March 25, 2000



Dear Shareholders and Friends:

December 31, 1999 marked the  completion  of the second full year of  operations
for  Heartland  Bancshares,  Inc. and a year in which we continue to outpace our
original projections. We ended the year with assets of $110 million, an increase
of 70% from the previous year-end.  More importantly,  we recorded net income of
$973,000 or $.77 per share with an efficiency ratio of 56.5%.

While the growth has far exceeded our expectations, we have been able to control
the overhead,  which is evidenced by an efficiency ratio equal to or better than
many seasoned banks. The earnings covered our original  start-up losses and have
placed us in a positive retained earnings position.

The economy of Johnson  County,  which is the market we serve,  continues  to be
strong,  recording a record  number of building  permits in 1999 and boasting an
unemployment percentage under 2%. The cities of Franklin and Greenwood, where we
have offices, were listed as the 5th and 7th fastest growing cities in the state
respectively according to the U.S. Census Bureau's population estimate for 1998.

According to FDIC June 30, 1999 statistics, Heartland Community Bank had climbed
to fourth  place in terms of market  share of  deposits  in Johnson  County.  We
consider this quite an  accomplishment  after 18 months of operation in a market
with 15 other banks.

While many banks in 1999 expended  many  resources on preparing for Y2K, we were
fortunate to have  purchased Y2K ready hardware and software from the beginning.
Nevertheless, we were prepared, as were all financial institutions, to deal with
any  unforeseen  circumstances.  Fortunately,  there  were no  problems,  and we
incurred  very little  expense  through the  preparation  for and passing of the
event.

Our original plan has been to grow our two locations and establish a solid level
of profitability,  then pursue other locations and services.  In August of 1999,
we reached $100  million in assets and by November of 1999,  we recouped all our
start-up losses, causing us to begin recording income tax expense.

In October 1999, we introduced  Heartline 24, a 24-hour voice response system in
reaction to a customer  survey taken earlier in the year.  In November  1999, we
introduced Heartland  Investment  Services, a full-service  brokerage department
staffed by two very experienced  individuals  from a competitive  institution in
our market. In just two months of operations,  they have generated more business
than projected and will continue to contribute to fee income.

On January 3, 2000, we opened a Certificate  of Deposit  Brokerage  Program.  We
were  fortunate to attract two  experienced  individuals  for this area who will
also contribute a positive amount to  non-interest  income.  We have not changed
our service charge  structure since we opened the bank. By controlling  overhead
and providing  services such as these,  we will be able to maintain a reasonable
fee  structure  for our  customers  and  generate  an  adequate  profit  for our
shareholders.

<PAGE>

Also in January 2000,  we opened our third  location in  Bargersville  about six
miles west of our Franklin office and seven miles south of our Greenwood office.
We  opened  in a  temporary  facility  with the  anticipation  of the  permanent
building being  completed in June.  The permanent  facility will be owned by the
Bank while the land on which it is built  will be leased.  We feel there is good
opportunity  for core  deposit  growth in this  location,  which is staffed with
experienced staff who came to us from a local competitor.

We continue to believe our success is due to our tremendous  group of employees.
Our staff has grown to 48 at year-end. The customers have embraced the excellent
service and  expertise  our team of  employees  have  brought to the table.  Our
involvement  in various  community  agencies and  activities  continue to set us
apart from the other banks in the market.

While our performance has been excellent, our disappointment,  as well I am sure
is yours,  is in the  performance  of the stock  price.  The last trade price at
December  31,  1999 was $8.00 as compared to $8.50 at  December  31,  1998.  The
current  year-end price  represents  86.9% of the $9.20 book value or 10.4 times
1999 earnings.

A comparison  to Indiana's  Listed Bank Group,  which is comprised of 12 Indiana
based bank holding  companies that are publicly  traded and reported by David A.
Noyes & Co.,  shows they,  on  average,  are priced at 207% of book value and 14
times earnings as of December 31, 1999. This same group of banks suffered a loss
in per share price of 16.2% for the year of 1999 as compared to 5.9% loss in per
share price for Heartland over the same period of time.

We feel that controlled growth and solid earnings will build shareholder  value.
This is the plan we intend to follow  into the future as we  continue to provide
our community with banking the way they expect it.

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 offices located in Franklin and Greenwood, 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, 1999 and
those at the  previous  period end.  Future  growth rates may not be as rapid as
those realized during the start-up period due to the characteristics inherent in
the early growth of a new bank.

At December 31, 1999,  Heartland had approximately  $110,139 in total assets, an
increase of $45,479 or 70.3% from  December  31,  1998 total of  $64,660.  Those
assets were primarily comprised of loans of $91,045 and investment securities of
$13,677 at December 31, 1999 compared to December 31, 1998 totals of $49,442 and
$10,457  respectively.  Total  deposits at December 31, 1999 were  approximately
$88,519 compared to $52,754 at December 31, 1998. Total shareholders' equity was
approximately  $11,643 and $10,916 at December  31, 1999 and  December 31, 1998.
The  increase in equity was due to the  comprehensive  income for the year ended
December 31, 1999.

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'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.


Note. Dollar amounts in thousands except per share data.

<PAGE>




YEAR 2000

The  Federal  Financial  Institutions  Examination  Council  (FFIEC)  has issued
several statements regarding preparing for the Year 2000 date change and related
issues.  Those  statements  have  identified  specific  actions  and plans to be
adopted  by  financial  institutions,  in an  effort  for  them to  avoid  being
materially  adversely affected by Year 2000 failure of data processing  systems.
As of December 31, 1999,  Heartland has implemented the procedures and plans set
out by FFIEC. Heartland has completed the evaluation and testing of computer and
software  systems in cooperation  with its primary  independent  data processing
service  provider and the amount of costs that were  incurred to prepare for the
date change was not significant.  Heartland has also implemented  evaluation and
testing  strategies  for all  areas  of the  company  and has  made  efforts  to
communicate with customers and vendors regarding Heartland's efforts toward Year
2000 compliance.

Although  Heartland  has no  reason  to  expect  that  the  impact  to its  data
processing  and  other  costs  and  expenses  will be  significant  or that  its
financial condition and results of operations will be adversely affected by Year
2000 problems, this is a forward-looking statement, and actual expenses may vary
materially from current expectations due to the possibility,  among other risks,
that the Company's data processing service provider will be unable to perform in
accordance  with  the Year  2000  plan and the  possibility  that the  Company's
customers may not be Year 2000 compliant.


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 relate  primarily to this difference  unless otherwise stated in
the  following  discussion.  Heartland  recorded net income of $973 for the year
ended  December  31, 1999 or $.77 per share and net loss of $(628) or $(.50) per
share for the year ended  December 31, 1998.  The  improvement  in net income is
attributable  to the  growth of net  interest  income  outpacing  the  growth of
non-interest expenses.

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 $727 for
the year ended December 31, 1999 compared to a loss of $(588) for the year ended
December 31, 1998.

Interest  income of $7,573 was earned  during the year ended  December  31, 1999
compared  to $3,140  for the year  ended  December  31,  1998 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.  Interest
expense of $3,612 was  incurred  during the year  ended  December  31,  1999 and
$1,307 during the year ended  December 31, 1998.  Interest  expense is primarily
related to deposits  during 1999 and 1998.  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, 1999 was $3,961compared  to
$1,833  for the year ended  December  31, 1998.


Note. Dollar amounts in thousands except per share data.

<PAGE>


The  following  tables  depict for the years ended  December  31, 1999 and 1998,
certain  information  related  to  Heartland's  average  balance  sheets and its
average  yields on assets and  average  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.

                                    Year Ended                 Year Ended
                                 December 31,1999           December 31, 1998
                                 ----------------           -----------------
                               Average/      Yield/       Average/      Yield/
                                Balance       Rate         Balance       Rate
                                -------       ----         -------       ----
Interest earning assets
   Federal funds sold          $  1,818        5.28%      $  2,581         3.83%
   Taxable securities            12,057        6.00          8,647         6.05
   Non-taxable securities           605        3.64            152         3.71
   Loans                         72,340        9.31         25,047        10.03
                                 ------                   --------
Total interest earning assets   $86,820        8.72       $ 36,427         8.62
                                =======                   ========

Interest bearing liabilities
   Interest-bearing demand,
     Money Market and Savings
      Deposits                 $ 21,285        3.96%      $  6,718         4.01%
   Time deposits                 47,088        5.45         18,048         5.70
   Short-term borrowings          1,151        4.26            150         5.82
   Other borrowings               2,745        5.68              -         -
                                 ------                  ---------
Total interest bearing
  liabilities                  $ 72,269        5.00      $  24,916         5.25
                               ========                  =========


                                                     1999         1998
                                                     ----         ----
Average yield on interest-earning assets             8.72%        8.62%
Average rate paid on interest-bearing liabilities    5.00         5.25
Net interest spread                                  3.72         3.37
Net interest margin (net interest earnings divided
 by average total interest-earning assets)           4.56         5.03
Return on average assets                             1.09        (1.63)
Return on average equity                             8.54        (5.65)

The average  yield on  interest-earning  assets  increased to 8.72% in 1999 from
8.62% in 1998 primarily  because the percentage of loans to total earning assets
increased  during 1999 and loans are  currently  the highest  yielding  interest
earning  assets owned by  Heartland.  The average rate paid on interest  bearing
liabilities  declined to 5.00% in 1999 from 5.25% in 1998 primarily  because the
average rate paid on deposits  decreased during 1999. The net interest spread is
calculated by subtracting the average rate paid on interest bearing  liabilities
from the average yield on interest earning assets.

The net interest  margin  decreased to 4.56% in 1999 from 5.03% in 1998. The net
interest  margin is calculated by dividing net interest  income by average total
interest earning assets.  The decrease is primarily due to the increase in total
average interest  bearing  liabilities as a percentage of total interest earning
assets. During 1999 a lower percentage of interest earning assets were funded by
owner's equity as compared to 1998.



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

The provision for loan losses was $656 for the year ended  December 31, 1999 and
$700 for the year ended December 31, 1998. Total charge-offs were $34 during the
year ended December 31, 1999 and $4 during the year ended December 31, 1998.

Non-interest  income was $202 for the year ended  December  31, 1999 and $56 for
the year ended December 31, 1998 and consisted 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  will consist  primarily of commissions  from the sale of non-deposit
investment  products such as stocks and mutual funds.  Commission  income during
the year ended December 31, 1999 was not significant.  No commission  income was
recorded in the year ended December 31, 1998.

During the year  ended  December  31,  1999,  Heartland  sold one  security  and
recorded a loss of $2. No securities were sold during 1998, therefore no gain or
loss on sale was recorded.

Salaries  and benefits  expense for the year ended  December 31, 1999 was $1,373
compared to $1,016 for the year ended December 31, 1998. The number of full time
equivalent  employees was  increased to maintain  customer  service  through the
rapid growth of loans and deposits.

Occupancy and equipment  expenses of $205 and $167 were incurred during the year
ended  December 31, 1999 and the year ended  December 31, 1998.  Those  expenses
consist  primarily of lease payments for the branch  facility,  depreciation and
utilities expenses.  The permanent Greenwood branch facility was occupied in the
second  quarter of 1998;  therefore  a full 12 months of lease  expense  was not
incurred in the year ended December 31, 1998.  Occupancy and equipment  expenses
are  expected  to increase  during  2000 due to the opening of the  Bargersville
branch.

Data processing expenses were $304 for the year ended December 31, 1999 and were
$183 for the year ended  December  31,  1998.  The  increase in data  processing
expenses is  correlated  with the  increase in loans and  deposits.  Many of the
expenses are volume based charges.

During the year ended  December 31,  1998,  Heartland  adopted a new  accounting
standard that requires that costs  associated with the organization and start-up
of a business be expensed as incurred.  Consequently, all previously unamortized
costs associated with the organization of Heartland were expensed during 1998 in
the amount of $75. No amortization of organization cost was recorded in 1999.

The remaining expenses of $470 for the year ended December 31, 1999 and $376 for
the year  ended  December  31,  1998,  relate to  various  other  items  such as
printing,  supplies,  advertising,  loan expenses,  professional fees,  postage,
insurance and training.  The increase is primarily due to the increase in volume
of loans and deposits.


Note. Dollar amounts in thousands except per share data.

<PAGE>


INTERIM  FINANCIAL  DATA.  The  following  table  sets forth  certain  unaudited
operating  results  for each period  indicated  and is  presented  to assist the
reader in understanding the recent trends experienced by Heartland.


                                          For the three months ended
                                  December 31 September 30  June 30  March 31
                                  ----------- ------------  -------  --------
1999

   Total interest income         $   2,304   $   2,076   $    1,741  $   1,452
   Total interest expense            1,128         997          816        671
                                 ---------   ---------   ----------  ---------
   Net interest income               1,176       1,079          925        781
   Provision for loan loss             143         115          222        176
   Noninterest income                   64          60           51         27
   Noninterest expense                 631         669          547        505
   Provision for income taxes          182           -            -          -
                                 ---------   ---------   ----------  ---------
   Net income                    $     284   $     355   $      207  $     127
                                 =========   =========   ==========  =========
   Net income per share          $     .23   $     .28   $      .16  $     .10
   Average shares                1,265,000   1,265,000    1,265,000  1,265,000

                                          For the three months ended
                                  December 31 September 30  June 30  March 31
                                  ----------- ------------  -------  --------
1998

   Total interest income         $   1,208   $     908   $      672  $     352
   Total interest expense              557         400          267         83
                                 ---------   ---------   ----------  ---------
   Net interest income                 651         508          405        269
   Provision for loan loss             170         207          180        143
   Noninterest income                   25          18            9          4
   Noninterest expense                 498         474          431        414
   Provision for income taxes            -           -            -          -
                                 ---------   ---------   ----------  ---------
   Net income/(loss)             $       8   $    (155)  $     (197) $    (284)
                                 =========   =========   ==========  =========
   Net income/(loss) per share   $     .01   $    (.12)  $     (.16) $    (.23)
   Average shares                1,265,000   1,265,000    1,265,000  1,265,000


LENDING ACTIVITIES

A loan  officer's  approval is required for loans up to specified  amounts,  and
either the officer loan  committee or the Board loan  committee must approve all
other  loans.  The officer  loan  committee  is comprised of at least three loan
officers and the Board loan committee consists of at least two loan officers and
at least two outside  directors.  The Bank has  established  policies  regarding
financial  statement  requirements,  credit  verification  procedures  and other
matters intended to minimize  underwriting  risk. Fire and casualty insurance is
required on all mortgage loans as well as abstracts of title or title insurance.


Note. Dollar amounts in thousands except per share data.

<PAGE>


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

                                     1999                  1998
                                       Percent of            Percent of
                              Amount    Net loans     Amount  Net loans
                              ------    ---------     ------  ---------
TYPE OF LOAN
Commercial loans and leases   $59,887      66.78%    $33,884      69.58%
Residential mortgages
  (1-4 family homes)           15,069      16.80       6,241      12.81
Consumer                       16,089      17.94       9,317      19.13
                              -------   --------     -------   --------
Gross loans                    91,045     101.52      49,442     101.52
Allowance for loan losses      (1,365)     (1.52)       (742)     (1.52)
                              -------   --------     -------   --------
Loans, net                    $89,680     100.00%    $48,700     100.00%
                              =======   ========     =======   ========

COMMERCIAL  LENDING.  Commercial  loans include loans secured by commercial real
estate;  construction  loans;  and loans  for  business  purchases,  operations,
inventory and lines of credit.  At December 31, 1999,  commercial  loans totaled
$59,887 or 66.8% of the Bank's total loan  portfolio.  Commercial  loans totaled
$33,884, or 69.6% of the Bank's loan portfolio at December 31, 1998.

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, 1999, the Bank's residential  mortgage loans totaled  approximately
$15,069 or 16.8% of the Bank's total loan portfolio  compared to $6,241 or 12.8%
of the Bank's total loans at December 31, 1998.

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.

The Bank offers  residential  construction  mortgage  loans with  maturities  of
twelve months or less at interest rates that vary with current market rates. The
application  process  includes  the same  items  that  are  required  for  other
residential   mortgage  loans  and  include  a  submission  of  accurate  plans,
specifications and costs of the home to be constructed.  These items are used as
a basis to determine  the  appraised  value of the subject  property.  Appraisal
reports are completed by designated fee  appraisers,  and loans are based on the
current appraised value.  Loans of up to 80% of such amount may be offered for a
maximum period of twelve months for the construction of the properties  securing
the loans. Extensions are permitted, when circumstances warrant, if construction
has continued satisfactorily and the loan is current.

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,
1999, the Bank's  consumer loans totaled  approximately  $16,089 or 17.9% of the
Bank's  total loan  portfolio  compared  to $9,317 or 19.1% of the Bank's  total
loans at December 31, 1998.



Note. Dollar amounts in thousands except per share data.

<PAGE>


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 $137 and $3 at
December 31, 1999 and 1998 and are  comprised of  nonperforming  loans and other
repossessed assets.

Due to risks inherent in lending,  management estimates that a certain amount of
loan  balances  outstanding  at  December  31,  1999  and  1998 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 $1,174 and $580 at December 31, 1999 and 1998.

At December 31, 1999, the balance of the allowance for loan losses was $1,365 or
1.5% of  gross  loans  outstanding,  compared  to $742  or 1.5% of  gross  loans
outstanding at December 31, 1998. The provision  charged to earnings in the year
ended  December 31, 1999 was $656  compared to $700 for the year ended  December
31, 1998. Charge-offs were $34 in the year ended December 31, 1999 and $4 in the
year ended December 31, 1998.


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  $9,168 or 10.4% of total  deposits at December  31, 1999 and
$13,900 or 26.3% at December 31, 1998.


Note. Dollar amounts in thousands except per share data.

<PAGE>


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.


Liquidity and Interest Rate Sensitivity

Liquidity is a measure of Heartland'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 Heartland's net interest income. Heartland
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.  Heartland 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,  1999,
Heartland  had  $13,677  or 12.4%  of  total  assets  in  investment  securities
available-for-sale.  Heartland  also  had  $75  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.

Heartland  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.
Heartland employs a variety of measurement techniques to identify and manage its
exposure to  changing  interest  rates.  A  simulation  model is used to measure
Heartland'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

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 most restrictive capital adequacy requirement currently in place is from the
agreement with the Federal Deposit Insurance Corporation in conjunction with the
approval for deposit  insurance,  which requires 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, 1999 was 10.2% compared
to 13.0% at December 31, 1998.


Note. Dollar amounts in thousands except per share data.

<PAGE>

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 branches in Franklin and 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  1,265,000  shares of Common  Stock  issued  and  outstanding  to
approximately  1,800  shareholders  (including  beneficial owners who held their
shares in street name) on March 10, 2000. The number of  shareholders  of record
was 153 on March 10, 2000.

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 quarter  indicated
as reported on the NASD Over-the-Counter Bulletin Board.

                            High               Low
                            ----               ---
First Quarter 1998         $11.50            $ 8.50
Second Quarter 1998         11.87             10.00
Third Quarter 1998          11.00              7.50
Fourth Quarter 1998          9.00              7.00
First Quarter 1999          11.50              7.25
Second Quarter 1999         10.00              7.75
Third Quarter 1999           9.25              7.62
Fourth Quarter 1999          9.75              7.00


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  dividends  since its  inception.  Funding for  possible
future  dividends by Heartland  would  primarily come from dividends paid by the
Bank.  The Bank is subject to  restrictions  on the payment of  dividends  under
Indiana  law  and  Indiana   Department   of  Financial   Institutions   ("DFI")
regulations,  and generally cannot pay dividends if to do so would result in its
capital being deemed  inadequate  by the DFI or FDIC as a matter of  supervisory
policy. See Item I, "Capital  Requirements".  No assurance can be given that any
dividends will be declared by Heartland in the future, or if declared,  what the
amount of the dividends would be or whether such dividends, once declared, would
continue.  Future  dividend policy will depend on the Bank's  earnings,  capital
requirements,  financial condition, and other factors considered relevant by the
Board of Directors of Heartland.



Note. Dollar amounts in thousands except per share data.

<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, 1999 and 1998.

o     Consolidated Statements of Income for the years ended December 31, 1999
      and 1998.

o     Consolidated  Statements of Changes in  Shareholders'  Equity for the
      years ended December 31, 1999 and 1998.

o     Consolidated  Statements of Cash Flows for the years ended  December 31,
      1999 and 1998.

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, 1999 and 1998 and the related  consolidated
statements  of income,  changes in  shareholders'  equity and cash flows for the
years then ended.  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,  1999 and 1998,  and the  results of its
operations  and its cash  flows  for the years  then  ended in  conformity  with
generally accepted accounting principles.





                                          Crowe, Chizek and Company LLP

Indianapolis, Indiana
February 24, 2000


<PAGE>




                           HEARTLAND BANCSHARES, INC.
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1999 and 1998
                          (Dollar amounts in thousands)

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


                                                             1999        1998
                                                             ----        ----
ASSETS
Cash and due from banks                                    $  3,598   $  1,963
Federal funds sold                                               75      1,200
                                                           --------   --------
      Total cash and cash equivalents                         3,673      3,163

Securities available-for-sale                                13,677     10,457
Loans                                                        91,045     49,442
Allowance for loan losses                                    (1,365)      (742)
                                                           --------   --------
      Loans, net                                             89,680     48,700
Premises and equipment, net                                   1,659      1,707
Accrued interest receivable and other assets                  1,450        633
                                                           --------   --------

                                                           $110,139   $ 64,660
                                                           ========   ========


LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
   Noninterest-bearing deposits                            $  8,707   $  4,341
   Interest-bearing demand and savings deposits              29,428     13,397
   Interest-bearing time deposits                            50,384     35,016
                                                           --------   --------
      Total deposits                                         88,519     52,754
   Short-term borrowings                                      3,519        740
   Other borrowings                                           6,000          -
   Accrued interest payable and other liabilities               458        250
                                                           --------   --------
                                                             98,496     53,744

Shareholders' equity
   Common stock, no par value:  10,000,000 shares
     authorized; 1,265,000 shares issued and outstanding      1,265      1,265
   Additional paid-in capital                                10,466     10,466
   Retained earnings/(deficit)                                  105       (868)
   Accumulated other comprehensive income/(loss)               (193)        53
                                                           --------   --------
                                                             11,643     10,916

                                                           $110,139   $ 64,660
                                                           ========   ========

                             See accompanying notes.
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                     Years ended December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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


                                                             1999        1998
                                                             ----        ----
Interest income
   Loans, including related fees                           $  6,732    $ 2,512
   Securities:
      Taxable                                                   723        523
      Non-taxable                                                22          6
   Federal funds sold                                            96         99
                                                           --------    -------
                                                              7,573      3,140
Interest expense
   Deposits                                                   3,407      1,298
   Short-term borrowings                                         49          9
   Other borrowings                                             156          -
                                                           --------    -------
                                                              3,612      1,307
Net interest income                                           3,961      1,833
Provision for loan losses                                       656        700
                                                           --------    -------
Net interest income after provision for loan losses           3,305      1,133

Noninterest income
   Service charges and fees on deposit accounts                 152         44
   Loss on sale of security                                      (2)         -
   Other                                                         52         12
                                                           --------    -------
                                                                202         56
Noninterest expense
   Salaries and employee benefits                             1,373      1,016
   Occupancy and equipment, net                                 205        167
   Data processing                                              304        183
   Printing and supplies                                         77         69
   Advertising                                                   84         79
   Loan expenses                                                 48         45
   Professional fees                                             73         54
   Amortization of organization cost                              -         75
   Other                                                        188        129
                                                           --------    -------
                                                              2,352      1,817
Income/(loss) before income taxes                             1,155       (628)

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

Net income/(loss)                                          $    973    $  (628)
                                                           ========    =======

Basic and diluted earnings per share                       $    .77    $  (.50)
                                                           ========    =======


                             See accompanying notes.
<PAGE>


                           HEARTLAND BANCSHARES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                     Years ended December 31, 1999 and 1998
                          (Dollar amounts in thousands)

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


                                                         Accumulated
                                  Additional  Retained      Other          Total
                          Common    Paid-in   Earnings/  Comprehensive  Shareholders'
                           Stock    Capital   (Deficit)  Income/(loss)     Equity
                           -----    -------   ---------  ------------      ------

<S>                        <C>     <C>        <C>          <C>           <C>
Balance January 1, 1998    $1,265  $10,466    $   (240)    $     13      $11,504

Comprehensive income
   Net loss for 1998                              (628)                    (628)
   Change in unrealized
    gain/(loss)                                                  40           40
                                                                         -------
Total comprehensive income                                                 (588)
                           ------  -------    --------     --------      -------

Balance December 31, 1999   1,265   10,466        (868)          53       10,916

Comprehensive income
   Net income for 1999                             973                       973
   Change in unrealized
    gain/(loss)                                                (246)       (246)
                                                                         -------
Total comprehensive income                                                   727
                           ------  -------    --------     --------      -------

Balance December 31, 1999  $1,265  $10,466    $    105     $   (193)     $11,643
                           ======  =======    ========     ========      =======
</TABLE>


                             See accompanying notes.
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years ended December 31, 1999 and 1998
                          (Dollar amounts in thousands)

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


                                                             1999        1998
                                                             ----        ----
Cash flows from operating activities
   Net income/(loss)                                       $    973   $   (628)
   Adjustments to reconcile net income/(loss) to net
     cash from operating activities
      Depreciation and amortization                             135        190
      Provision for loan losses                                 656        700
      Loss on sale of security                                    2          -
      Change in assets and liabilities:
         Accrued interest receivable and other assets          (693)      (460)
         Accrued interest payable and other liabilities         208        114
            Net cash from operating activities                1,281        (84)

Cash flows from investing activities
   Purchase of securities available-for-sale                 (5,892)    (8,033)
   Proceeds from sales, calls and maturities of securities
     available-for-sale                                       2,296      5,624
   Loans made to customers, net of payments collected       (41,636)   (45,488)
   Net purchases of property and equipment                      (83)      (611)
                                                           --------   --------
      Net cash from investing activities                    (45,311)   (48,508)

Cash flows from financing activities
   Net change in deposit accounts                            35,765     50,675
   Net change in short-term borrowings                        2,779        (60)
   Draws on FHLB advances                                     6,000          -
                                                           --------   --------
      Net cash from financing activities                     44,544     50,615
                                                           --------   --------

Net change in cash and cash equivalents                         510      2,023

Cash and cash equivalents at beginning of period              3,163      1,140
                                                           --------   --------

Cash and cash equivalents at end of period                 $  3,673   $  3,163
                                                           ========   ========

Supplemental  disclosures of cash flow  information  Cash paid during the period
   for:
      Interest                                             $  3,510   $  1,079
      Income taxes                                              484          -


                             See accompanying notes.
<PAGE>



                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except 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  operates primarily in the banking industry,  which accounts for
more than 90% of its revenues,  operating income and assets. The Bank is engaged
in the business of commercial  and retail  banking,  with  operations  conducted
through its main office  located in Franklin,  Indiana and an additional  branch
location in  Greenwood,  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.

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.

                                   (Continued)

<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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. Maintenance and repairs are expensed and
major improvements are capitalized.

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.

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 and  deposit  transactions,  and  short-term
borrowings.


                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

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.

New  Accounting  Pronouncements:  Beginning  January 1, 2001,  a new  accounting
standard  will  require 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. This is not expected to
have a material  effect but the effect will depend on  derivative  holdings when
this standard applies.

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.


                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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

NOTE 2 - SECURITIES

Year-end securities are as follows:

                                                 Gross     Gross
                                    Amortized UnrealizedUnrealized    Fair
                                      Cost       Gains    Losses      Value
                                      ----       -----    ------      -----
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
                                    ========   =======   ========   =======

1998
   U.S. Government and its agencies $  9,577   $    71   $    (16)  $ 9,632
   Obligations of states and
     political subdivisions              614         1         (3)      612
   Mortgage backed securities            213         -          -       213
                                    --------   -------   --------   -------
                                    $ 10,404   $    72   $    (19)  $10,457
                                    ========   =======   ========   =======

During 1999,  one security  classified  as  available-for-sale  was sold.  Gross
proceeds  were $499 and the  recognized  loss on the sale was $2.  There were no
sales of securities during 1998.

The  amortized  cost and fair value of  securities  at  December  31,  1999,  by
contractual maturity, are shown below.
                                                         Amortized    Fair
                                                           Cost       Value
                                                           ----       -----
   Due in one year or less                               $  5,640   $ 5,488
   Due after one year through five years                    5,013     4,897
   Due after five years through ten years                     237       236
   Due after ten years                                          -         -
   Mortgage backed securities                               2,705     2,656
   FHLB stock                                                 400       400
                                                         --------   -------
                                                         $ 13,995   $13,677
                                                         ========   =======

Securities  with a carrying  value of $3,168 and $2,250 at December 31, 1999 and
1998, were pledged to secure repurchase agreements.

                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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

NOTE 3 - LOANS

Loans at year end are comprised of the following:

                                                          1999        1998
                                                          ----        ----
   Commercial loans and leases                          $ 42,778   $ 26,475
   Real estate construction and land development          17,109      7,409
   Residential real estate                                15,069      6,241
   Consumer                                               16,089      9,317
                                                        --------   --------
                                                        $ 91,045   $ 49,442
                                                        ========   ========

There were no impaired loans  outstanding at December 31, 1999 or 1998, nor were
any loans so identified  during either year.  Non-accrual loans totaled $138 and
$0 at December 31, 1999 and 1998.

Certain  of  the  Company's  officers  and  directors  were  loan  customers  of
Heartland.  The balance of loans  outstanding to these  individuals  was $229 at
December 31, 1999.


NOTE 4 - ALLOWANCE FOR LOAN LOSSES

The activity in the allowance for loan losses is as follows:
                                                          1999        1998
                                                          ----        ----
   Beginning balance                                    $    742   $     46
   Provision charged to operations                           656        700
   Loans charged-off                                         (34)        (4)
   Recoveries on loans previously charged-off                  1          -
                                                        --------   --------
   Ending balance                                       $  1,365   $    742
                                                        ========   ========


NOTE 5 - PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:
                                                          1999        1998
                                                          ----        ----
   Land                                                 $    205   $    205
   Buildings and improvements                                931        931
   Leasehold improvements                                    207        201
   Furniture and equipment                                   562        485
                                                        --------   --------
      Total                                                1,905      1,822
   Accumulated depreciation                                  246        115
                                                        --------   --------
      Premises, furniture and equipment, net            $  1,659   $  1,707
                                                        ========   ========


                                   (Continued)

<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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

NOTE 6 - INTEREST-BEARING TIME DEPOSITS

Interest-bearing  time  deposits  issued  in  denominations  of $100 or  greater
totaled $22,673 and $19,374 at December 31, 1999 and 1998.

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

                  2000                                  $ 30,774
                  2001                                    17,405
                  2002                                     1,996
                  2003                                       134
                  2004                                        75
                                                        --------
                                                        $ 50,384

Time  deposits  from  governmental  and  other  public  entities  such as school
corporations  and hospitals in the Bank's market area totaled $9,168 at December
31, 1999 and $13,900 at December 31, 1998.


NOTE 7 - SHORT-TERM BORROWINGS

Short-term borrowings consist solely of repurchase agreements.


NOTE 8 - OTHER BORROWINGS

Other borrowings  consist solely of advances from the Federal Home Loan Bank and
were as follows at December 31, 1999:

     Maturity                   Interest
       Date                       Rate                         Balance
       ----                       ----                         -------
   February 28, 2000              5.95%                       $  1,000
   June 19, 2000                  5.63%                          4,000
   July 7, 2000        Adjustable 6.03%                          1,000

      Total                                                   $  6,000
                                                              ========

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



                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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

NOTE 9 - 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 and perform one
year of service 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.  The
401(k)  contribution  charged  to  expense  was $23 and $22 for 1999  and  1998,
respectively.


NOTE 10 - 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 options granted to employees 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.

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.

                                   (Continued)

<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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

NOTE 10 - STOCK OPTION PLAN (Continued)

A summary of the Corporation's  stock option activity,  and related  information
for the periods ended December 31, 1999 and 1998 follows:

                                         1999                    1998
                                         ----                    ----
                                         Weighted-                  Weighted-
                                          Average                    Average
                                         Exercise                   Exercise
                               Options     Price          Options     Price
                               -------     -----          -------     -----
   Outstanding - beginning
     of period                   83,000   $   10.00        83,000   $    10.00
   Granted                       51,000       10.00             -           -
   Exercised                          -           -             -           -
   Forfeited                          -           -             -           -
                              ---------                 ---------
   Outstanding-end of period    134,000   $   10.00        83,000   $    10.00
                              =========   =========     =========   ==========
   Exercisable at end of
    period                       67,000   $   10.00        36,000   $    10.00
                              =========   =========     =========   ==========
   Weighted-average fair
     value per option granted
     duringthe period         $    2.59                 $       -
                              =========                 =========

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 for 1999 and 1998.  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.

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:

                                                          1999        1998
                                                          ----        ----
   Pro forma net income/(loss)                          $   891    $  (677)
   Pro forma basic and diluted earnings per share       $   .70    $  (.54)

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

                                   (Continued)

<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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

NOTE 11 - INCOME TAXES

At December  31,  1998,  the  Corporation  had a net deferred tax asset of $275,
which was reduced to $0 by a valuation  allowance.  During 1999, the Corporation
generated  sufficient  profit to fully utilize all existing net  operating  loss
carryforwards and eliminate the need for a valuation allowance.

Income tax expense for 1999 was as follows:

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

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

                  Federal statutory rate times
                    financial statement income     $     392
                  Change in valuation allowance         (275)
                  Effect of:
                     Tax-exempt income                    (6)
                     State taxes, net of federal
                      benefit                             66
                     Other, net                            5
                                                   ---------
                       Total                       $     182
                                                   =========


Year-end deferred tax assets and liabilities were due to the following:
                                                          1999        1998
                                                          ----        ----
   Deferred tax assets:
      Allowance for loan losses                         $    497  $     275
      Net operating loss carryforward                          -        157
      Net unrealized losses on securities                    125          -
      Other                                                   21         20
                                                        --------   --------
                                                             643        452
   Deferred tax liabilities:
      Depreciation                                           (46)       (24)
      Accrual to cash                                       (261)      (153)
                                                        --------   --------
                                                            (307)      (177)
      Valuation allowance                                      -       (275)
                                                        --------   --------
         Total                                          $    336  $       -
                                                        ========  =========

                                   (Continued)

<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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

NOTE 12 - PER SHARE DATA

Basic and diluted  earnings/(loss)  per share in 1999 and 1998 were  computed by
dividing net income/(loss) for the year by the weighted average number of shares
outstanding,  1,265,000 for both periods. The outstanding stock options were not
dilutive in either period, but could become dilutive in the future.


NOTE 13 - CAPITAL REQUIREMENTS

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.

At year end 1999 and 1998, 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  Action Regulations
                                                  ------       -----------------  ------------------
                                              Amount   Ratio     Amount   Ratio     Amount   Ratio
                                              ------   -----     ------   -----     ------   -----
<S>                                          <C>       <C>      <C>         <C>    <C>         <C>
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

1998
Total capital (to risk weighted assets)      $ 8,606   17.0%    $4,056      8%     $ 5,070     10%
Tier 1 capital (to risk weighted assets)       7,971   15.7      2,028      4        3,042      6
Tier 1 capital (to average assets)             7,971   14.5      2,196      4        2,745      5

</TABLE>


                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES

The Bank  leases  certain  branch  facilities  and land under  operating  leases
expiring in 2007 and 2005.  The related  lease  expense was $60 and $43 for 1999
and 1998. Future minimum lease payments are as follows:

                  2000                              $     71
                  2001                                    77
                  2002                                    79
                  2003                                    81
                  2004                                    83
                  Thereafter                             219
                                                    --------
                     Total minimum lease payments   $    610

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:
                                                        1999          1998
                                                        ----          ----

    Unused lines of credit                           $  18,409    $  10,098
    Commitments to make loans                            6,525        7,774
    Letters of credit                                      422          298

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 $374 at  December  31,  1999.  These  reserves do not earn
interest.


                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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

NOTE 15 - 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:

                                           1999                    1998
                                           ----                    ----
                                    Carrying     Fair       Carrying     Fair
                                     Value      Value        Value      Value
                                     -----      -----        -----      -----
   Financial assets:
      Cash and cash equivalents    $  3,673    $ 3,673      $  3,163   $  3,163
      Securities
       available-for-sale            13,677     13,677        10,457     10,457
      Loans, net                     89,680     89,412        48,700     48,706
      Accrued interest receivable       922        922           564        564

   Financial liabilities:
      Deposits                     $(88,519)  $(88,434)     $(52,754)  $(53,012)
      Short-term borrowings          (3,519)    (3,519)         (740)      (740)
      Other borrowings               (6,000)    (6,000)            -         -
      Accrued interest payable         (330)      (330)         (228)      (228)

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.


                                   (Continued)
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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

NOTE 16 - PARENT COMPANY STATEMENTS

Presented  below are condensed  balance sheets and statements of income and cash
flows for the parent company.

                            CONDENSED BALANCE SHEETS

                                                             1999        1998
                                                             ----        ----
ASSETS
Cash                                                       $    351   $     22
Securities available-for-sale, at market                          -      2,851
Investment in bank                                           11,281      7,993
Other assets                                                     32         50
                                                           --------   --------
                                                           $ 11,664   $ 10,916
                                                           ========   ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities                                                $     21   $      -
Shareholders' equity                                         11,643     10,916
                                                           --------   --------
                                                           $ 11,664   $ 10,916
                                                           ========   ========


                         CONDENSED STATEMENTS OF INCOME

                                                             1999        1998
                                                             ----        ----
Operating income
   Dividends received from subsidiary bank                 $      -   $      -
   Interest income                                               94        161
                                                           --------   --------
Operating expenses
   Professional fees                                             10         16
   Amortization of deferred costs                                 -         12
   Other                                                         15          9
                                                           --------   --------

Income before income taxes and equity in
  undistributed earnings of subsidiary                           69        124
Income tax expense                                               99          -
                                                           --------   --------

Income before equity in undistributed earnings of bank          (30)       124
Equity in undistributed earnings of bank                      1,003       (752)

Net income/(loss)                                          $    973   $   (628)
                                                           ========   ========

                                   (Continued)

<PAGE>



                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998
              (Dollar amounts in thousands, except per share data)

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

NOTE 16 - PARENT COMPANY STATEMENTS (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS

                                                             1999        1998
                                                             ----        ----
Cash flows from operating activities
   Net income/(loss)                                       $    973   $   (628)
   Adjustments to reconcile net income/(loss) to net cash
     from operating activities
      Amortization of deferred costs                              -         12
      Equity in undistributed earnings of bank               (1,003)       752
      Other assets and liabilities, net                          39          -
                                                           --------   --------
         Net cash from operating activities                       9        136

Cash flows from investing activities
   Purchase of securities available-for-sale                      -       (119)
   Maturities of securities available-for-sale                  320          -
                                                           --------   --------
      Net cash from investing activities                        320       (119)

Net change in cash and cash equivalents                         329         17

Beginning cash and cash equivalents                              22          5
                                                           --------   --------

Cash and cash equivalents at end of period                 $    351  $      22
                                                           ========  =========

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:                         Officers:

Gordon R. Dunn,                    Steve Bechman,
Chairman of the Board              President and Chief Executive Officer

Patrick A. Sherman,                Jeffrey L. Goben,
Vice Chairman                      Executive Vice President and
                                   Chief Operating Officer

Sharon Acton,                      John M. Morin,
Director                           Vice President Consumer loans

J. Michael Jarvis,                 K. Keith Fox,
Director                           Vice President Commercial Loans

John Norton,                       R. Trent McWilliams,
Director                           Vice President Business Development

Robert Richardson,                 Jeff Joyce,
Director                           Vice President and Controller

James C. Stewart,                  Benjamin Whehling
Director                           Vice President, Heartland Investment Services

Steve Bechman,                     Robert Maher
Director                           Vice President, CD Brokerage Program

Jeffrey L. Goben,                  Alexa McKnight,
Director                           Assistant Vice President, Teller Operations

                                   Terri Webb,
                                   Assistant Vice President, Loan Operations

                                   Pam Fender,
                                   Assistant Vice President, Deposit Operations

                                   Mary Carter
                                   Assistant Vice President, Branch Manager

                                   Kathee Pruitt
                                   Assistant Vice President, Branch Manager



<PAGE>






Banking Facilities

Franklin:                   Greenwood:                   Bargersville:
420 North Morton Street     489 South State Road 135     507 Three Notch Lane
(U.S. 31)                   Greenwood, IN  46142         Bargersville, IN 46106
Franklin, IN  46131         Phone (317) 881-3915         Phone (317) 422-1370
Phone (317) 738-3915        FAX (317) 859-3849           FAX (317) 422-1495
FAX (317) 736-5022


Investor Relations/Analyst Contact

Jeff D. Joyce, Chief Financial Officer
(317) 738-2854
(317) 736-5022 facsimile
JeffJHRTB@AOL.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 1999, 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.