection;  however,  there can be no
assurance that credit terms that are  satisfactory  to Heartland can be obtained
from either the existing lender or any alternative lender.


SERVICE AREA

The Bank's primary service area is Johnson County,  Indiana.  Johnson County has
been described as one of the fastest growing  Indiana  counties by population in
recent years.  The Bank has one branch in Franklin and two in  Greenwood,  which
are the two largest  cities in the county.  In January  2000,  the Bank opened a
third branch in Bargersville,  Indiana. Bargersville, also in Johnson County, is
approximately six miles west of Franklin and seven miles south of Greenwood.


COMMON STOCK

Heartland  had  1,328,194  shares of Common  Stock  issued  and  outstanding  to
approximately  1,700  shareholders  (including  beneficial owners who held their
shares in street name) on March 1, 2001.  The number of  shareholders  of record
was 164 on March 1, 2001.

Dollar amounts in thousands except per share data.

<PAGE>

The Common  Stock has been quoted on the NASD  Over-the-Counter  Bulletin  Board
under the symbol HRTB since October 3, 1997. The following  table sets forth the
reported high and low bid prices of the Common Stock for the quarters  indicated
as reported on the NASD Over-the-Counter  Bulletin Board. (Data is retroactively
adjusted for the five percent stock dividend issued in October 2000).

                        High             Low
                        ----             ---
First Quarter 1999    $10.95           $6.90
Second Quarter 1999     9.52            7.38
Third Quarter 1999      8.81            7.26
Fourth Quarter 1999     9.29            6.67
First Quarter 2000      8.05            6.12
Second Quarter 2000     7.32            5.78
Third Quarter 2000      8.96            7.02
Fourth Quarter 2000     9.88            7.25

The prices  quoted above  represent  prices  between  dealers and do not include
adjustments  for mark-ups,  mark-downs  or  commissions  and do not  necessarily
represent actual  transactions.  Heartland has not paid cash dividends since its
inception and does not anticipate doing so in the foreseeable future. In October
2000, Heartland issued a five percent stock dividend on all outstanding shares.


<PAGE>


FINANCIAL STATEMENTS

The items listed below are presented on the  following  pages for your review in
conjunction with the foregoing discussion:

o     Report  of  Independent  Auditors  on  consolidated   financial
      statements.

o     Consolidated Balance Sheets at December 31, 2000 and 1999.

o     Consolidated  Statements  of Income for the years ended  December 31, 2000
      and 1999.

o     Consolidated  Statements of Changes in Shareholders'  Equity for the years
      ended December 31, 2000 and 1999.

o     Consolidated  Statements  of Cash Flows for the years ended  December  31,
      2000 and 1999.

o     Notes to consolidated financial statements.


<PAGE>











                   REPORT OF INDEPENDENT AUDITORS



Board of Directors and Shareholders
Heartland Bancshares, Inc.
Franklin, Indiana


We have  audited  the  accompanying  consolidated  balance  sheets of  Heartland
Bancshares,  Inc. as of December 31, 2000 and 1999 and the related  consolidated
statements  of income,  changes in  shareholders'  equity and cash flows for the
years ended  December  31, 2000 and 1999.  These  financial  statements  are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material   respects,   the  financial  position  of  Heartland
Bancshares,  Inc.  as of  December  31,  2000 and 1999,  and the  results of its
operations  and its cash flows for the years ended December 31, 2000 and 1999 in
conformity with generally accepted accounting principles.





                                    Crowe, Chizek and Company LLP

Indianapolis, Indiana
February 23, 2001


<PAGE>


                           HEARTLAND BANCSHARES, INC.
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2000 and 1999
                          (Dollar amounts in thousands)

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                    2000     1999
                                                    ----     ----
<S>                                               <C>       <C>
ASSETS
Cash and due from banks                           $  7,070  $  3,598
Federal funds sold                                     169        75
                                                  --------  --------
      Total cash and cash equivalents                7,239     3,673

Securities available-for-sale                       22,199    13,677
Loans                                              132,549    91,045
Allowance for loan losses                           (2,667)   (1,365)
                                                  --------  --------
      Loans, net                                   129,882    89,680
Premises and equipment, net                          2,323     1,659
Accrued interest receivable and other assets         3,273     1,450
                                                  --------  --------

                                                  $164,916  $110,139
                                                  ========  ========


LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
   Noninterest-bearing deposits                   $ 14,238  $  8,707
   Interest-bearing demand and savings deposits     50,360    29,428
   Interest-bearing time deposits                   74,622    50,384
                                                  --------  --------
      Total deposits                               139,220    88,519
   Repurchase agreements                             9,273     3,519
   Other borrowings                                  3,000     6,000
   Accrued interest payable and other liabilities      765       458
                                                  --------  --------
                                                   152,258    98,496

Shareholders' equity
   Common stock, no par value:  10,000,000 shares
     authorized; 1,328,194 (2000) and 1,265,000
     (1999) shares issued and outstanding            1,328     1,265
   Additional paid-in capital                       10,912    10,466
   Retained earnings                                   347       105
   Accumulated other comprehensive income (loss)        71      (193)
                                                  --------  --------
                                                    12,658    11,643
                                                  --------  --------

                                                  $164,916  $110,139
                                                  ========  ========

</TABLE>

                             See accompanying notes.
<PAGE>
                           HEARTLAND BANCSHARES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                           December 31, 2000 and 1999
                          (Dollar amounts in thousands)

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                     2000     1999
                                                     ----     ----
<S>                                                <C>       <C>
Interest income
   Loans, including related fees                   $11,139   $6,637
   Securities:
      Taxable                                        1,116      723
      Non-taxable                                       25       22
   Short-term investments                              196       96
                                                   -------   ------
                                                    12,476    7,478
Interest expense
   Deposits                                          5,701    3,407
   Short-term borrowings                               343       49
   Other borrowings                                    303      156
                                                   -------   ------
                                                     6,347    3,612
                                                   -------   ------
Net interest income                                  6,129    3,866
Provision for loan losses                            1,744      656
                                                   -------   ------
Net interest income after provision for loan losses  4,385    3,210

Noninterest income
   Deposit service charges and fees                    296      152
   Commissions on investment sales                     314        9
   Gain (loss) on sale of securities                     6       (2)
   Brokered mortgage loan fees                          81       95
   Other                                                70       43
                                                   -------   ------
                                                       767      297
Noninterest expense
   Salaries and employee benefits                    2,283    1,373
   Occupancy and equipment, net                        344      205
   Data processing                                     472      304
   Advertising                                         140       84
   Professional fees                                   175       73
   Other                                               515      313
                                                   -------   ------
                                                     3,929    2,352
                                                    -------   ------
Income before income taxes                           1,223    1,155

Income taxes                                           472      182
                                                   -------   ------

Net income                                         $   751   $  973
                                                   =======   ======

Basic and diluted earnings per share               $   .57   $  .73
                                                   =======   ======
</TABLE>


                             See accompanying notes.


<PAGE>

                           HEARTLAND BANCSHARES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
            Years       ended  December  31,  2000 and 1999  (Dollar  amounts in
                        thousands, except per share data)

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>


                                                         Accumulated     Total
                                   Additional               Other        Share-
                           Common   Paid-in   Retained  Comprehensive   holders'
                            Stock   Capital   Earnings     Income        Equity
                            -----   -------   --------     ------        ------

<S>                       <C>       <C>       <C>         <C>          <C>
Balance January 1, 1999   $  1,265  $ 10,466  $   (868)   $      53    $ 10,916

Comprehensive income
   Net income for 1999          --        --       973           --         973
   Change in net
    Unrealized
     gain/(loss) ......         --        --        --         (246)       (246)
                                                                       --------
Total comprehensive
 Income ...............                                                     727
                          --------  --------  --------    ---------    --------
Balance December 31, 1999    1,265    10,466       105         (193)     11,643

Stock dividend of 5%
   (63,194 shares) ....         63       446      (509)          --          --
Comprehensive income
   Net income for 2000          --        --       751           --         751
   Change in net
    Unrealized
     gain/(loss) ......         --        --        --          264         264
                                                                       --------
Total comprehensive
 Income ...............                                                   1,015
                          --------  --------  --------    ---------    --------

Balance December 31, 2000 $  1,328  $ 10,912  $    347    $      71    $ 12,658
                          ========  ========  ========    =========    ========

</TABLE>

                             See accompanying notes.

<PAGE>

                     HEARTLAND BANCSHARES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years ended December 31, 2000 and 1999
                          (Dollar amounts in thousands)

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                          2000     1999
                                                          ----     ----
<S>                                                      <C>      <C>
Cash flows from operating activities
   Net income                                            $   751  $   973
   Adjustments to reconcile net income to net
     cash from operating activities
      Depreciation and amortization                          151      135
      (Gain)/loss on sale of securities                       (6)       2
      Provision for loan losses                            1,744      656
      Change in assets and liabilities:
        Accrued interest receivable and other assets      (1,948)    (693)
        Accrued interest payable and other liabilities       261      208
                                                         -------  -------
           Net cash from operating activities                953    1,281

Cash flows from investing activities
   Purchase of securities available-for-sale             (17,234)  (5,892)
   Proceeds from sales, calls and maturities of
     securities available-for-sale                         9,183    2,296
   Loans made to customers, net of payments collected    (41,946) (41,636)
   Net purchases of property and equipment                  (845)     (83)
                                                         -------  -------
      Net cash from investing activities                 (50,842) (45,315)

Cash flows from financing activities
   Net change in deposit accounts                         50,701   35,765
   Net change in short-term borrowings                     5,754    2,779
   Draws on note payable                                   1,000        -
   Repayments on FHLB advances                           (15,000)       -
   Draws on FHLB advances                                 11,000    6,000
                                                         -------  -------
      Net cash from financing activities                  53,455   44,544
                                                         -------  -------

Net change in cash and cash equivalents                    3,566      510

Cash and cash equivalents at beginning of period           3,673    3,163
                                                         -------  -------

Cash and cash equivalents at end of period               $ 7,239  $ 3,673
                                                         =======  =======
</TABLE>

Supplemental  disclosures of cash flow  information  Cash paid during the period
   for:
      Interest                                           $ 6,357  $ 3,512
      Income taxes                                           357      484


                             See accompanying notes.
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description  of Business:  The  consolidated  financial  statements  include the
accounts  of  Heartland  Bancshares,  Inc.  (Corporation)  and its  wholly-owned
subsidiary,  Heartland  Community Bank (Bank),  after elimination of significant
intercompany transactions and accounts.

The  Corporation  is engaged in the business of commercial  and retail  banking,
with operations  conducted through its main office located in Franklin,  Indiana
and additional  branch  locations in Greenwood and  Bargersville,  Indiana.  The
majority of the Bank's  income is derived from  commercial  and retail  business
lending activities and investments. The majority of the Bank's loans are secured
by specific items of collateral  including  business  assets,  real property and
consumer assets.

Use of Estimates:  To prepare financial  statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions based
on available  information.  These estimates and  assumptions  affect the amounts
reported in the financial  statements and the disclosures  provided,  and future
results  could  differ.  The  allowance  for loan  losses and the fair values of
financial instruments are particularly subject to change.

Securities:  Securities  are classified as available for sale when they might be
sold before maturity.  Securities  available for sale are carried at fair value,
with unrealized  holding gains and losses reported  separately in  shareholders'
equity, net of tax.  Securities are written down to fair value when a decline in
fair  value  is  not  temporary.  Interest  and  dividend  income,  adjusted  by
amortization of purchase premium or discount, is included in earnings.

Loans: Loans are reported at the principal balance outstanding,  net of unearned
interest,  deferred  loan fees and  costs,  and an  allowance  for loan  losses.
Interest income is reported on the interest method and includes  amortization of
net deferred loan fees and costs over the loan term.

Interest income is not reported when full loan repayment is in doubt,  typically
when payments are  significantly  past due.  Payments received on such loans are
reported as principal reductions.

                                   (Continued)

<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance  for Loan  Losses:  The  allowance  for  loan  losses  is a  valuation
allowance,  increased  by  the  provision  for  loan  losses  and  decreased  by
charge-offs less recoveries. Management estimates the allowance balance required
based on known and inherent risks in the portfolio,  information  about specific
borrower situations and estimated collateral values,  economic  conditions,  and
other factors.  Allocations of the allowance may be made for specific loans, but
the entire  allowance is available for any loan that, in management's  judgment,
should be charged-off.

Loan  impairment  is  reported  when full  payment  under the loan  terms is not
expected.  Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential  mortgage,  consumer and credit card loans, and on an
individual loan basis for other loans.  If a loan is impaired,  a portion of the
allowance is allocated so that the loan is reported,  net, at the present  value
of  estimated  future cash flows using the loan's  existing  rate or at the fair
value of collateral if repayment is expected solely from the  collateral.  Loans
are evaluated for impairment when payments are significantly delayed, or when it
is probable  that all  principal  and  interest  amounts  will not be  collected
according to the original terms of the loan.

Premises, Furniture and Equipment:  Premises, furniture and equipment are stated
at cost less accumulated  depreciation.  Depreciation expense is recognized over
the  estimated  useful  lives of the assets,  principally  on the  straight-line
method.  These  assets are  reviewed  for  impairment  when events  indicate the
carrying amount may not be recoverable.

Repurchase  Agreements:   Substantially  all  repurchase  agreement  liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance.

Stock Compensation:  Expense for employee  compensation under stock option plans
is recorded  only if options are granted  below market price at grant date.  Pro
forma  disclosures  of net income and  earnings per share are provided as if the
fair value were used for stock based compensation.

Income  Taxes:  Income tax expense is the sum of the current year income tax due
or refundable  and the change in deferred tax assets and  liabilities.  Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences   between  the  carrying   amounts  and  tax  bases  of  assets  and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.


                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial Instruments: Financial instruments include credit instruments, such as
commitments to make loans and standby letters of credit, issued to meet customer
financing  needs.  The face amount for these items  represents  the  exposure to
loss, before considering customer collateral or ability to repay.

Statement of Cash Flows:  Cash and cash  equivalents are defined to include cash
on hand, amounts due from banks, and federal funds sold. The Corporation reports
net cash  flows  for  customer  loan  transactions,  deposit  transactions,  and
short-term borrowings.

Earnings  Per  Share:  Basic  earnings  per share is net  income  divided by the
weighted  average  number of  shares  outstanding  during  the  period.  Diluted
earnings per share includes the dilutive effect of additional  potential  shares
issuable under stock options.

Comprehensive  Income:  Comprehensive  income  consists  of net income and other
comprehensive  income.  Other comprehensive income includes unrealized gains and
losses on securities  available  for sale which are also  recognized as separate
components of equity.

Dividend  Restriction:  Banking  regulations require maintaining certain capital
levels and may limit the dividends paid by the bank to the holding company or by
the holding company to shareholders.

Fair Values of Financial  Instruments:  Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed separately.  Fair value estimates involve uncertainties and matters of
significant  judgment regarding interest rates,  credit risk,  prepayments,  and
other factors,  especially in the absence of broad markets for particular items.
Changes in assumptions or in market  conditions could  significantly  affect the
estimates.  The fair value  estimates  of  existing  on- and  off-balance  sheet
financial  instruments does not include the value of anticipated future business
or the values of assets and liabilities not considered financial instruments.

Industry  Segment:  Internal  financial  information  is primarily  reported and
aggregated in one line of business, i.e., banking.

                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loss  Contingencies:  Loss  contingencies,  including  claims and legal  actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood  of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there now are such matters that will have
a material effect on the financial statements.

New  Accounting  Pronouncements:  Beginning  January 1, 2001,  a new  accounting
standard  required  all  derivatives  to  be  recorded  at  fair  value.  Unless
designated  as hedges,  changes in these fair  values  will be  recorded  in the
income statement. Fair value changes involving hedges will generally be recorded
by offsetting  gains and losses on the hedge and on the hedged item, even if the
fair  value of the  hedged  item is not  otherwise  recorded.  Adoption  of this
standard did not have a material effect on the Corporation.


NOTE 2 - SECURITIES

Year-end securities are as follows:

<TABLE>
<CAPTION>
                                                 Gross      Gross
                                    Amortized Unrealized Unrealized     Fair
                                      Cost       Gains      Losses     Value
                                      ----       -----      ------     -----
2000
<S>                                  <C>        <C>         <C>        <C>
   U.S. Government and its agencies  $ 11,804   $    139    $   (46)   $11,897
   Obligations of states and
    political subdivisions              1,445          1         (5)     1,441
   Mortgage backed securities           7,412         56         (9)     7,459
   Corporates                             970          2        (20)       952
   FHLB stock                             450          -          -        450
                                     --------    -------    -------    -------
                                     $ 22,081   $    198    $   (80)   $22,199
                                     ========   ========    =======    =======

1999
   U.S. Government and its agencies  $  9,400   $      -    $  (210)   $ 9,190
   Obligations of states and
    political subdivisions                613          -        (12)       601
   Mortgage backed securities           2,705          1        (50)     2,656
   Corporates                             877          -        (47)       830
   FHLB stock                             400          -          -        400
                                     --------   --------    -------    -------
                                     $ 13,995   $      1    $  (319)   $13,677
                                     ========   ========    =======    =======
</TABLE>

During 2000,  gross proceeds from sales of securities were $4,648 and recognized
gains were $15 recognized  losses were $9. During 1999, one security  classified
as available-for-sale  was sold. Gross proceeds were $499 and recognized loss on
the sale was $2.

                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 2 - SECURITIES (Continued)

The  amortized  cost and fair value of  securities  at  December  31,  2000,  by
contractual maturity, are shown below.
<TABLE>
<CAPTION>
                                                                       Estimated
                                                 Amortized     Market
                                                   Cost        Value
                                                   ----        -----

   <S>                                           <C>          <C>
   Due in one year or less                       $ 1,255      $ 1,249
   Due after one year through five years           8,917        8,888
   Due after five years through ten years          3,712        3,818
   Due after ten years                               335          335
   Mortgage backed securities                      7,412        7,459
   FHLB stock                                        450          450
                                                 -------      -------
                                                 $22,081      $22,199
                                                 =======      =======
</TABLE>

Securities  with a carrying value of $14,471 and $3,168 at December 31, 2000 and
1999, were pledged to secure repurchase agreements.


NOTE 3 - LOANS

Loans at year end are comprised of the following:

                                                  2000          1999
                                                  ----          ----

   Commercial loans and leases                  $ 63,766      $ 42,778
   Real estate construction and land
     development                                  24,719        17,109
   Residential real estate                        21,942        15,069
   Consumer                                       22,122        16,089
                                                --------       --------

                                                $132,549      $ 91,045
                                                ========      ========


Certain  of  the  Company's  officers  and  directors  were  loan  customers  of
Heartland.  The balance of loans  outstanding to these  individuals was $279 and
$229 at December 31, 2000 and 1999. New loans  originated  during 2000 were $150
and repayments were $100.

                                   (Continued)
<PAGE>



                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

The activity in the allowance for loan losses is as follows:

                                                  2000      1999
                                                  ----      ----
   Beginning balance                            $ 1,365   $   742
   Provision charged to operations                1,744       656
   Loans charged-off                               (446)      (34)
   Recoveries on loans previously charged-off         4         1
                                                -------   -------
   Ending balance                               $ 2,667   $ 1,365
                                                =======   =======


Information about impaired loans is as follows:
                                                 2000      1999
                                                 ----      ----
   Year-end loans with no allowance
     for loan losses allocated                  $     -   $     -
   Year-end loans with allowance for
     loan losses allocated                          521         -
   Amount of the allowance allocated                 78         -
   Average of impaired loans during the year        172         -
   Interest income recognized during impairment       -         -
   Cash-basis interest income recognized              -         -
   Loans on non accrual status at year end          992       137
   Loans delinquent greater than 90 days
      and still accruing at year end                  -         -


NOTE 5 - PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:
                                                  2000      1999
                                                  ----      ----

   Land                                         $   205   $   205
   Buildings and improvements                     1,342       931
   Leasehold improvements                           251       207
   Furniture and equipment                          951       562
                                                -------   -------
      Total                                       2,749     1,905
   Accumulated depreciation                         426       246
                                                -------   -------
      Premises, furniture and equipment, net    $ 2,323   $ 1,659
                                                =======   =======



                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 6 - INTEREST-BEARING TIME DEPOSITS

Interest-bearing  time  deposits  issued  in  denominations  of $100 or  greater
totaled $33,481 and $22,673 at December 31, 2000 and 1999.

Scheduled maturities of time deposits for the next five years are as follows:

             2001                               $60,683
             2002                                10,579
             2003                                 2,985
             2004                                   254
             2005                                    71
             Thereafter                              50
                                                -------
                                                $74,622
                                                =======

Time  deposits  from  governmental  and  other  public  entities  such as school
corporations and hospitals in the Bank's market area totaled $14,183 at December
31, 2000 and $9,168 at December 31, 1999.


NOTE 7 - OTHER BORROWINGS

Other borrowings  consist of advances from the Federal Home Loan Bank (FHLB) and
a note payable to a commercial bank.

                                               2000         1999
                                               ----         ----

   FHLB advances                             $  2,000     $ 6,000
   Note payable                                 1,000           -
                                             --------     -------

                                             $  3,000     $ 6,000
                                             ========     =======

FHLB advances are payable at maturity, generally with a prepayment penalty. They
are   collateralized  by  a  blanket  pledge  of  mortgage  loans  and  eligible
securities. Interest is payable monthly.

The advance  outstanding  at December  31, 2000  matures on October 30, 2001 and
bears interest at 6.69%.

                                   (Continued)

<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 7 - OTHER BORROWINGS (Continued)

The note  payable is the balance  drawn on a $2,000 line of credit  available to
the  Corporation.  The line was  originated  on September  22, 2000,  matures on
September  21,  2001,  is  secured  by a pledge  of the  Bank's  stock and bears
interest  at a  variable  rate,  tied to  either  prime  rate or  LIBOR,  at the
Corporation's  discretion.  The rate at December  31,  2000 was 8.41%.  The note
requires  quarterly  principal  reductions  equal to one  twelfth of the balance
outstanding,  beginning  March 31, 2001 and must be repaid in full at  maturity.
The terms of the note include  requiring  compliance with various covenants with
respect to financial  performance.  At December 31, 2000,  the  Corporation  has
violated one of the covenants and the lender  could,  at its option,  accelerate
the repayment of the note.


NOTE 8 - EMPLOYEE BENEFIT PLANS

A 401(k)  retirement  savings  plan is  maintained  for the  benefit of eligible
employees. The Plan requires employees to be 21 years of age before entering the
Plan.  Employee  contributions  are limited to a maximum of 15% of their salary.
The  Plan  provides  for a 50%  matching  of the  first  6% of  employee  salary
contributions and allows for an annual discretionary contribution.  Participants
are  fully  vested  in  salary   deferral   contributions.   Employer   matching
contributions  vest at a rate of 20% per year of employment and are fully vested
after the  completion  of 5 years of service  with the Bank after  entering  the
plan.  The 401(k)  contribution  charged to expense was $26 and $23 for 2000 and
1999, respectively.


NOTE 9 - STOCK OPTION PLAN

The  Corporation  maintains  two stock  option  plans:  an  employee  plan and a
non-employee  director  plan.  Under the terms of the plans,  options  for up to
265,000  shares  of  the  Corporation's  common  stock  may  be  granted  to key
management employees and directors of the Corporation and its subsidiaries.  The
exercise  price of the  options  will be  determined  at the time of grant by an
administrative  committee  appointed by the Board of Directors and in any event,
will not be less than fair  market  value of the  shares of common  stock at the
time the option is granted.

Employee  options are immediately  exercisable with respect to 20 percent of the
shares  covered  by the option and will vest with  respect to an  additional  20
percent of the shares on each of the following four anniversaries of the date of
grant,  assuming continued  employment of the optionee.  The options will expire
after ten years.


                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 9 - STOCK OPTION PLAN (Continued)

Nonemployee  director  options are  immediately  exercisable for 1,000 shares of
common stock per nonemployee  director.  On the date of each  successive  annual
meeting of the Corporation,  options will become exercisable (assuming continued
service on the Board of  Directors)  for an  additional  1,000  shares of common
stock per nonemployee director, until all options are exercisable in full.

A summary of the Corporation's  stock option activity,  and related  information
follows:

                                        2 0 0 0               1 9 9 9
                                        -------               -------
                                            Weighted-               Weighted-
                                              Average                Average
                                            Exercise                 Exercise
                                   Options    Price        Options    Price
   Outstanding - beginning
     of period                      140,700  $    9.52      87,150   $   9.52
   Granted                                -          -      53,550       9.52
   Exercised                              -          -           -         -
   Forfeited                              -          -           -         -
                                   --------   --------    --------   --------
   Outstanding-end of period        140,700  $    9.52     140,700   $   9.52
                                   ========  =========    ========   ========
   Exercisable at end of period     109,200  $    9.52      70,350   $   9.52
                                   ========  =========    ========   ========
   Weighted-average fair
     value per option granted
     during the period             $      -               $   2.47
                                   ========               ========

Pro forma  disclosures  are  required for  companies  that do not adopt the fair
value accounting  method for stock-based  employee  compensation.  The pro forma
information presents net income and earnings per share had the fair value method
been used to measure compensation cost for stock option plans. Compensation cost
actually  recognized  for stock  options was $0. Fair value is  estimated at the
date of grant using a  Black-Scholes  option  pricing  model with the  following
weighted average  assumptions for 1999:  risk-free interest rate of 6%; dividend
yield of 0%;  volatility factor of .001, and a weighted average expected life of
5 years.


                                   (Continued)

<PAGE>

                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------
NOTE 9 - STOCK OPTION PLAN (Continued)

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options' vesting period.  The Corporation's pro
forma information follows:

                                                         2000      1999
                                                         ----      ----

   Pro forma net income                                 $  669    $  891
   Pro forma basic and diluted earnings per share       $  .50    $  .67

In future years, the pro forma effect of not applying this standard may increase
if additional options are granted.


NOTE 10 - INCOME TAXES

Income tax expense was as follows:
                                                 2000         1999
                                                 ----         ----

                Current                        $    724     $    393
                Deferred                           (252)          64
                Change in valuation allowance         -         (275)
                                               --------     --------
                  Total                        $    472     $    182
                                               ========     ========

Effective  tax rates differ from federal  statutory  rates  applied to financial
statement income due to the following:
                                                 2000         1999
                                                 ----         ----

                Federal statutory rate times
                  financial statement income   $    416     $    392
                Change in valuation allowance         -         (275)
                Effect of:
                  Tax-exempt income                  (7)          (6)
                  State taxes, net of federal
                   benefit                           60           66
                  Other, net                          3            5
                                               --------     --------
                     Total                     $    472     $    336
                                               ========     ========

                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 10 - INCOME TAXES (Continued)

Year-end deferred tax assets and liabilities were due to the following:

                                                2000          1999
                                                ----          ----
        Deferred tax assets:
           Allowance for loan losses          $   967       $   497
           Net unrealized losses on
             securities                             -           125
           Other                                   11            21
                                              -------       -------
                                                  978           643
        Deferred tax liabilities:
           Depreciation                           (62)          (46)
           Accrual to cash                       (449)         (261)
           Net unrealized gains on securities     (47)            -
           Other                                   (4)            -
                                              -------       -------
                                                 (562)         (307)
           Valuation allowance for deferred
            tax assets                              -             -
                                              -------       -------
           Total                              $   416       $   336
                                              =======       =======


NOTE 11 - PER SHARE DATA

Basic and diluted earnings per share were computed by dividing net income by the
weighted  average  number of shares  outstanding,  which was  1,328,194 for both
periods.  The outstanding stock options were not dilutive in either period,  but
could become dilutive in the future.


NOTE 12 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS

The Bank is subject to regulatory capital  requirements  administered by federal
banking  agencies.  Capital  adequacy  guidelines and prompt  corrective  action
regulations involve quantitative and qualitative measures of assets, liabilities
and certain  off-balance-sheet  items  calculated  under  regulatory  accounting
practices.

The prompt corrective action regulations provide five classifications, including
well  capitalized,  adequately  capitalized,   undercapitalized,   significantly
undercapitalized and critically  undercapitalized,  although these terms are not
used to represent overall financial condition.  If only adequately  capitalized,
regulatory   approval   is   required   to   accept   brokered   deposits.    If
undercapitalized,  capital  distributions  are  limited,  as is asset growth and
expansion, and plans for capital restoration are required.




                                   (Continued)


<PAGE>

                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 12 - CAPITAL REQUIREMENTS (Continued)

At year end 2000 and 1999, the Bank was well-capitalized.  Actual capital levels
and minimum required levels were:
<TABLE>
<CAPTION>
                                                                Minimum Required
                                                                      To Be Well
                                            Minimum Required   Capitalized Under
                                              For Capital      Prompt Corrective
                                 Actual     Adequacy Purposes  ActionRegulations
                             Amount   Ratio   Amount Ratio       Amount  Ratio
                             ------   -----   ------ -----       ------  -----
<S>                         <C>       <C>      <C>         <C>  <C>         <C>
2000
----
Total capital
 (to risk weighted assets)  $15,016   11.35%   $10,580     8%   $13,225     10%
Tier 1 capital
 (to risk weighted assets)   13,350   10.09      5,290     4      7,935      6
Tier 1 capital
 (to average assets)         13,350    8.26      6,466     4      8,082      5

1999
----
Total capital
 (to risk weighted assets)  $12,589    14.1%   $ 7,118     8%   $ 8,898     10%
Tier 1 capital
 (to risk weighted assets)   11,474    12.9      3,559     4      5,339      6
Tier 1 capital
 (to average assets)         11,474    10.5      4,358     4      5,448      5
</TABLE>

The Bank has been notified that the federal and state regulatory agencies intend
to request  the Bank  execute a  regulatory  agreement  that will,  among  other
requirements,  require  the Bank to  maintain a ratio of Tier 1 capital to total
assets  of not  less  than  7.50%  and  refrain  from  paying  dividends  to the
Corporation that would cause that ratio requirement to be violated, and restrict
asset growth. The details of the proposed agreement have not yet been finalized.


NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES

The Bank  leases  certain  branch  facilities  and land under  operating  leases
expiring in 2007 and 2010.  The related  lease  expense was $96 and $60 for 2000
and 1999. Future minimum lease payments are as follows:

                2001                       $     105
                2002                              98
                2003                             100
                2004                             102
                2005                              77
                Thereafter                       192
                                           ---------
                  Total minimum lease
                    payments               $     675
                                           =========

                                   (Continued)

<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

In the  ordinary  course  of  business,  the Bank  has  loans,  commitments  and
contingent  liabilities,  such as guarantees  and  commitments to extend credit,
which are not reflected in the  consolidated  balance sheet. The Bank's exposure
to  credit  loss in the  event  of  nonperformance  by the  other  party  to the
financial instrument for commitments to make loans and standby letters of credit
is represented by the contractual amount of those instruments. The Bank uses the
same credit  policy to make such  commitments  as it uses for  on-balance  sheet
items.

Off-balance sheet financial  instruments whose contract amount represents credit
risk are summarized as follows:
                                                   2000        1999
                                                   ----        ----

    Unused lines of credit                       $18,968     $18,409
    Commitments to make loans                      7,491       6,525
    Letters of credit                              1,890         422

Since many  commitments to make loans expire without being used, the amount does
not necessarily  represent  future cash  commitments.  Collateral  obtained upon
exercise of the commitment is determined using management's credit evaluation of
the borrower, and may include accounts receivable, inventory, property, land and
other items.  These  commitments are generally  variable rate or carry a term of
one year or less.

The cash  balance  required  to be  maintained  on hand or on deposit
with  the  Federal  Reserve  was $616 at  December  31,  2000.  These
reserves do not earn interest.


NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying  value and  estimated  fair values of the  Corporation's  financial
instruments were as follows at December 31:
<TABLE>
<CAPTION>
                                     2 0 0 0                    1 9 9 9
                                     -------                    -------
                               Carrying     Fair          Carrying       Fair
                                Value      Value           Value         Value
                                -----      -----           -----         -----
<S>                            <C>         <C>            <C>          <C>
   Financial assets:
      Cash and cash
        equivalents            $   7,239   $  7,239       $  3,673     $  3,673
      Securities
       available-for-sale         22,199     22,199         13,677       13,677
      Loans, net                 129,882    129,622         89,680       89,420
      Accrued interest
       receivable                  1,496      1,496            922          922

   Financial liabilities:
      Deposits                 $(139,220) $(139,311)      $(88,519)    $(88,604)
      Short-term borrowings       (9,273)    (9,273)        (3,519)      (3,519)
      Other borrowings            (3,000)    (3,000)        (6,000)      (6,000)
      Accrued interest payable      (335)      (335)          (345)        (345)
</TABLE>


                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 14 -  DISCLOSURES  ABOUT  FAIR  VALUE OF  FINANCIAL  INSTRUMENTS(Continued)

Fair value  approximates  carrying  amount for all items except those  described
below.  Fair  value for  securities  is based on quoted  market  values  for the
individual  securities  or for  equivalent  securities.  Fair value for loans is
based on the rates  charged at year end for new loans with  similar  maturities,
applied  until the loan is assumed  to reprice or be paid.  Fair value for IRAs,
time  certificates of deposit,  and FHLB advances are based on the rates paid at
year end for new deposits or borrowings,  applied until maturity. Fair value for
other  financial   instruments  and   off-balance-sheet   loan  commitments  are
considered nominal.


NOTE 15 - PARENT COMPANY STATEMENTS

Presented  below are condensed  balance sheets and statements of income and cash
flows for the parent company.
<TABLE>
<CAPTION>
                      CONDENSED BALANCE SHEETS

                                                    2000       1999
                                                    ----       ----
<S>                                                <C>        <C>
ASSETS
Cash                                               $   173    $   351
Investment in bank                                  13,421     11,281
Other assets                                            64         32
                                                   -------    -------
                                                   $13,658    $11,664
                                                   =======    =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities                                        $ 1,000    $    21
Shareholders' equity                                12,658     11,643
                                                   -------    -------
                                                   $13,658    $11,664
                                                   =======    =======
</TABLE>

                                   (Continued)

<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 15 - PARENT COMPANY STATEMENTS (Continued)
<TABLE>
<CAPTION>
                   CONDENSED STATEMENTS OF INCOME

                                                     2000     1999
                                                     ----     ----
<S>                                                <C>      <C>
Operating income
   Dividends received from subsidiary bank         $     -  $     -
   Interest income                                      14       94
                                                   -------  -------
                                                        14       94
Operating expenses
   Professional fees                                    12       10
   Interest expense                                     22        -
   Other                                                16       15
                                                   -------  -------
                                                        50       25
Income before income taxes and equity in
   undistributed earnings of subsidiary                (36)      69
Income tax expense/(benefit)                           (11)      99
                                                   -------  -------

Income before equity in undistributed earnings
   of bank                                             (25)     (30)
Equity in undistributed earnings of bank               776    1,003
                                                   -------  -------
Net income                                         $   751  $   973
                                                   =======  =======
</TABLE>

                                   (Continued)
<PAGE>



                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2000 and 1999
         (Dollar amounts in thousands, except share and per share data)

--------------------------------------------------------------------------------

NOTE 15 - PARENT COMPANY STATEMENTS (Continued)
<TABLE>
<CAPTION>
                 CONDENSED STATEMENTS OF CASH FLOWS

                                                    2000      1999
                                                    ----      ----
<S>                                                 <C>      <C>
Cash flows from operating activities
   Net income                                       $  751   $  973
   Adjustments to reconcile net income to net cash
     from operating activities
      Equity in undistributed earnings of bank        (776)  (1,003)
      Other assets and other liabilities, net          (53)      39
        Net cash from operating activities             (78)       9

Cash flows from investing activities
   Purchase of stock in bank                        (1,100)       -
   Maturities of securities available-for-sale           -      320
      Net cash from investing activities            (1,100)     320

Cash flows from financing activities
   Draws on line of credit                           1,000        -
                                                    ------   ------

Net change in cash and cash equivalents               (178)     329

Beginning cash and cash equivalents                    351       22
                                                    ------   ------

Cash and cash equivalents at end of period          $  173   $  351
                                                    ======   ======
</TABLE>

Supplemental disclosures of cash flow information Non-cash transactions:  During
the year ended December 31, 1999,  securities with carrying value of $2,500 were
transferred to the Bank as additional investment.



<PAGE>


DIRECTORS AND OFFICERS

Heartland  Community Bank is a full service commercial bank with a wide array of
easy to understand  checking,  savings,  certificate  and IRA deposit  accounts,
along with commercial,  residential, consumer and home equity loan products. The
following is a list of directors and officers of the Bank:


Directors:

Gordon R. Dunn,         J. Michael Jarvis,        James C. Stewart,
Chairman of the Board   Director                  Director

Patrick A. Sherman,     John Norton,              Steve Bechman,
Vice Chairman           Director                  Director

Sharon Acton,           Robert Richardson,        Jeffrey L. Goben,
Director                Director                  Director


Officers:

Steve Bechman,                       Mary Carter,
President and Chief Executive        Assistant Vice President
Officer

Jeffrey L. Goben,                    Alexa McKnight,
Executive Vice President             Assistant Vice President, Branch Operations
and Chief Operating Officer

John M. Morin,                       Dave Mote,
Senior Vice President,               Assistant  Vice  President,
Consumer Loans                       Mortgage Loans

K. Keith Fox,                        Judy Peel,
Senior Vice President,               Assistant  Vice  President,
Commercial Loans                     Loan Officer

Tony Anderson,                       Kathee Pruitt,
Vice President, Mortgage Loans       Assistant  Vice  President,
Branch Manager

Pam Fender,                          Terri Webb,
Vice President, Deposit Operations   Assistant  Vice  President, Loan Operations

Jeff Joyce,                          Pat Purtell,
Vice President and Controller        Loan Officer

Robert Maher,                        Robert Henderson,
Vice President, CD Brokerage Program Commercial Loan Officer

R. Trent McWilliams,                 Chad Riddle,
Vice President, Business Development Commercial Loan Officer




<PAGE>


Banking Facilities

Franklin:                                   Greenwood:
420 North Morton Street (U.S. 31)           489 South State Road 135
Franklin, Indiana  46131                    Greenwood, Indiana  46142
Phone (317) 738-3915                        Phone (317) 881-3915
FAX (317) 736-5022                          FAX (317) 859-3849

Bargersville:                               Greenwood:
507 Three Notch Lane                        800 S. US 31
Bargersville, Indiana 46106                 Greenwood, IN  46143
Phone (317) 422-1370                        Phone (317) 885-7371
FAX (317) 422-1495                          Fax (317) 885-7305



Investor Relations/Analyst Contact

Jeff D. Joyce, Chief Financial Officer
(317) 738-2854
(317) 736-5022 facsimile
Jeff.Joyce@hcb-in.com



















ANNUAL REPORT ON FORM 10-KSB

UPON WRITTEN REQUEST HEARTLAND WILL PROVIDE TO EACH SHAREHOLDER, WITHOUT CHARGE,
A COPY OF  HEARTLAND'S  ANNUAL REPORT ON FORM 10-KSB FOR 2000, AS FILED WITH THE
SECURITIES AND EXCHANGE  COMMISSION.  REQUESTS SHOULD BE DIRECTED TO JEFF JOYCE,
CFO, HEARTLAND BANCSHARES, INC. PO BOX 469 FRANKLIN, INDIANA 46131.