SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                   FORM 10-KSB
                   [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
                 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 1998

                                     OR

               [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
                 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the transition period from      to

Commission File Number: 333-32245

                           HEARTLAND BANCSHARES, INC.
             (Exact name of registrant as specified in its charter)

Indiana                                                          35-2017085
(State or Other Jurisdiction of Incorporation             (IRS Employer Id. No.)
 or Organization)

420 North Morton Street
Franklin, Indiana                                                 46131
(Address of principal executive offices)                        (Zip Code)

Registrant's telephone number, including area code:  (317) 738-3915

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Sections 13 or 15(d) of the  Securities  Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.  Yes    X   No
                                         -----      -----

Indicate by check mark if disclosure of delinquent  filers  pursuant to Rule 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in part III of this FORM 10-KSB or any
amendment to this FORM 10-KSB.  [X]
                               -----
Aggregate  market  value of common  stock  held by  non-affiliates  computed  by
reference  to the sale  price of such  stock as of March  23,  1999 of $9.25 per
share $11,701,250

Shares of common stock outstanding as of March 23, 1999:           1,265,000

DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of the Annual Report to Shareholders of Heartland  Bancshares,  Inc.
   for 1998, to the extent stated  herein,  are  incorporated  by reference from
   Exhibit 13.1 into Parts I and II.
2. Portions of the Proxy Statement of Heartland Bancshares,  Inc. for the Annual
   Meeting of its  Shareholders  to be held April 19, 1999, to the extent stated
   herein, are incorporated by reference from Exhibit 13.2 into Part III.



<PAGE>





                          FORM 10-KSB TABLE OF CONTENTS

PART I                                                              Page

Item  1.  Business                                                     4
Item  2.  Properties                                                   9
Item  3.  Legal Proceedings                                            9
Item  4.  Submission of Matters to a Vote of Security Holders          9

PART II

Item  5.  Market for Registrant's Common Equity and
          Related Stockholder Matters                                  9
Item  6.  Selected Financial Data                                     10
Item  7.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations for the Period
           May 27, 1997 (inception) through December 31, 1997         13
Item  8.  Financial Statements and Supplementary Data                 20
Item  9.  Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure                        20

PART III

Item 10.  Directors and Executive Officers of Heartland               21
Item 11.  Executive Compensation                                      21
Item 12.  Security Ownership of Certain Beneficial Owners
          and Management                                              21
Item 13.  Certain Relationships and Related Transactions              22

PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports
          on Form 8-K                                                 22
Signatures                                                            23

Note:  Dollar amounts are in thousands except per share data.


<PAGE>




                                     PART I

ITEM 1.  BUSINESS

GENERAL

Heartland   Bancshares,   Inc.   (Heartland)  is  a  one-bank   holding  company
incorporated  May 27, 1997.  Heartland  raised  approximately  $11,731 in equity
capital through the sale of 1,265,000 shares of Heartland's  common stock at $10
per share, net of underwriting  discounts and offering costs. Proceeds were used
to capitalize Heartland Community Bank (the Bank),  Heartland's primary asset, a
wholly-owned banking subsidiary, an Indiana-chartered  commercial bank. The Bank
received  regulatory  approval to open in the fall of 1997 and commenced banking
operation December 17, 1997.

At December 31, 1998,  Heartland had approximately  $64,660 of assets,  loans of
$48,700,   deposits  of  approximately   $52,754  and  stockholders'  equity  of
approximately  $10,916.  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.  As of December 31, 1998, The Bank had 28 full
time equivalent  employees.  Heartland has no full time employees.  Heartland is
subject to regulation by the Federal Reserve Board.

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.

The business of Heartland  consists  primarily of  attracting  deposits from the
general public,  originating  commercial,  residential  real estate and consumer
loans and purchasing certain investment securities.

Consumer loans include,  among others, new and used automobile and other secured
and  unsecured  personal  loans.  Heartland  originates  adjustable  rate  first
mortgage loans, second mortgage loans and home equity lines of credit secured by
single-family  homes.  Heartland  offers  commercial loans to area businesses in
addition to new home construction loans and business lines of credit.

Heartland also invests in various US Treasury,  federal agency, state, municipal
and other  investment  securities  permitted by applicable laws and regulations.
The  principal  sources  of funds for  Heartland's  lending  activities  include
deposits received from the general public,  amortization and repayment of loans,
and maturity of investment securities.

Heartland's  primary  sources of income are  interest on loans,  and  investment
securities.  Its principal  expenses are interest  paid on deposit  accounts and
borrowings,  salaries and employee  benefits,  premises and equipment  expenses,
data processing expenses and other overhead expenses incurred in operation.

 Note: Dollar amounts are in thousands except per share data.                  4

<PAGE>


SOURCES OF FUNDS

Deposits are the primary source of Heartland's  funds for use in lending and for
other general business purposes.  Proceeds from issuance of common stock in 1997
were also used as a source  of  funding  for loan  growth.  However,  additional
issuance of common stock is not in the short-term plans for Heartland.

DEPOSIT ACTIVITIES.  Heartland 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.  Heartland  also  obtains  deposits on a bid basis from
customers or potential customers wishing to deposit amounts of at least $100.

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 Heartland  daily
and  adjusted  as  often as  frequently  as  deemed  necessary  based on  market
conditions and other factors.

BORROWINGS.  Heartland  borrows federal funds from other  commercial  banks from
time to time to provide  for cash flow  requirements.  These  borrowings  mature
daily and are secured by certain investment securities in Heartland's portfolio.
The interest  rates on such  borrowings  may be changed  daily.  At December 31,
1998,  Heartland had $0 in federal funds  borrowed  compared to $800 at December
31, 1997.

As of December 31, 1998,  the Bank was awaiting  approval for  membership to the
Federal Home Loan Bank of Indianapolis (FHLBI),  which was received prior to the
date of this report.  Membership in the FHLBI will provide an additional  source
of borrowing with limits based on  availability  of specific  collateral such as
certain mortgages and investment securities.

Additional   information  regarding  Heartland  and  the  Bank  is  included  in
Heartland's  Annual Report to Shareholders for 1998,  selected portions of which
are filed as Exhibit

SERVICE AREA

Heartland's primary service area is Johnson County, Indiana.  Johnson County was
the second  fastest  growing county from 1990 through 1996 based on estimates of
the  Indiana  Business  Research  Center.  Johnson  County  was ranked the third
fastest  growing  County in Indiana by the United States Census Bureau for 1997.
Census data may be obtained from the Census Bureau Internet site WWW.Census.gov.
The majority of Heartland's customers reside in Johnson County,  particularly in
the  northern  two-thirds  of the  county,  which  accounts  for over 88% of the
county's population,  according to the 1990 U.S. Census.  Heartland has branches
in Franklin and Greenwood, which are the two largest cities in the county.

COMPETITION

Heartland and the Bank face strong  competition  for  deposits,  loans and other
financial services from numerous Indiana and out-of-state banks, thrifts, credit
unions and other financial  institutions as well as other entities which provide
financial services,  including consumer finance companies,  securities brokerage
firms,  mortgage brokers,  equipment  leasing  companies,  insurance  companies,
mutual funds and other lending sources and investment alternatives.  Some of the
financial institutions and financial services organizations with which Heartland
competes are not subject to the same degree of regulation as Heartland.  Many of
the  financial  institutions  aggressively  compete for business in  Heartland's
market areas.  Many of these  competitors  have been in business for many years,
have established  customer bases, have substantially  higher lending limits than
Heartland,  are larger and will be able to offer certain services that Heartland
does not currently  offer,  including  home  electronic  banking  services,  and
international banking services. In addition, most of these entities have greater
capital resources than Heartland,  which,  among other things, may allow them to
price their  services at levels more  favorable  to the  customer and to provide
larger credit facilities than could Heartland.

 Note: Dollar amounts are in thousands except per share data.                  5
<PAGE>

REGULATION AND SUPERVISION OF HEARTLAND

Heartland  is a bank  holding  company  within the  meaning of the Bank  Holding
Company Act of 1956,  as amended  ("BHCA"),  and is  registered as such with the
Board of Governors of the Federal Reserve System ("Federal Reserve").  Heartland
is examined,  regulated and supervised by the Federal Reserve and is required to
file annual reports and other information  regarding its business and operations
and the business and operations of its  subsidiaries  with the Federal  Reserve.
The Federal Reserve has the authority to issue cease and desist orders against a
bank holding company if it determines  that  activities  represent an unsafe and
unsound practice or a violation of law.

Under the BHCA, a bank holding company is, with limited  exceptions,  prohibited
from  acquiring  direct or indirect  ownership or control of voting stock of any
company  which  is not a bank and  from  engaging  in any  activity  other  than
managing or controlling  banks. A bank holding company may, however,  own shares
of a company  engaged in activities  which the Federal Reserve has determined to
be so closely  related to banking or  managing or  controlling  banks as to be a
proper incident thereto.

Acquisitions by Heartland of banks and savings  associations are also subject to
regulation. Any acquisition by Heartland of more than five percent of the voting
stock of any bank requires prior approval of the Federal Reserve.

A bank holding  company and its  subsidiaries  are  prohibited  from engaging in
certain tie-in  arrangements  in connection  with the extension of credit or the
provision of any property or service.  With certain  exceptions,  a bank holding
company, a bank, and a subsidiary or affiliate  thereof,  may not extend credit,
lease or sell property or furnish any services or fix or vary the  consideration
for the foregoing on the condition  that (I) the customer must obtain or provide
some additional  credit,  property or services from, or to, any of them, or (ii)
the  customer  may not obtain  some other  credit,  property  or service  from a
competitor, except to the extent reasonable conditions are imposed to assure the
soundness of credit extended.

REGULATION AND SUPERVISION OF THE BANK

The Bank is  supervised,  regulated  and  examined  by the DFI  and,  as a state
nonmember  bank,  by the FDIC.  A cease or desist order may be issued by the DFI
and FDIC against the Bank if the respective  agency finds that the activities of
the Bank represent an unsafe and unsound banking practice or violation of law.
The deposits of the Bank are insured by the FDIC.

Branching by banks in Indiana is subject to the  jurisdiction,  and requires the
prior approval of, the Bank's primary federal regulatory  authority and the DFI.
Under Indiana law, the Bank may branch anywhere in the state.

 Note: Dollar amounts are in thousands except per share data.                  6

<PAGE>

Heartland is a legal  entity  separate  and  distinct  from the Bank.  There are
various  legal  limitations  on the extent to which the Bank can supply funds to
Heartland.  The principal source of Heartland's funds consists of dividends from
the Bank.  State and federal laws restrict the amount of dividends  which may be
paid by banks. In addition,  the Bank is subject to certain restrictions imposed
by the  Federal  Reserve  on  extensions  of credit to  Heartland  or any of its
subsidiaries,  or investments in the stock or other securities as collateral for
loans.

The  commercial  banking  business  is  affected  not only by  general  economic
conditions  but  also by the  monetary  policies  of the  Federal  Reserve.  The
instruments  of monetary  policy  employed by the  Federal  Reserve  include the
discount  rate on member  bank  borrowing  and  changes in reserve  requirements
against  member bank  deposits.  Federal  Reserve  monetary  policies have had a
significant  effect on the operating results of commercial banks in the past and
are expected to continue to do so in the future. In view of changing  conditions
in the  national  economy  and in the money  markets,  as well as the  effect of
actions by  monetary  fiscal  authorities,  including  the Federal  Reserve,  no
prediction can be made as to possible future changes in interest rates,  deposit
levels, loan demand or the business and earnings of the Registrant and the Bank.

CAPITAL REQUIREMENTS

Heartland must meet certain  minimum capital  requirements  mandated by the FDIC
and the  DFI.  These  regulatory  agencies  require  financial  institutions  to
maintain  certain  minimum  ratios of primary  capital to total assets and total
capital to total  assets.  Heartland  is not  required  to comply  with  Federal
Reserve capital  requirements  because it has  consolidated  assets of less than
$150,000.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  I  capital  (as  defined  in the  regulations)  to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined).  Management  believes the Bank meets all applicable capital
adequacy requirements as of December 31, 1998 and December 31, 1997.


 Note: Dollar amounts are in thousands except per share data.                  7
<PAGE>


As of December  31, 1998 and 1997,  the Bank was  categorized  well  capitalized
under the regulatory  framework for prompt corrective  action. To be categorized
as well  capitalized,  the Bank must maintain minimum total  risk-based,  Tier I
risk-based, and Tier I leverage ratios as set forth in the table below.

<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>
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

1997
Total capital
(to risk weighted assets)$  8,733   157%    $444       8%      $555      10%
Tier 1 capital
(to risk weighted assets)   8,661   156      222       4        333       6
Tier 1 capital
(to average assets)         8,661   352       99       4        123       5
</TABLE>


FORWARD-LOOKING STATEMENTS

This Form 10-KSB and future  filings made by  Heartland with the  Securities and
Exchange Commission,  as well as other filings,  reports and press releases made
or issued by  Heartland  and the Bank,  and oral  statements  made by  executive
officers  of  Heartland  and the Bank,  may include  forward-looking  statements
relating to such  matters as (a)  assumptions  concerning  future  economic  and
business  conditions  and their  effect on the  economy  in  general  and on the
markets in which the Bank do  business,  (b)  expectations  regarding  revenues,
expenses,  and earnings for Heartland and the Bank,  (c) the impact of future or
pending  acquisitions,  (d) deposit  and loan  volume,  and (e) new  products or
services.  Such forward-looking  statements are based on assumptions rather than
historical or current facts and, therefore, are inherently uncertain and subject
to risk.

To comply with the terms of a "safe harbor"  provided by the Private  Securities
Litigation  Reform Act of 1995 that protects the making of such  forward-looking
statements  from liability under certain  circumstances,  Heartland notes that a
variety  of factors  could  cause the actual  results  or  experience  to differ
materially  from the  anticipated  results or other  expectations  described  or
implied by such forward-looking  statements.  These risks and uncertainties that
may affect the operations,  performance,  development and results of Heartland's
business include, but are not limited to, the following: (a) the risk of adverse
changes in  business  and  economic  conditions  generally  and in the  specific
markets in which the Bank operate which might  adversely  affect credit  quality
and deposit and loan activity;  (b) the risk of rapid  increases or decreases in
interest rates,  which could adversely affect Heartland's net interest margin if
changes in its cost of funds do not  correspond to the changes in income yields;

 Note: Dollar amounts are in thousands except per share data.                  8

<PAGE>

(c) possible  changes in the legislative and regulatory  environment  that might
negatively impact Heartland and the Bank through increased operating expenses or
restrictions  on  authorized  activities;   (d)  the  possibility  of  increased
competition from other financial and  non-financial  institutions;  (e) the risk
that borrowers may misrepresent  information to management of the Bank,  leading
to loan losses,  which is an inherent risk of the activity of lending money; and
(f) the risk that banks that  Heartland may acquire in the future may be subject
to  undisclosed  asset  quality  problems,   contingent   liabilities  or  other
unanticipated  problems;  and (g)  other  risks  detailed  from  time to time in
Heartland's filings with the Securities and Exchange Commission. The Corporation
and  the  Bank  do  not  undertake  any  obligation  to  update  or  revise  any
forward-looking statements subsequent to the date on which they are made.


ITEM 2.  PROPERTIES

Heartland  owns its home office at 420 North Morton Street,  Franklin,  Indiana.
The facility is used as the main banking  office and  Heartland's  headquarters.
The 5,700 square foot building was  constructed  over 25 years ago and underwent
an extensive renovation prior to the opening of Heartland.

Heartland leased a temporary branch office in Greenwood, Indiana from January to
May, at which time the permanent leased facility was occupied. The lease for the
permanent  facility  is for 3,800  square  feet of space in a strip  center with
approximately  three to four other  tenants.  The term of the lease is ten years
with an option to renew.

ITEM 3.  LEGAL PROCEEDINGS

Heartland  and the Bank were not involved in any legal  proceedings  at December
31, 1998 or 1997.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security  holders through the  solicitation
of proxies or otherwise, during the quarter ended December 31, 1998.


                                 PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

Heartland  had  1,265,000  shares of Common  Stock  issued  and  outstanding  to
approximately 1,800 shareholders (including those shares held in street name) on
March 23, 1999.

 Note: Dollar amounts are in thousands except per share data.                  9


<PAGE>


The Common  Stock has been quoted on the NASD  Over-the-Counter  Bulletin  Board
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.
<TABLE>
<CAPTION>

                                            High            Low

<S>                                        <C>             <C>   
      Fourth Quarter 1997                  $12.87          $ 8.75
      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
</TABLE>


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.   Prior  to  October  3,  1997,  there  was  no
established trading market for the Common Stock.

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  regulations.  See
"Supervision and Regulation -- Dividends"  above. 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.

ITEM 6. SELECTED FINANCIAL DATA.

The  information  presented  below  should  be  read  in  conjunction  with  the
consolidated   financial   statements,   which  are  included  herein,  and  the
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations.
<TABLE>
<CAPTION>

                                     Year Ended         May 27, 1997(inception)
Income Statement Data:            December 31,1998     through December 31, 1997
                               -------------------     -------------------------

<S>                                     <C>                      <C>     
Total interest income                   $   3,140                $    165
Total interest expense                      1,307                      12
Net interest income                         1,833                     153
Provision for loan loss                       700                      46
Noninterest income                             56                       -
Noninterest Expense                         1,817                     347
Provision for income taxes                      -                       -
Net loss                                   $ (628)               $   (240)
Net loss per share                         $ (.50)               $   (.19)
Average shares                          1,265,000               1,265,000
</TABLE>

 Note: Dollar amounts are in thousands except per share data.                 10


<PAGE>


<TABLE>
<CAPTION>

                                      At December 31,            At December 31,
                                           1998                       1997
                                           ----                       ----
<S>                                       <C>                     <C>      
Balance Sheet Data:
Total Assets                              $  64,660               $  14,519
Loans, Net of Allowance
for Loan Loss                                48,700                   3,912
Demand & Savings Deposits                    17,738                   1,591
Time Deposits                                35,016                     488
Stockholders' Equity                         10,916                  11,504
Book Value Per Share                      $    8.63               $    9.09
Equity to Asset Ratio                         16.88%                  79.23%
</TABLE>

AVERAGE  BALANCES,  INCOME,  EXPENSES AND RATES. The following tables depict for
the year ended December 31, 1998 and the period from inception  through December
31, 1997, 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.
<TABLE>
<CAPTION>

                                    Year Ended          May 27, 1997(inception)
                                 December 31,1998      through December 31, 1997
                                 Average/   Yield/        Average/    Yield/
                                  Balance    Rate          Balance     Rate
                                  -------    ----          -------     ----
<S>                             <C>           <C>          <C>          <C>  
Interest earning assets
   Federal funds sold           $  2,581      3.83%        $  729       5.49%
   Taxable securities              8,647      6.05          1,635       6.18
   Non-taxable securities            152      3.71              -
   Loans                          25,047     10.03            230      10.43
                                --------                   ------

Total interest earning assets   $ 36,427      8.62         $2,594       6.36
                                ========                   ======

Interest bearing liabilities
   Interest-bearing demand,
     Money Market and Savings
      Deposits                     6,718      4.01%            20      3.77%
   Time deposits                  18,048      5.70             22      6.00
   Short-term borrowings             150      5.82            128      8.29
                                --------                   ------

Total interest bearing
 liabilities                    $ 24,916      5.25         $  170      7.47
                                ========                   ======
</TABLE>

<TABLE>
<CAPTION>

                                                           1998        1997
                                                           ----        ----
<S>                                                       <C>         <C>   
Average yield on interest-earning assets                   8.62%       6.36%
Average rate paid on interest-bearing liabilities          5.25        7.47
Net interest spread                                        3.37       (1.11)
Net interest margin (net interest earnings divided
 by total interest-earning assets)                         5.03        5.90
Return on average assets                                  (1.34)      (7.56)
Return on average equity                                  (3.24)      (8.29)
</TABLE>


 Note: Dollar amounts are in thousands except per share data.                 11

<PAGE>

LOANS.  Heartland's  loans,  before adjusting for the allowance for loan losses,
totaled $49,442 at December 31, 1998 and $3,958 at December 31, 1997.

The  following  table sets  forth  information  concerning  the  composition  of
Heartland's  loan portfolio in dollar amounts and percentages as of December 31,
1998 and 1997.
<TABLE>
<CAPTION>

                                     1998                  1997
                                       Percent of            Percent of
                              Amount      Total       Amount    Total
                              ------      -----       ------    -----
<S>                           <C>         <C>        <C>         <C>    
TYPE OF LOAN
Commercial loans and leases   $26,475      54.36%    $ 2,960      75.66%
Real estate construction        7,409      15.21         136       3.48
Residential mortgages
 (1-4 family homes)             6,241      12.81         189       4.83
Consumer                        9,317      19.12         673      17.20
                              -------   --------     -------   --------
Gross loans                    49,442     101.50       3,958     101.17
Allowance for loan losses        (742)     (1.50)        (46)     (1.17)
                              -------   --------     -------   --------
Loans, net                    $48,700     100.00%    $ 3,912     100.00%
                              =======   ========     =======   ========
</TABLE>


The  following  table  sets forth  certain  information  at  December  31,  1998
regarding  the dollar amount of loans  maturing in  Heartland's  loan  portfolio
based on the date that final  payment is due. This schedule does not reflect the
effects  of  possible   prepayments  or  enforcement  of  due-on-sale   clauses.
Management  expects  prepayments will cause actual maturities to be shorter than
contractual  maturities.  Certain mortgage loans such as construction  loans and
second mortgage loans are included in the commercial and installment loan totals
below.
<TABLE>
<CAPTION>
                                            Remaining Maturities
                                            One Year   Over one to  Over five
                                 Amount      or less   five years     years
                                 ------      -------   ----------     -----
<S>                              <C>         <C>        <C>        <C>     
TYPE OF LOAN
  Commercial                     $26,475     $ 7,360    $ 4,988    $ 14,127
  Real estate construction         7,409       4,650      2,759           -
  Residential mortgages
   (1-4 family homes)              6,241         136        114       5,991
  Consumer                         9,317       2,916      4,562       1,839
                                 -------     -------    -------     -------
  Total                          $49,442     $15,062    $12,423     $21,957
                                 =======     =======    =======     =======

</TABLE>

 Note: Dollar amounts are in thousands except per share data.                 12

<PAGE>


INVESTMENT  SECURITIES.  The  following  table sets forth the carrying  value of
Heartland's investment portfolio as of December 31:

Securities Available-for-Sale
<TABLE>
<CAPTION>
                                                 Gross      Gross    Estimated
                                    Amortized Unrealized  Unrealized   Market
                                      Cost       Gains      Losses      Value
                                      ----       -----      ------      -----
<S>                                 <C>        <C>       <C>        <C>    
1998

   U.S. Government and its agencies $  9,577   $    71   $    (16)  $ 9,632
   Obligations of states and
    political subdivisions               614         1         (3)      612
   Mortgage back securities              213         -          -       213
                                    --------   -------   --------   -------

                                    $ 10,404   $    72   $    (19)  $10,457
                                    ========   =======   ========   =======

1997

   U.S. Government and its agencies $  7,949   $    18   $     (5)  $ 7,962
   Obligations of states and
    political subdivisions                50         -          -        50
                                    --------   -------   --------   -------

                                    $  7,999   $    18   $     (5)  $ 8,012
                                    ========   =======   ========   =======
</TABLE>


The  following  table sets forth the  maturities  of  investment  securities  at
December 31, 1998 and the weighted-average  yield (on a tax equivalent basis) on
such securities.
<TABLE>
<CAPTION>
                                                        Estimated   Weighted
                                            Amortized     Market     Average
                                              Cost        Value       Yield
                                              ----        -----       -----
<S>                                          <C>        <C>            <C>  
Due in one year or less                      $  1,000   $   1,008      5.69%
Due after one year through five years           7,139       7,198      5.85
Due after five years through ten years          2,052       2,038      5.60
Due after ten years                                 -           -         -
Mortgage-backed securities                        213         213      6.29
                                             --------   ---------    ------
Total                                        $ 10,404   $  10,457      5.79%
                                             ========   =========    ======
</TABLE>

1. Computation of yields is performed using amortized cost.



ITEM  7.MANAGEMENT'S   DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
        RESULTS      OF       OPERATIONS       FOR      THE      YEAR      ENDED
        DECEMBER  31, 1998 AND FOR THE PERIOD MAY 27, 1997  (INCEPTION)  THROUGH
        DECEMBER 31, 1997.

GENERAL

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.

 Note: Dollar amounts are in thousands except per share data.                 13

<PAGE>


Due to the short period of actual operations  preceding December 31, 1997, it is
difficult to make  meaningful  comparisons  between the amounts  outstanding  at
December 31, 1998 and those at the previous period end.

At December 31, 1998,  Heartland had  approximately  $64,660 in total assets, an
increase of $50,141 from  December 31, 1997 total of $14,519.  Those assets were
primarily loans of $48,700 and investment  securities of $10,457 at December 31,
1998  compared  to December  31, 1997 totals of $3,958 and $8,012  respectively.
Total  deposits at  December  31, 1998 were  approximately  $52,754  compared to
$2,079 at  December  31,  1997.  Total  shareholders'  equity was  approximately
$10,916 and $11,504 at December 31, 1998 and December 31, 1997.  The decrease in
equity was due to the net loss for the year ended December 31, 1998.

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.

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, 1998,  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 estimates that the amount of costs that will be incurred to
prepare  for the  date  change  will  not be  significant.  Heartland  has  also
implemented evaluation and testing strategies for all areas of Heartland and has
begun efforts to communicate  with customers and vendors  regarding  Heartland's
efforts toward Year 2000 compliance.

Although  Heartland has no reason to expect that 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 Heartland's
data  processing  service  provider will be unable to perform in accordance with
the Year 2000 plan and the  possibility  that  Heartland's  customers may not be
Year 2000 compliant.


 Note: Dollar amounts are in thousands except per share data.                 14

<PAGE>


RESULTS OF OPERATIONS

Heartland's  operating  results during the period from inception on May 27, 1997
through  December  31,  1997 were  limited  to various  expenses  related to the
development stage and 14 calendar days of banking operations at the close of the
period and are  therefore not  comparable to the operating  results for the year
ended December 31, 1998.  Changes in income and expenses between the two periods
relate  primarily to this difference  unless  otherwise  stated in the following
discussion.  Heartland  incurred net losses of $628 for the year ended  December
31,  1998 or $(.50) per share and $240 or $(.19)  per share for the period  from
inception, through December 31, 1997.

Heartland's  net losses for its second and third  quarters in 1998 declined from
the net  loss  for  the  preceding  quarter,  and  Heartland  posted  its  first
profitable quarter since inception in the fourth quarter of 1998. See Table 1 to
this Item 7 Discussion for unaudited interim financial data for 1998.

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 loss was $588 for the
year ended  December  31,  1998 and $227 for the period from  inception  through
December 31, 1997.

Interest  income of $3,140 was earned  during the year ended  December  31, 1998
compared to $165 for the period from inception through December 31, 1997 and was
primarily  generated from investment  securities and loans.  Interest expense of
$1,307 was incurred  during the year ended  December 31, 1998 and $12 during the
period from inception  through December 31, 1997.  Interest expense is primarily
related to deposits  during 1998. For 1997,  interest  expense was primarily for
related  party notes  payable  used to fund  start-up  costs and a note  payable
obtained during the  organization  period to purchase the main office  facility.
All such notes payable were repaid in 1997.

The net interest income for the year ended December 31, 1998 was $1,833 compared
to $153 for the period from inception through December 31, 1997.

The provision for loan losses was $700 for the year ended  December 31, 1998 and
$46 for the period from inception  through December 31, 1997. Total  charge-offs
were $4 during the year ended  December  31,  1998 and $0 during the period from
inception  through  December 31, 1997.  There were no recoveries of loans during
the periods.

Non-interest  income was $56 for the year ended December 31, 1998 and $0 for the
period from inception  through  December 31, 1997 and consisted of miscellaneous
fees, service charges and other income.

Salaries  and benefits  expense for the year ended  December 31, 1998 was $1,016
compared  to $195 for the period  from  inception  through  December  31,  1997.
Salaries and benefits were paid to employees  during the  development  stage for
services performed.

 Note: Dollar amounts are in thousands except per share data.                 15

<PAGE>

Occupancy and equipment  expenses of $167 and $28 were incurred  during the year
ended December 31, 1998 and the period from inception through December 31, 1997.
During 1998 those  expenses  consisted  primarily of the lease  payments for the
branch  facility,  depreciation and utilities  expenses.  During the period from
inception  through  December 31, 1997,  occupancy  and  equipment  expenses were
primarily depreciation and utilities expenses. The permanent branch facility was
occupied in the second  quarter of 1998 and  therefore a full 12 months of lease
expense was not incurred in the year ended December 31, 1998.

Data processing expenses were $183 for the year ended December 31, 1998 and were
$31 for the period from inception through December 31, 1997.

Printing and Supplies expenses for the year ended December 31, 1998 totaled $69,
while they were $31 for the period from inception through December 31, 1997.

Advertising  expenses  during the year ended December 31, 1998 were $79 and were
$17 during the period from inception through December 31, 1997.

Director  fees were $28 for the year ended  December 31, 1998.  No director fees
were paid during the period from inception through December 31, 1997.

Credit  reports and loan expenses were $45 for the year ended  December 31, 1998
and were $2 for the period from inception through December 31, 1997

Professional  fees of $54 and $7 were  incurred for the year ended  December 31,
1998 and the period from inception through December 31, 1997.

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. The  amortization  expense incurred for  organizational  cost
under the  previous  accounting  standard  was $1 for the period from  inception
through December 31, 1997.

The remaining  expenses of $101 for the year ended December 31, 1998 and $35 for
the period from  inception  through  December 31, 1997,  relate to various other
items such as postage, insurance and training.


LENDING ACTIVITIES

ORIGINATION,  PURCHASE AND SALE OF LOANS. Interest rates charged by Heartland on
its  loans  are  affected  primarily  by loan  demand  and the  supply  of funds
available for lending.  These  factors are in turn affected by general  economic
conditions  and  monetary  policies of the  federal  government,  including  the
Federal Reserve Board,  the general supply of money in the economy,  legislative
tax policies and governmental budgetary matters.

Loan  originations are derived from a number of sources,  primarily from walk-in
customers.  All  property  securing  real  estate  loans  made by  Heartland  is
appraised in accordance with applicable  regulations of the FDIC and includes an
actual inspection of such property by designated fee appraisers.

 Note: Dollar amounts are in thousands except per share data.                 16

<PAGE>

Heartland  has  negotiated  with a third  party  mortgage  company an  agreement
whereby  Heartland  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.  Heartland may from time to
time originate a loan with the intention of  participating a portion of the loan
to another commercial bank in the area.

A loan  officer's  approval is  required  for loans up to certain  amounts,  and
either the officer loan  committee  or the Board loan  committee  (including  at
least two outside  directors)  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.  Heartland has established  policies  regarding  financial  statement
requirements,  credit  verifications  procedures  and other matters  intended to
minimize underwriting risk. The most recent loan approval limits were adopted by
the Board of Directors in the fall of 1997.

COMMERCIAL  LENDING.  Commercial  loans include loans secured by commercial real
estate  or  deposits,  construction  loans and  loans  for  business  purchases,
operations,  inventory  and lines of credit.  At December 31,  1998,  commercial
loans totaled $26,475 or 54.36% of Heartland's loan portfolio compared to $2,960
or 75.66% of Heartland's loan portfolio at December 31, 1997.

REAL  ESTATE  CONSTRUCTION  LOANS.  Heartland  offers  residential  construction
mortgage loans with  maturities of twelve months or less at interest rates which
vary with current market rates. The application  process includes the same items
which are required for other residential mortgage loans and include a submission
of accurate plans,  specifications  and costs of the property 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.  At December  31,  1998,  residential  construction  mortgage  loans
totaled  $7,409 or 15.21% of  Heartland's  loan  portfolio  compared to $136, or
3.48% of Heartland's loan portfolio at December 31, 1997.

RESIDENTIAL MORTGAGE LOANS. Residential mortgage loans are predominantly secured
by  single-family  homes.  To reduce its exposure to changes in interest  rates,
Heartland  currently  originates  adjustable rate first mortgage loans ("ARMs"),
second  mortgage  loans and home  equity  lines of credit  also with  adjustable
rates.  At December 31, 1998,  Heartland's  residential  mortgage  loans totaled
approximately  $6,241 or 12.8% of  Heartland's  total loans  compared to $189 or
4.83% of Heartland's total loans at December 31, 1997.

Fire  and  casualty  insurance  is  required  on all  mortgage  loans as well as
abstracts of title or title insurance.

CONSUMER  LENDING.  Heartland  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,
1998,  Heartland's  Consumer  loans  totaled  approximately  $9,317 or 19.12% of
Heartland's total loans compared to $673 or 17.20% of Heartland's total loans at
December 31, 1997.

 Note: Dollar amounts are in thousands except per share data.                 17

<PAGE>

NONPERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES

Nonperforming  assets consist of impaired and  nonperforming  loans, real estate
owned (acquired in foreclosure),  and other repossessed  assets.  Impaired 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 $3 and $0 at
December 31, 1998 and 1997.

Due to risks inherent in lending,  management estimates that a certain amount of
loan  balances  outstanding  at  December  31,  1998  and  1997 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
judgement, should be charged-off.

At December 31, 1998,  the balance of the  allowance for loan losses was $742 or
1.5%  of  gross  loans  outstanding,  compared  to $46 or 1.2%  of  gross  loans
outstanding  at December  31,  1997.  Provision  charged to earnings in the year
ended  December  31,  1998 was $700  compared to $46 for the period from May 27,
1997  (inception)  through  December 31, 1997.  Charge-offs  were $4 in the year
ended  December  31,  1998 and $0 in the period  from May 27,  1997  (inception)
through December 31, 1997. There were no recoveries during either period.

ASSET/LIABILITY MANAGEMENT

One of the  actions  undertaken  by  Heartland's  management  has  been to adopt
asset/liability  management  policies in an attempt to reduce the susceptibility
of Heartland's net interest spread to the adverse impact of volatile interest by
attempting to match maturities (or  time-to-repricing) of assets with maturities
or  repricing  of   liabilities   and  then  actively   managing  any  mismatch.
Accomplishing  this objective requires attention to both the asset and liability
sides of the balance sheet.  The balance between maturity of assets and maturity
of liabilities is measured by the interest-rate gap.

LIQUIDITY, RATE SENSITIVITY AND CAPITAL RESOURCES

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.

 Note: Dollar amounts are in thousands except per share data.                 18

<PAGE>

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,  1998,
Heartland  had  $10,457  or 16.2%  of  total  assets  in  investment  securities
available  for sale.  Heartland  also had  $1,200 of  federal  funds sold and an
additional $2,000 available from unused federal funds purchased agreements.

Heartland  also  utilizes  securities   repurchase  agreements  with  individual
customers as a source of funding.  At December 31, 1998,  repurchase  agreements
totaled $740.  There were no repurchase  agreements  outstanding at December 31,
1997.

As of December 31, 1998,  the Bank was awaiting  approval for  membership to the
Federal  Home Loan Bank of  Indianapolis  (FHLBI),  which was received in March,
1999.  Membership  in the FHLBI will provide an  additional  source of borrowing
with  limits  based on  availability  of  specific  collateral  such as  certain
mortgages and investment securities.

Concern  has been raised  regarding  the ability of  financial  institutions  to
provide funding for possible large cash requirements by consumers related to the
Year 2000 date change.  Heartland has plans and  procedures in place to estimate
the amount of cash needed for such  requirements by its customers and to acquire
that  cash in  advance.  Plans  include  lines  of  credit  and  vault  services
contracted with the Federal Reserve Bank of Chicago,  FHLBI and a large regional
correspondent bank.

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 manages 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.

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, 1998 was 13.0% compared
to 74.3% at December 31, 1997.

 Note: Dollar amounts are in thousands except per share data.                 19

<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.  Information
from the year ended  December 31, 1997 has not been  presented  due to the short
period of operation and lack of comparability.

<TABLE>
<CAPTION>
Table 1, Unaudited
                                          For the three months ended
                                  December 31 September 30  June 30  March 31
                                  ----------- ------------  -------  --------
<S>                              <C>         <C>         <C>         <C>      
1998

   Total interest income         $   1,207   $     908   $      672  $     352
   Total interest expense              557         400          267         83
                                 ---------   ---------   ----------  ---------
   Net interest income                 650         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 loss                              8        (155)        (197)      (284)
                                 =========   =========   ==========  =========
   Net income/(loss) per share   $     .01        (.12)        (.16)      (.22)
   Average shares                1,265,000   1,265,000    1,265,000  1,265,000

</TABLE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Heartland's  Financial  Statements  are  included in a separate  section of this
Report beginning on page F-1.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING
         AND FINANCIAL DISCLOSURE.

None


 Note: Dollar amounts are in thousands except per share data.                 20

<PAGE>


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF HEARTLAND

Information  relating  to  directors  and  executive  officers of  Heartland  is
included under the caption  "Election of Directors" in the 1999 Proxy  Statement
of  Heartland,  which  section is  incorporated  herein by  reference.  Addition
information relating to non-director executive officers is listed below.

Executive Officers:

John M. Morin1
Vice President
Age 49

K. Keith Fox2
Vice President
Age 39

R. Trent McWilliams3
Vice President
Age 47

Jeff Joyce4
Vice President and Chief Financial Officer
Age 28

1 Mr. Morin served in various positions at Citizens Bank of Central Indiana from
  1985 until his  resignation in 1997, most recently as Vice President in charge
  of retail lending.
2 Mr. Fox served in various  positions at Citizens Bank of Central  Indiana from
  1985 until his resignation in 1997, most recently as Commercial Loan Officer.
3 Mr. McWilliams served in various positions at Union Federal Savings Bank until
  his  resignation  in 1997,  most  recently  as Vice  President  in  charge  of
  Marketing.
4 Mr. Joyce is a Certified  Public  Accountant who served in various  positions,
  including Staff Accountant and Senior Accountant in the Financial Institutions
  Group at Crowe,  Chizek and  Company  LLP from 1992 until his  resignation  in
  1997.



ITEM 11.   EXECUTIVE COMPENSATION

Information  relating to  compensation  of  Heartland's  Executive  officers and
Directors is included under the captions "Executive  Compensation" and "Election
of  Directors  -  Compensation  of  Directors"  in the 1999 Proxy  Statement  of
Heartland, which sections are incorporated herein by reference.



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT

Information  relating to security  ownership  of certain  beneficial  owners and
management of Heartland is included under the caption "Election of Directors" of
the 1999 Proxy Statement of Heartland,  which section is incorporated  herein by
reference.
                                                                              21
<PAGE>

ITEM 13.   CERTAIN BUSINESS RELATIONSHIPS AND TRANSACTIONS

During  1998 and 1997,  the Bank had,  and  expects to  continue  to have in the
future,  banking transactions in the ordinary course of business with Directors,
officers and principal  shareholders  of Heartland and their  associates.  These
transactions have been made on substantially the same terms,  including interest
rates,  collateral  and  repayment  terms  on  extensions  of  credit,  as those
prevailing at the same time for comparable  transactions with others and did not
involve more than the normal risk of collectibility or present other unfavorable
features.


                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

Exhibit NO.     Description

3.1             Amended and  Restated  Articles of  Incorporation  of  Heartland
                Bancshares, Inc., which are incorporated by reference to Exhibit
                3.1 in the  Registration  Statement  Form  SB-2,  filed July 28,
                1997, as amended, ("Form SB-2")
3.2             Amended and Restated Bylaws of Heartland Bancshares, Inc., which
                are incorporated by reference to Exhibit 3.2 in the Form SB-2.
10.1            1997 Stock Option Plan,  which is  incorporated  by reference to
                Exhibit 10.1 in the Form SB-2.
10.2            1997  Stock  Option  Plan for  Nonemployee  Directors,  which is
                incorporated by reference to Exhibit 10.2 in the Form SB-2.
10.3            Form of Organization Agreement Under Which Debt
                Described in Prospectus as "Borrowings" Was Incurred, which is
                incorporated by reference to Exhibit 10.3 in the Form SB-2.
10.4            Purchase Agreement and Note (Franklin,  Indiana property), which
                are incorporated by reference to Exhibit 10.4 in the Form SB-2.
10.5            Lease (Greenwood,  Indiana  property),  which is incorporated by
                reference to Exhibit 10.5 in the Form SB-2.
13.1            The Registrant's Annual Report to Shareholders for the year
                ended December 31, 1998
13.2            The Registrant's 1999 Proxy Statement
27              Financial Data Schedule (EDGAR filing only)

(a) 1. FINANCIAL STATEMENTS. The following information appears elsewhere in this
Annual Report on FORM 10-KSB on the pages indicated

                                                                       Page

Independent Auditor's Report on financial statements.                   F-1

Consolidated Balance Sheets at December 31, 1998 and 1997               F-2

Consolidated  Statements of Income for the year ended
 December 31, 1998 and the period from May 27, 1997 (inception)
 through December 31, 1997                                              F-3

Consolidated  Statements of Changes In  Shareholders'  Equity
 for the year ended December 31, 1998 and the period from
 May 27, 1997 (inception) through December 31, 1997                     F-4

Consolidated  Statements of Cash Flows for the year ended
 December 31, 1998 and the period from May 27, 1997 (inception)
 through December 31, 1997                                              F-5

Notes to consolidated financial statements.                             F-6

(b) 1. No reports on Form 8-K were filed during the three months ended December
       31, 1998.

                                                                              22
<PAGE>


SIGNATURES

Pursuant to the  requirements  of Section 13 of the  Securities  Exchange Act of
1934,  Heartland  has duly  caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, this 26th day of March, 1999.

HEARTLAND BANCSHARES, INC.

By:/s/ Steven L. Bechman
   ---------------------------------
Steven L. Bechman,
Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated:

Signatures and Title(s) Date

/s/ Steven L. Bechman   March 26, 1999
- -----------------------------
Steven L. Bechman, Director
(Chief Executive Officer)

/s/ Gordon Dunn         March 26, 1999
- -----------------------------
Gordon Dunn, Chairman


/s/ Sharon Acton        March 26, 1999
- -----------------------------
Sharon Acton, Director

/s/ Jeffrey L. Goben    March 26, 1999
- -----------------------------
Jeffrey L. Goben, Director

/s/ J. Michael Jarvis   March 26, 1999
- -----------------------------
J. Michael Jarvis, Director

/s/ John Norton         March 26, 1999
- -----------------------------
John Norton, Director

/s/ Robert Richardson   March 26, 1999
- -----------------------------
Robert Richardson, Director

/s/ Patrick A. Sherman  March 26, 1999
- -----------------------------
Patrick A. Sherman, Director

/s/ James C. Stewart    March 26, 1999
- -----------------------------
James C. Stewart, Director

/s/ Jeffery D. Joyce    March 26, 1999
- -----------------------------
Jeffery D. Joyce, Chief Financial Officer
(Principal Financial and Accounting Officer)

                                                                              23


<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, 1998 and 1997 and the related  consolidated
statements  of income,  changes in  shareholders'  equity and cash flows for the
year  ended  December  31,  1998  and the  period  from  May 27,  1997  (date of
inception)  through  December  31,  1997.  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,  1998 and 1997,  and the  results of its
operations  and its cash  flows for the year  ended  December  31,  1998 and the
period  from May 27,  1997 (date of  inception)  through  December  31,  1997 in
conformity with generally accepted accounting principles.





                                          Crowe, Chizek and Company LLP

Indianapolis, Indiana
February 24, 1999




                                     F-1

<PAGE>

<TABLE>
<CAPTION>

                           HEARTLAND BANCSHARES, INC.
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1998 and 1997
                    (Amounts in thousands, except share data)

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


                                                             1998        1997
                                                             ----        ----
<S>                                                        <C>        <C>     
ASSETS
Cash and due from banks                                    $  1,963   $  1,140
Federal funds sold                                            1,200          -
                                                           --------   --------
      Total cash and cash equivalents                         3,163      1,140

Securities available-for-sale, at market                     10,457      8,012
Loans                                                        49,442      3,958
Allowance for loan losses                                      (742)       (46)
                                                           --------   --------
      Loans, net                                             48,700      3,912
Premises, furniture and equipment, net                        1,707      1,207
Accrued interest receivable and other assets                    633        248
                                                           --------   --------
                                                           $ 64,660   $ 14,519
                                                           ========   ========


LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
   Noninterest-bearing deposits                            $  4,341   $    988
   Interest-bearing demand and savings deposits              13,397        603
   Interest-bearing time deposits                            35,016        488
                                                           --------   --------
      Total deposits                                         52,754      2,079
   Short-term borrowings                                        740        800
   Accrued interest payable and other liabilities               250        136
                                                           --------   --------
                                                             53,744      3,015

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
   Accumulated deficit                                         (868)      (240)
   Accumulated other comprehensive income                        53         13
                                                           --------   --------
                                                             10,916     11,504
                                                             ------     ------
                                                           $ 64,660   $ 14,519
                                                           ========   ========

</TABLE>












                                     F-2


<PAGE>

<TABLE>
<CAPTION>
                           HEARTLAND BANCSHARES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                Year ended December 31, 1998 and the period from
       May 27, 1997 (date of inception) through December 31, 1997 (Dollar
                  amounts in thousands, except per share data)
------------------------------------------------------------------------------
                                                             1998        1997
                                                             ----        ----
<S>                                                        <C>         <C>    
Interest income
   Loans, including fees                                   $  2,512    $    24
   Securities:
      Taxable                                                   523        101
      Non-taxable                                                 6          -
   Federal funds sold                                            99         40
                                                           --------    -------
                                                              3,140        165
Interest expense
   Deposits                                                   1,298          1
   Short-term borrowings                                          9         11
                                                           --------    -------
                                                              1,307         12

Net interest income                                           1,833        153

Provision for loan losses                                       700         46
                                                           --------    -------

Net interest income after provision for loan losses           1,133        107

Noninterest income
   Service charges and fees                                      56          -
Noninterest expense
   Salaries and employee benefits                             1,016        195
   Occupancy and equipment expenses, net                        167         28
   Data processing expense                                      183         31
   Printing and Supplies                                         69         31
   Advertising                                                   79         17
   Director fees                                                 28          -
   Credit reports and other loan expenses                        45          2
   Professional fees                                             54          7
   Amortization of organization cost                             75          1
   Other operating expenses                                     101         35
                                                           --------    -------
                                                              1,817        347

Loss before income taxes                                       (628)      (240)

Income taxes                                                      -          -
                                                           --------    -------

Net loss                                                   $   (628)   $  (240)
                                                           ========    =======

Basic and diluted earnings per share                       $   (.50)   $  (.19)
                                                           ========    =======

</TABLE>











                                     F-3


<PAGE>
<TABLE>
<CAPTION>

                           HEARTLAND BANCSHARES, INC.
      CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Year ended
                      December 31, 1998 and the period from
       May 27, 1997 (date of inception) through December 31, 1997 (Dollar
                amounts in thousands, except share through data)

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


                                                          Accumulated
                                                             Other       Total
                                     Additional  Accum-     Compre-     Share-
                             Common    Paid-in   ulated     hensive    holders'
                              Stock    Capital   Deficit    Income      Equity
                              -----    -------   -------    ------      ------
<S>                        <C>       <C>       <C>       <C>         <C>      
Balance at inception,
  (May 27, 1997)           $     -   $     -   $     -   $       -   $       -

Issuance of common stock
  1,265,000 shares           1,265    11,385         -           -      12,650

Underwriter's discount on
  issuance of common stock       -      (816)        -           -        (816)

Costs associated with
  issuance of common stock       -      (103)        -           -        (103)

Comprehensive income (loss)

   Net loss for 1997                              (240)                   (240)

   Change in unrealized
    gain on securities
     available-for-sale                                         13          13
                                                                     ---------
Total comprehensive loss                                                  (227)
                          --------  --------  --------    --------    --------
Balance December 31, 1997    1,265    10,466      (240)         13      11,504

Comprehensive income (loss)

   Net loss for 1998                              (628)                   (628)

   Change in unrealized
    gain on securities
     available-for-sale                                         40          40
                                                                     ---------
Total comprehensive income                                                (588)
                          --------  --------  --------    --------    --------
Balance December 31, 1998  $ 1,265   $10,466   $  (868)  $      53   $  10,916
                           =======   =======   =======   =========   =========


</TABLE>







                                     F-4


<PAGE>
<TABLE>
<CAPTION>

                           HEARTLAND BANCSHARES, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended
                      December 31, 1998 and the period from
           May 27, 1997 (date of inception) through December 31, 1997
                          (Dollar amounts in thousands)

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

                                                             1998        1997
                                                             ----        ----
<S>                                                        <C>        <C>      
Cash flows from operating activities
   Net loss                                                $   (628)  $   (240)
   Adjustments to reconcile net loss to net cash
     from operating activities
      Depreciation and amortization                             190          5
      Provision for loan losses                                 700         46
      Change in assets and liabilities:
         Accrued interest receivable and other assets          (460)      (248)
         Accrued interest payable and other liabilities         114        136
            Net cash from operating activities                  (84)      (301)

Cash flows from investing activities
   Purchase of securities available-for-sale                 (8,033)    (7,999)
   Proceeds from calls and maturities of securities
     available-for-sale                                       5,624          -
   Loans made to customers, net of payments collected       (45,488)    (3,958)
   Net purchases of property and equipment                     (611)    (1,212)
                                                           --------   --------
      Net cash from investing activities                    (48,508)   (13,169)

Cash flows from financing activities
   Net change in deposit accounts                            50,675      2,079
   Proceeds from short-term borrowings                            -        800
   Net repayment of short-term borrowings                       (60)
   Proceeds from issuance of common stock, net of
    issuance costs                                                -     11,731
                                                           --------   --------
      Net cash from financing activities                     50,615     14,610
                                                           --------   --------

Net change in cash and cash equivalents                       2,023      1,140

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

Cash and cash equivalents at end of period                 $  3,163   $  1,140
                                                           ========   ========

Supplemental  disclosures of cash flow  information  Cash paid during the period
   for:
      Interest                                             $  1,079   $     11
      Income taxes                                                -          -

</TABLE>








                                     F-5


<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1998 and 1997
         (Dollar amounts in thousands, except share and per share data)

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

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description  of Business:  The  consolidated  financial  statements  include the
accounts  of  Heartland  Bancshares,   Inc.  (Heartland)  and  its  wholly-owned
subsidiary,  Heartland  Community Bank (Bank),  after elimination of significant
intercompany  transactions and accounts.  The Bank commenced  operation December
17, 1997.

Heartland  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.  The Bank opened an  additional
branch  location in  Greenwood,  Indiana in January  1998.  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,  the fair  values  of
financial  instruments,  and status of contingencies are particularly subject to
change.

Securities:  Securities  are  classified  as held to  maturity  and  carried  at
amortized cost when  management has the positive intent and ability to hold them
to maturity.  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.  The Bank
had no held to maturity securities at year end 1997 or 1998.

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 past due over 90 days (180 days for  residential  mortgages).
Payments received on such loans are reported as principal reductions.





                                     F-6


<PAGE>


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Loan  impairment  is  reported  when full  payment  under the loan  terms is not
expected.  Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential  mortgage,  consumer and credit card loans, and on an
individual loan basis for other loans.  If a loan is impaired,  a portion of the
allowance is allocated so that the loan is reported,  net, at the present  value
of  estimated  future cash flows using the loan's  existing  rate or at the fair
value of collateral if repayment is expected solely from the  collateral.  Loans
are evaluated  for  impairment  when payments are delayed,  typically 90 days or
more, 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.

Intangibles:  A new accounting  standard effective on January 1, 1999,  requires
all  previously  capitalized  organizational  costs to be written off as of that
date.   Early   adoption  was  allowed,   so  Heartland   completely   amortized
organizational  costs during 1998. The incremental amount written-off in 1998 by
early adoption of this accounting standard was not significant to the results of
operations.

Stock Compensation:  Expense for employee  compensation under stock option plans
is based on Accounting  Principles  Board Opinion 25, with expense reported 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 method of
Financial Accounting Standard No. 123 were used for stock based compensation.








                                     F-7


<PAGE>


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

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.  Heartland reports net
cash flows for customer loan transactions,  deposit transactions, and short-term
borrowings.

Earnings Per Common Share: Basic earnings per common share is net income divided
by the weighted average number of common shares  outstanding  during the period.
Diluted  earnings per common share  includes the dilutive  effect of  additional
potential common 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.   The  accounting   standard  that  requires   reporting
comprehensive  income first applies for 1998, with prior information restated to
be comparable.  There are no reclassification adjustments to other comprehensive
income in 1998 or 1997.

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  onand  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.




                                     F-8


<PAGE>


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued)

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

Financial  Statement  Presentation:  Certain  items  in  the  prior  financial
statements have been reclassified to correspond with the current presentation.


NOTE 2 - SECURITIES

Year-end securities are as follows:

<TABLE>
<CAPTION>
Securities Available-for-Sale
                                                 Gross     Gross    Estimated
                                    Amortized UnrealizedUnrealized   Market
                                      Cost       Gains    Losses      Value
                                      ----       -----    ------      -----
1998
<S>                                 <C>        <C>       <C>        <C>    
   U.S. Government and its agencies $  9,577   $    71   $    (16)  $ 9,632
   Obligations of states and
     political subdivisions              614         1         (3)      612
   Mortgage back securities              213         -          -       213
                                    --------   -------   --------   -------

                                    $ 10,404   $    72   $    (19)  $10,457
                                    ========   =======   ========   =======

1997

   U.S. Government and its agencies $  7,949   $    18   $     (5)  $ 7,962
   Obligations of states and
    political subdivisions                50         -          -        50
                                    --------   -------   --------   -------

                                    $  7,999   $    18   $     (5)  $ 8,012
                                    ========   =======   ========   =======
</TABLE>

There were no sales of  securities  during 1998 and the period from May 27, 1997
(date of inception) through December 31, 1997.

The  amortized  cost and  estimated  market value of  securities at December 31,
1998, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
                                                                   Estimated
                                                         Amortized   Market
                                                           Cost       Value
                                                           ----       -----
<S>                                                      <C>        <C>    
   Due in one year or less                               $  1,000   $ 1,008
   Due after one year through five years                    7,139     7,198
   Due after five years through ten years                   2,052     2,038
   Due after ten years                                          -         -
   Mortgage back securities                                   213       213
                                                         --------   -------

                                                         $ 10,404   $10,457
                                                         ========   =======
</TABLE>
Securities  with a carrying  value of $2,250 and $1,250 at December 31, 1998 and
1997, were pledged to secure repurchase agreements and federal funds purchased.

                                     F-9

<PAGE>

NOTE 3 - LOANS

Loans are comprised of the following as of December 31:
<TABLE>
<CAPTION>

                                                          1998        1997
                                                          ----        ----
<S>                                                     <C>        <C>     
   Commercial and leases                                $ 26,475   $  2,960
   Real estate construction                                7,409        136
   Residential real estate mortgages                       6,241        189
   Installment loans to individuals                        9,317        673
                                                        --------   --------

                                                        $ 49,442   $  3,958
                                                        ========   ========
</TABLE>

There were no impaired or non-performing  loans outstanding at December 31, 1998
or 1997.

Certain of Heartland's  officers and directors were loan customers of Heartland.
The balance of loans  outstanding to these  individuals  was not  significant at
December 31, 1998 or 1997.

NOTE 4 - ALLOWANCE FOR LOAN LOSSES

The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>

                                                          1998        1997
                                                          ----        ----

<S>                                                     <C>        <C>     
   Beginning balance                                    $     46   $      -
   Provision charged to operations                           700         46
   Loans charged-off                                          (4)         -
   Recoveries on loans previously charged-off                  -          -
                                                        --------   --------

   Ending balance                                       $    742   $     46
                                                        ========   ========
</TABLE>

NOTE 5 - PREMISES, FURNITURE AND EQUIPMENT

A summary of premises, furniture and equipment by major category follows:
<TABLE>
<CAPTION>

                                                          1998        1997
                                                          ----        ----
<S>                                                     <C>        <C>     
   Land                                                 $    205   $    205
   Buildings and improvements                                931        711
   Leasehold improvements                                    201          2
   Furniture and equipment                                   485        294
                                                        --------   --------
      Total                                                1,822      1,212
   Accumulated depreciation                                  115          5
                                                        --------   --------

      Premises, furniture and equipment, net            $  1,707   $  1,207
                                                        ========   ========
</TABLE>






                                      F-10


<PAGE>


NOTE 6 - INTEREST-BEARING TIME DEPOSITS

Interest-bearing  time deposits issued in  denominations of one hundred thousand
dollars or greater totaled $19,374 and $300 at December 31, 1998 and 1997.

<TABLE>
<CAPTION>
Scheduled maturities of time deposits for the next five years are as follows:

<S>                                                    <C>      
                  1999                                 $  20,921
                  2000                                    10,882
                  2001                                     2,912
                  2002                                       180
                  2003 and thereafter                        121
                                                        --------

                                                        $ 35,016
</TABLE>

Time  deposits  from  governmental  and  other  public  entities  such as school
corporations and hospitals in the Bank's market area totaled $13,900 at December
31, 1998 and $0 at December 31, 1997.

NOTE 7 - SHORT-TERM BORROWINGS

<TABLE>
<CAPTION>
Short-term borrowings are comprised of the following at December 31:

                                                          1998        1997
                                                          ----        ----

<S>                                                     <C>        <C>     
   Balance of repurchase agreements outstanding         $    740   $      -

   Balance of Federal funds purchased                          -        800
                                                        --------   --------

      Total short-term borrowings                       $    740   $    800
                                                        ========   ========
</TABLE>


NOTE 8 - EMPLOYEE BENEFIT PLANS

The Bank created a 401(k)  retirement  savings plan covering  substantially  all
employees which became effective January 1, 1998. The Plan requires employees to
be 21 years of age before entering the Plan. Employee  contributions are limited
to a maximum of 15% of their  salary.  The Plan allows for a 50% matching of the
first  6%  of  employee  salary   contributions  and  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 for 1998 was $22.





                                      F-11


<PAGE>


NOTE 9 - STOCK OPTION PLAN

On July 25, 1997, Heartland's Board of Directors adopted two stock option plans:
an employee plan and a non-employee director plan. Under the terms of the plans,
options for up to 115,000 shares of  Heartland's  common stock may be granted to
key management  employees and directors of Heartland and its  subsidiaries.  The
exercise  price of the  options  will be  determined  at the time of grant by an
administrative  committee to be  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.

Regarding the employee plan, 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.

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

A summary of Heartland's stock option activity,  and related information for the
periods ended December 31, 1997 and 1998 follows:
<TABLE>
<CAPTION>

                                     1998                       1997
                                         Weighted-                  Weighted-
                                          Average                    Average
                                         Exercise                   Exercise
                               Options     Price          Options     Price
                               -------     -----          -------     -----
<S>                              <C>      <C>              <C>      <C>    
   Outstanding - beginning
     of period                   83,000   $   10.00             -   $     -
   Granted                            -          -         83,000     10.00
   Exercised                          -          -              -         -
   Forfeited                          -          -              -         -
                              ---------   ---------     ---------   -------

   Outstanding-end of period     83,000   $   10.00        83,000   $ 10.00
                              =========   =========     =========   =======

   Exercisable at end of
    period                       36,000   $   10.00        18,000   $ 10.00
                              =========   =========     =========   =======

   Weighted-average fair value
     per option granted during
     the period               $       -                 $    2.70

</TABLE>





                                      F-12


<PAGE>


NOTE 9 - STOCK OPTION PLAN (Continued)

Financial  Accounting  Standard  No.  123  requires  pro forma  disclosures  for
companies  that do not adopt its fair value  accounting  method for  stock-based
employee  compensation.  The pro  forma  information  presents  net  income  and
earnings  per share had the  Standard's  fair value  method been used to measure
compensation cost for stock option plans.  Compensation cost actually recognized
for stock options was $0 for 1998 and 1997. The fair value for these options was
estimated at the date of grant using a  Black-Scholes  option pricing model with
the following weighted average assumptions for 1997:  risk-free interest rate of
6.3% dividend yields of 0%;  volatility  factors of the expected market price of
Heartland's  common stock of .001, and a weighted  average  expected life of the
options of 9.75 years.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the options' vesting period.
Heartland's pro forma information follows:
<TABLE>
<CAPTION>

                                                          1998        1997
                                                          ----        ----

<S>                                                     <C>        <C>      
   Pro forma net income                                 $   (677)  $   (289)
   Pro forma basic and diluted earnings per share       $   (.54)  $   (.23)
</TABLE>

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


NOTE 10 - INCOME TAXES

Heartland had a net deferred tax asset of $275 at December 31, 1998.  This asset
is  primarily  due  to  a  net  operating  loss   carryforward  and  accumulated
differences  in the  allowance  for loan  losses,  offset by timing  differences
related to leases and the  computation  of taxable  income on the cash basis.  A
valuation  allowance  has been  recorded to reduce the net deferred tax asset to
zero,  as Heartland  has not yet paid any income taxes which would be refundable
if these timing differences reversed.

Heartland  had an  operating  loss  carryforward  at  December  31,  1998 in the
approximate amount of $495 which can be utilized to offset future taxable income
over a 15 year period.





                                      F-13


<PAGE>


NOTE 11 - PER SHARE DATA

The following  illustrates  the  computation  of basic and diluted  earnings per
share.

<TABLE>
<CAPTION>
                                                        1998         1997
                                                        ----         ----
<S>                                                  <C>          <C>       
Basic earnings per share
   Net loss                                          $     (628)  $    (240)
                                                     ==========   =========

   Weighted average shares outstanding                1,265,000   1,265,000
                                                     ==========   =========

      Basic earnings per share                       $    (.50)   $    (.19)
                                                     =========    =========

                                                        1998         1997
                                                        ----         ----
Dilutive earnings per share
   Net loss                                          $     (628)  $    (240)
                                                     ==========   =========

   Weighted average shares outstanding                1,265,000   1,265,000
   Dilutive effect of assumed exercise of
    stock options                                             -          86
                                                     ----------   ---------

      Diluted average shares outstanding              1,265,000   1,265,086
                                                     ==========   =========

      Diluted earnings per share                     $    (.50)   $    (.19)
                                                     =========    =========

</TABLE>

NOTE 12 - 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.







                                      F-14


<PAGE>


NOTE 12 - CAPITAL REQUIREMENTS (Continued)

<TABLE>
<CAPTION>
At year end, the Bank was  well-capitalized.  Actual  capital levels and minimum
required levels were:

                                                                Minimum Required
                                                                      To Be Well
                                            Minimum Required  Capitalized Under
                               Actual          For Capital    Prompt Corrective
                             Regulations    Adequacy Purposes      Action
                           Amount    Ratio   Amount   Ratio    Amount    Ratio
                           ------    -----   ------   -----    ------    -----
<S>                        <C>       <C>     <C>       <C>      <C>      <C>
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

1997
Total capital
 (to risk weighted assets) $8,706   157%     $  444    8%       $  555   10%
Tier 1 capital
 (to risk weighted assets)  8,660   156         222    4           333    6
Tier 1 capital
 (to average assets)        8,660   352          99    4           123    5
</TABLE>


NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES

The Bank leases its branch  facility under an operating  lease expiring in 2007.
Expense for the leased facility was $43 and $12 for 1998 and 1997.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>

<S>                                                 <C>     
                  1999                              $     60
                  2000                                    60
                  2001                                    62
                  2002                                    64
                  2003                                    66
                  Thereafter                             283
                                                    --------

                     Total minimum lease payments   $    595
</TABLE>

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.
                                      F-15


<PAGE>


NOTE 13 - COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

<TABLE>
<CAPTION>
At December  31,1998  off-balance  sheet  financial  instruments  whose contract
amount represents credit risk are summarized as follows:

<S>                                                                <C>     
    Unused lines of credit                                         $ 10,098
    Commitments to make loans                                         7,774
    Letters of credit                                                   298
</TABLE>

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 $531 at  December  31,  1998.  These  reserves do not earn
interest.


NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The  carrying  value  and  estimated   fair  values  of  Heartland's   financial
instruments were as follows at December 31:
<TABLE>
<CAPTION>

                                        1998                    1997
                                        ----                    ----
                                 Carrying     Fair       Carrying     Fair
                                   Value      Value        Value      Value
                                   -----      -----        -----      -----
<S>                              <C>        <C>          <C>        <C>    
   Financial assets:
      Cash and cash
       equivalents               $  3,163   $ 3,163      $  1,140   $ 1,140
      Securities
       available-for-sale          10,457    10,457         8,012     8,012
      Loans, net                   48,700    48,706         3,912     3,912
      Accrued interest receivable     564       564           129       129

   Financial liabilities:
      Deposits                   $ 52,754   $53,012      $  2,079   $ 2,079
      Short-term borrowings           740       740           800       800
      Accrued interest payable        228       228             1         1



</TABLE>


                                      F-16


<PAGE>


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

The estimated fair value approximates carrying amount for all items except those
described  below.  Estimated fair value for securities is based on quoted market
values for the  individual  securities or for equivalent  securities.  Estimated
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.  Estimated  fair  value  for  IRAs,  time  certificates  of  deposit,  and
agreements to repurchase is based on the rates paid at year end for new deposits
or borrowings,  applied until maturity. Estimated fair value for other financial
instruments and off-balance-sheet loan commitments are considered nominal.


NOTE 15 - PARENT COMPANY STATEMENTS

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

                           CONDENSED BALANCE SHEET

                                                             1998        1997
                                                             ----        ----
<S>                                                        <C>        <C>     
ASSETS
Cash                                                       $     22   $      5
Securities available-for-sale, at market                      2,851      2,704
Investment in bank                                            7,993      8,733
Other assets                                                     50         62
                                                           --------   --------

                                                           $ 10,916   $ 11,504
                                                           ========   ========


LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities                                                $      -   $      -

Shareholders' equity                                         10,916     11,504
                                                           --------   --------

                                                           $ 10,916   $ 11,504
                                                           ========   ========

</TABLE>






                                      F-17


<PAGE>


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

                        CONDENSED STATEMENT OF INCOME

                                                             1998        1997
                                                             ----        ----
<S>                                                        <C>        <C>     
Operating income
   Dividends received from subsidiary bank                 $      -   $      -
   Interest income                                              161         38
                                                           --------   --------
Operating expenses
   Professional fees                                             16          -
   Amortization of deferred costs                                12          1
   Other                                                          9          -
                                                           --------   --------

Income before income taxes and equity in
  undistributed earnings of subsidiary                          124         37

Income tax expense                                                -          -
                                                           --------   --------

Income before equity in undistributed earnings of bank          124         37

Equity in undistributed earnings of bank                       (752)      (277)
                                                           --------   --------

Net loss                                                       (628)      (240)
                                                           ========   ========
</TABLE>














                                      F-18


<PAGE>


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

                      CONDENSED STATEMENT OF CASH FLOWS

                                                             1998        1997
                                                             ----        ----
<S>                                                        <C>        <C>      
Cash flows from operating activities
   Net loss                                                $   (628)  $   (240)
   Adjustments to reconcile net loss to net cash
     from operating activities
      Amortization of deferred costs                             12          1
      Equity in undistributed earnings of bank                  752        277
      Other assets and other liabilities                          -        (64)
                                                           --------   --------
         Net cash from operating activities                     136        (26)
Cash flows from investing activities
   Purchase of securities available-for-sale                   (119)    (2,700)
   Purchase of stock in bank                                      -     (9,000)
                                                           --------   --------
      Net cash from investing activities                       (119)   (11,700)
Cash flows from financing activities
   Proceeds from issuance of common stock                         -     11,731
                                                           --------   --------
      Net cash from financing activities                          -     11,731
                                                           --------   --------

Net change in cash and cash equivalents                          17          5

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

Cash and cash equivalents at end of period                 $     22   $      5
                                                           ========   ========

</TABLE>













                                      F-19