Exhibit 13. The Issuer's  Annual Report to  Shareholders  for the year ended
            December 31, 2002.

                                                                  March 21, 2003



Dear Shareholders and Friends:

The last sentence in our letter to shareholders last year read, "We look forward
to the  challenges  that lie ahead in 2002." As it turned  out,  2002 was indeed
challenging.  For the year ended December 31, 2002, Heartland  Bancshares,  Inc.
reported a net loss of  $(1,213,000)  as compared to net income of $529,000  the
previous  year.  While  the  weakening  economy  and  declining  interest  rates
contributed to the poor  performance,  the primary factor was problem loans. Our
existing  capital position was able to absorb the loss and maintain levels above
the regulatory requirements.

As reported in last year's annual report,  Heartland Community Bank entered into
a formal  agreement  effective  May 11,  2002 with its banking  regulators  that
primarily  addressed  concerns with the lending function.  In response,  we have
hired a new chief credit officer and implemented new credit  standards  designed
to insure better quality of loans originated in the future. During 2002, we also
addressed the problem loans already in our portfolio, which resulted in net loan
charge-offs  of  $3,052,000  and loss on sale of other real estate of  $525,000.
Provision  for loan losses for 2002 was  $3,150,000.  Year-end loan loss reserve
was 2.92% of total  loans,  compared  to our peer  group  average of 1.46% as of
September 30, 2002,  according to Uniform Bank  Performance  Reports provided by
the Federal Deposit Insurance Corporation (FDIC).

Management's  primary  focus in 2002 was  addressing  the  problem  loans in the
portfolio  and  improving  the  quality of new loans  originated.  Managing  any
business in difficult times is a real test, and for our nearly 100 employees, it
has been a test of their talent and  dedication.  The  dedication of the working
family  has been  tremendous.  They  continue  to wear that  friendly  smile and
deliver excellent customer service, which sets us apart from our competition.

Regarding  competition,  Johnson County,  our primary market area,  continues to
attract more banks.  According to the June 30, 2002 market share report from the
FDIC,  there were 17 banks in our market.  Since June 30, 2002,  there have been
three additional financial institutions announce their intent to open offices in
the county. Despite our decline in assets from $189 million at December 31, 2001
to $177 million at December 31, 2002,  we held on to third place market share at
11.5% of total  deposits in the  county,  as reported by the FDIC as of June 30,
2002.

Our mortgage loan production has been fueled by refinancings due to low interest
rates.  The related gain on sale of mortgage loans  continues to be an excellent
source of non-interest  income.  During 2002, we originated $51 million in first
residential mortgages,  which generated $712,000 in non-interest income compared
to  $535,000 in  non-interest  income the  previous  year.  We realize  that the
refinancing  activity will  eventually  slow,  but feel that our reputation as a
mortgage  loan  provider in the market  will  continue to provide us with a good
source of revenue.

Despite our poor  financial  performance  and the lackluster  stock market,  our
stock price increased  during 2002. The stock opened 2002 at $7.70 per share and
closed the year at $7.91 per share for a 2.7% increase. The book value was $8.75
per share at December 31, 2002.



<PAGE>


Management's focus in 2003 will continue to be improving our asset quality. Even
though  this has been a painful and costly  experience,  we feel the Bank is now
fundamentally stronger.  Asset growth is not a primary objective during the near
term. Improving asset quality and earnings are.

On December 17, 2002, we celebrated our 5th anniversary. Of the 18 employees who
started  the Bank five years  ago,  13 are still with us. We would like to thank
each  of  them  as well as the six  outside  directors  for  their  support  and
dedication over this start-up period. We would also like to thank all of you for
your patience with your  investment in us. Our mission has not changed.  We want
to provide the community with a Bank that gives excellent customer service, with
products that are reasonably priced, and with decisions that are made locally.

We are  sure the  challenges  will  continue  in  2003,  whether  it is the soft
economy,  the ramifications of terrorist threats,  or the fear of a war in Iraq.
However, with the support of our Bank family, we are up to the challenge.





Steve Bechman                       Jeff Goben
President & CEO                     Executive Vice President, COO, Secretary





<PAGE>


<PAGE>

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


SUMMARY

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

At December 31, 2002,  Heartland  had  $176,657 in total  assets,  a decrease of
$12,860 or 6.79% from the December  31, 2001 total of  $189,517.  The decline in
assets was  primarily  comprised of a decline in net loans of $26,814 or 18.72%.
Net loans were  $116,422 at December  31, 2002  compared to $143,236 at December
31,  2001.  The decline in loans was  primarily  due to more  stringent  lending
standards  used by Heartland and to the formal order that the Bank executed with
its  regulators  in May 2002 (the "May 2002 Order") (see Note 13 to  Heartland's
consolidated financial statements) that required that the Bank reduce the dollar
amount of certain  types of loans.  Total  deposits  declined  $12,592 or 7.82%,
during the year.  Total  deposits were $148,399 at December 31, 2002 compared to
$160,991 at  December  31,  2001.  Deposits  were  allowed to decline due to the
decline in loans. Total shareholders' equity was $12,200 and $13,263 at December
31, 2002 and December 31, 2001. The decrease in equity was due to the $1,213 net
loss partially offset by other  comprehensive  income of $150 for the year ended
December 31, 2002.

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

Heartland's  profitability is significantly influenced by 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.


RESULTS OF OPERATIONS

Heartland has  experienced  a decline in average  balances of loans and deposits
during 2002.  Market rates for loans and deposits were  generally  lower in 2002
compared to 2001.  Changes in interest  income and interest  expense between the
two periods  discussed  relate  primarily to the difference in average loans and
deposits  and the  decline in  interest  rates  unless  otherwise  stated in the
following discussion.

Heartland  recorded net loss of $(1,213) or $(.87) per share, for the year ended
December 31, 2002 and net income of $529, or $.38 per share,  for the year ended
December 31, 2001.  The decrease in net income is  attributable  to a decline in
net  interest  income,  a  higher  provision  for  loan  losses  and  growth  of
non-interest expenses, partially offset by the growth of non-interest income.


Note. Dollar amounts in thousands except per share data.

<PAGE>


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 $(1,063) for
the year ended  December 31, 2002 compared to  comprehensive  income of $609 for
the year ended December 31, 2001.

Interest  income of $10,972 was earned during the year ended  December 31, 2002,
compared  to $14,409  for the year ended  December  31,  2001 and was  primarily
generated from securities and loans.  The decrease is primarily due to decreases
in yields earned on interest  earning assets and secondarily due to the decrease
in average loans and securities outstanding during the year. Contributing to the
decrease in yields  earned on  interest-earning  assets,  and to the decrease in
average loans,  was the requirement of the May 2002 Order that the Bank decrease
the dollar volume of certain types of higher-yielding loans. The increase in the
yield earned on non-taxable securities partially offset the decrease in interest
income.  Overall,  the average yield on earning assets declined 180 basis points
to 6.57% for 2002 from 8.37% for 2001.

Interest  expense of $4,198 was incurred during the year ended December 31, 2002
and  $6,789  during  the year  ended  December  31,  2001.  Interest  expense is
primarily  related to deposits  during 2002 and 2001.  The decrease is primarily
due to  the  decreases  in  rates  paid  on  interest  bearing  liabilities  and
secondarily  due to the decrease in average  deposits and short-term  borrowings
outstanding  during  the year.  The  increase  in the  average  balance of other
borrowings  partially  offset the  decrease in interest  expense.  Overall,  the
average rate paid on interest bearing  liabilities  declined 165 basis points to
2.84% for 2002 from 4.49% for 2001.

Net interest  income for the year ended December 31, 2002 was $6,774 compared to
$7,620 for the year ended December 31, 2001.

The  following  tables  depict for the years ended  December  31, 2002 and 2001,
certain  information  related  to  Heartland's  average  balance  sheets and its
average  yields on assets and costs of  liabilities.  Such yields are derived by
dividing income or expense by the average balance of the corresponding assets or
liabilities. Average balances have been derived from daily averages.

                                  Year Ended                 Year Ended
                               December 31, 2002          December 31, 2001
                             Average/      Yield/       Average/      Yield/
                              Balance       Rate         Balance       Rate
Interest earning assets
   Short-term investments    $ 12,992       1.77%        $ 6,060        3.71%
   Taxable securities          15,893       6.07          18,586        7.34
   Non-taxable securities       2,626       4.68           1,489        4.50
   Loans                      135,433       7.13         145,961        8.74
                             --------                    -------
Total interest earning
 assets                      $166,944       6.57         $172,096       8.37
                             ========                    ========

Interest bearing liabilities
   Interest-bearing demand,
     Money Market and Savings
      Deposits               $ 63,002       1.54%        $59,639        2.99%
   Time deposits               70,929       3.81          81,071        5.59
   Short-term borrowings        4,872       1.52           6,174        3.61
   Other borrowings             9,000       5.03           4,222        5.95
                             --------                    -------
Total interest bearing
 liabilities                 $147,803       2.84         $151,106       4.49
                             ========                    ========


Note. Dollar amounts in thousands except per share data.

<PAGE>



                                                     2002        2001
Average yield on interest-earning assets             6.57%        8.37%
Average rate paid on interest-bearing
 liabilities                                         2.84         4.49
Net interest spread                                  3.73         3.88
Net interest margin (net interest earnings divided
 by average total interest-earning assets)                        4.06  4.43
Return on average assets                             (.68)        .29
Return on average equity                            (9.26)        3.95

The  decrease in the average  yield on  interest-earning  assets and the average
cost of interest bearing liabilities  followed the falling interest rates in the
economy during 2002. In addition,  the average yield on interest-earning  assets
during 2002 was adversely  affected by the Bank's  compliance  with the May 2002
Order,  which required that the Bank reduce the outstanding  balances of certain
higher-yielding  types  of  loans  during  2002.  See  Note  13  to  Heartland's
consolidated  financial  statements.  The required  reduced balances will likely
continue to adversely  affect  average  yield on earning  assets during 2003 and
future periods. See "LENDING ACTIVITIES".

The net interest  margin  decreased to 4.06% in 2002 from 4.43% in 2001. The net
interest  margin is calculated by dividing net interest  income by average total
interest  earning assets.  The average yield on interest  earning assets fell 15
basis points more than the cost of interest bearing liabilities and the ratio of
interest bearing liabilities to interest earning assets increased  slightly,  to
88.5% for 2002 from 87.8% for 2001  resulting  in the  decline  in net  interest
margin.

The  provision  for loan losses was $3,150 for the year ended  December 31, 2002
and $2,967 for the year ended  December 31, 2001.  Net  charge-offs  were $3,052
during  the year  ended  December  31,  2002 and  $2,234  during  the year ended
December 31, 2001. Non performing loans at December 31, 2002 increased to $5,633
from $749 at the end of 2001. Impaired loans increased to $4,689 at December 31,
2002 from  $4,130  at  December  31,  2001.  These  factors,  combined  with the
identification  of other  credits that,  while  performing,  were  demonstrating
weaknesses resulted in management determining that the allowance for loan losses
should be  increased.  The allowance for loan losses was 2.92% of gross loans at
December 31, 2002 compared to 2.32% at year-end  2001 and covers  non-performing
loans 0.6x at year-end 2002, compared to 4.5x in 2001.

Non-interest  income was $1,935 for the year ended  December 31, 2002 and $1,596
for the year ended  December  31, 2001 and consists  primarily of  miscellaneous
fees,  service  charges,  brokered  mortgage loan fees and other  income.  Gains
related  to the  sale,  service  released,  of  residential  real  estate  loans
increased  to $712 in 2002 from $535 in 2001,  as  interest  rates  fell and the
fixed rate,  residential real estate loan market improved.  Net securities gains
in 2002 and 2001 were $57 and $6.  Other  income  was $176 and $118 for 2002 and
2001 and  included  $63 and $0 of income on other real estate owned for 2002 and
2001.

Salaries  and benefits  expense for the year ended  December 31, 2002 was $3,948
compared to $3,186 for the year ended December 31, 2001. The number of full time
equivalent  employees was increased in the lending area to implement  changes in
the credit process, in part to comply with the May 2002 Order.  Commissions paid
to mortgage loan  originators  also  increased due to higher volumes of mortgage
loans originated.

Occupancy and equipment expenses of $680 and $510 were incurred during the years
ended  December 31, 2002 and 2001.  Those  expenses  consist  primarily of lease
payments for the branch and operations  facilities,  depreciation  and utilities
expenses.  Occupancy and  equipment  expenses  increased  during 2002 due to the
opening of the new operations facility in September of 2001.

Data  processing  expense was $817 for the year ended December 31, 2002 compared
to $644 for the year ended  December 31, 2001.  The increase in data  processing
expenses is related to cost associated with  transferring  the Bank's loan files
to an imaging system.

FDIC  Insurance was $227 for 2002 compared to $62 for 2001.  The increase is due
to the change in the Bank's risk assessment by the FDIC.

Professional fees increased to $374 during 2002 from $260 during 2001 due to the
cost of a management assessment,  increased loan collection issues and increased
legal fees. The increases were due in part to the compliance requirements of the
May 2002 Order.

Loss on sale and  write-down  of other real estate was $525 for 2002 compared to
$0 for 2001. Other real estate consists of properties obtained in the process of
collection  of loans.  At the time other real estate is obtained,  the estimated
fair value of the property is recorded as an asset and, if deemed uncollectable,
the remaining  balance of the loan is recorded as a charge against the allowance
for loan losses.  Subsequent  declines in  estimated  fair value are recorded as
expense.  When the property is subsequently  sold, any shortfall to the recorded
value is recognized as loss on sale. During 2002, Heartland recorded write-downs
and losses on the sale of several parcels of other real estate.

The remaining  expenses of $1,038 for the year ended  December 31, 2002 and $754
for the year ended  December  31,  2001,  relate to various  other items such as
printing, supplies, advertising, loan expenses, postage, insurance and training.
The increase is primarily due to the changes  implemented  in the credit process
and collection efforts.

The  restrictions  of the May 2002  Order  resulted  in  increased  non-interest
expense during 2002.  Costs of compliance with the  restrictions of the May 2002
Order are not expected to decline materially during 2003.

Heartland  recorded  income tax benefit of $837 for 2002  compared to income tax
expense of $304 in 2001.  The effective tax rate for 2002 was (40.8)%,  compared
to 36.5% in 2001.  The change in the  effective tax rate is primarily due to the
net loss  before  taxes in 2002 and  secondarily  due to the  increased  average
balance and related interest income on non-taxable securities.


LENDING ACTIVITIES

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

                                     2002                  2001
                                       Percent of            Percent of
                              Amount   Gross loans   Amount  Gross loans
TYPE OF LOAN
Commercial loans and leases  $ 66,861      55.76%  $  76,097      51.90%
Real estate construction and
 land development              12,489      10.41      23,150      15.79
Residential mortgages
 (1-4 family homes)            23,952      19.97      24,795      16.90
Consumer                       16,618      13.86      22,594      15.41
                             --------   --------   ---------   --------
Gross loans                  $119,920     100.00%  $ 146,636     100.00%
                             ========   ========   =========   ========


Note. Dollar amounts in thousands except per share data.

<PAGE>


Generally,  declines in loan totals from  December 31, 2001 to December 31, 2002
were a result of principal  repayments  by borrowers and loan  charge-offs.  The
Bank was required during 2002 to reduce certain types of loans by agreement with
its  regulatory  agencies.  See  "Capital  Adequacy".   During  2002,  Heartland
implemented lending practices more stringent than previously in place. Heartland
also  implemented  more  aggressive  collection  practices.  The new lending and
collection  practices  combined to effectively  limit new loan production and to
accelerate  repayment of some existing  loans and may continue to have a similar
effect on loan totals in the foreseeable future.

COMMERCIAL  LENDING.  Commercial  loans include loans secured by commercial real
estate;  and loans for business  purchases,  operations,  inventory and lines of
credit. At December 31, 2002,  commercial loans totaled $66,861 or 55.76% of the
Bank's total loan portfolio.  Commercial  loans totaled $76,097 or 51.90% of the
Bank's loan  portfolio at December 31, 2001. The decline in the dollar amount of
commercial loans outstanding  during 2002 was due in part to compliance with the
May 2002 Order. See Note 13 to the Heartland's consolidated financial statements
for a discussion  of the May 2002 Order.  Under the May 2002 Order,  the Bank is
required during the first quarter of 2003 to further reduce its commercial loans
secured by commercial  real estate to a certain  specified  level in relation to
the Bank's  capital.  The Bank has requested  adjustments to the May 2002 Order,
which, if approved by the Bank's regulators,  would allow the Bank to retain the
levels of  commercial  loans  outstanding  at December 31, 2002. As of March 19,
2003,  the Bank's  regulators had not yet notified the Bank of their decision on
the Bank's request. If such request is not approved,  the Bank would be required
either to reduce the amount of its commercial  loans secured by commercial  real
estate by an additional  approximately $2,309 from the December 31, 2002 totals,
or to  increase  the Bank's Tier 1 capital by  approximately  $1,300 in order to
permit the Bank to comply with the ratio  required by the May 2002 Order.  As of
March 19, 2003, Heartland (the parent company) had sufficient funds in excess of
its  forecasted  2003 parent  company  cash  requirements  to make the  required
capital  injection into the Bank (see "Parent  Company  Liquidity",  below),  if
necessary  for the Bank to comply  with the ratio  requirements  of the May 2002
Order  regarding  volume  of  commercial  loans  secured  by  real  estate,  and
management  expects that Heartland  would  contribute such amount to the Bank as
additional  capital if the Bank's request for  adjustments to the May 2002 Order
in this regard were not approved by the Bank's regulators.

REAL ESTATE  CONSTRUCTION AND LAND DEVELOPMENT  LOANS. Real estate  construction
and land development loans are secured by real estate and include commercial and
residential  construction loans and loans to develop land. At December 31, 2002,
real estate construction and land development loans totaled $12,489 or 10.41% of
the Bank's  total  loan  portfolio  compared  to $23,150 or 15.79% of the bank's
total loan portfolio at December 31, 2001. The Bank was required  during 2002 to
reduce these types of loans by agreement with its regulatory agencies.
See "Capital Adequacy".

RESIDENTIAL MORTGAGE LOANS. Residential mortgage loans are predominantly secured
by single-family homes. To reduce its exposure to changes in interest rates, the
Bank currently originates adjustable rate first mortgage loans ("ARMs"),  second
mortgage loans and home equity lines of credit,  also with adjustable  rates. At
December 31, 2002, the Bank's residential  mortgage loans totaled  approximately
$23,952 or 19.97% of the  Bank's  total loan  portfolio  compared  to $24,795 or
16.90% of the Bank's total loans at December 31, 2001.

The Bank  also  originates  fixed  rate  mortgages  and  sells  them,  servicing
released,  to various investors.  At year-end 2002, the Bank held $7,156 of such
loans  that had  been  closed  and were in the  process  of being  delivered  to
secondary market buyers.

CONSUMER LENDING. The Bank makes various types of consumer loans including loans
to  depositors  secured  by  pledges  of their  deposit  accounts,  new and used
automobile  loans,  and secured and unsecured  personal  loans.  At December 31,
2002, the Bank's consumer loans totaled  approximately  $16,618 or 13.86% of the
Bank's  total loan  portfolio  compared to $22,594 or 15.41% of the Bank's total
loans at December 31, 2001.


NONPERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES

Nonperforming assets consist of nonperforming loans, real estate owned (acquired
in  foreclosure),  and other  repossessed  assets.  Nonperforming  loans include
non-accrual loans and accruing loans that are contractually  past due 90 days or
more as to interest or principal  payments.  Non-accrual  loans include loans on
which interest  recognition has been suspended because they are 90 days past due
as to interest or principal and loans where there is a question about the Bank's
ability to collect all  principal  and interest.  Nonperforming  assets  totaled
$6,426 and $1,143 at December 31, 2002 and 2001.

The provision  for loan losses  expense  represents  charges made to earnings to
maintain an adequate  allowance for loan losses.  The allowance is maintained at
an amount that we believe to be sufficient to absorb probable incurred losses in
the  loan  portfolio.  Monitoring  loan  quality  and  maintaining  an  adequate
allowance is an ongoing process overseen by our senior management.  On a monthly
basis,  a formal  analysis of the  adequacy  of the  allowance  is prepared  and
reviewed by  management  and the board of directors.  This analysis  serves as a
point in time assessment of the level of the allowance and serves as a basis for
current provisions for loan losses.

Our loan quality  monitoring process includes assigning loan grades to all loans
and the use of a watch list to identify loans of concern.  Management  evaluates
the credit  quality of  individual  loans and borrowers and assigns a risk grade
based  on the  various  factors  included  in the  evaluation.  Loans  receiving
substandard  risk grades are monitored  regularly for repayment  performance and
changes  in the  borrowers'  ability  to repay  the  loans.  These  loans do not
necessarily  meet the  definition of non-accrual  or  nonperforming  loans and a
substandard grade does not indicate that management expects a future loan loss.

The  analysis  of the  allowance  for loan losses  includes  the  allocation  of
specific amounts of the allowance to individual  problem loans,  generally based
on  our  analysis  of the  collateral  securing  those  loans.  Portions  of the
allowance  are  allocated  to pools of loans,  based  upon a variety  of factors
including industry loss averages for similarly sized institutions,  our own loss
history,  considering  the fact  that our  growth  in  recent  years  makes  our
historical  experience less meaningful,  trends in delinquent and non-performing
loans,  and economic  trends  affecting our market.  These  components are added
together and compared to the balance of our allowance at the evaluation date.

At December 31, 2002 the balance of the  allowance for loan losses was $3,498 or
2.92% of gross  loans  outstanding,  compared  to $3,400 or 2.32% of gross loans
outstanding at December 31, 2001.


DEPOSIT ACTIVITIES


The Bank offers  several  types of deposit  programs  designed  to attract  both
short-term and long-term  savings by providing a wide assortment of accounts and
rates.  The Bank also  obtains  time  deposits on a bid basis from  customers or
potential  customers wishing to deposit amounts of at least $100. Total deposits
were  $148,399 at December  31, 2002  compared to $160,991 at December 31, 2001.
Deposits were allowed to decline due to the decline in loans.

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



Note. Dollar amounts in thousands except per share data.

<PAGE>


BANK Liquidity and Interest Rate Sensitivity

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

Liquidity is provided by projecting  loan demand and other  financial  needs and
then maintaining  sufficient funding sources and assets readily convertible into
cash to meet these  requirements.  The Bank has provided for its liquidity needs
by maintaining adequate balances in money market assets,  through growth in core
deposits,  maturing loans and  investments  in its  securities  portfolio and by
maintaining various short-term borrowing sources. At December 31, 2002, the Bank
had $19,566 or 11.06% of total assets in securities available-for-sale, of which
$15,900 were pledged to secure borrowings and for other purposes.  The Bank also
had  $25,232  or 14.28%  of total  assets  in cash and cash  equivalents  and an
additional $3,000 available from unused federal funds purchased  agreements with
two large commercial banks.

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.

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


CAPITAL ADEQUACY

Heartland  and  the  Bank  are  subject  to  regulatory   capital   requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve  quantitative and qualitative  measures of
assets,   liabilities  and  certain  off-balance-sheet  items  calculated  under
regulatory  accounting  practices.   Note  13  to  the  consolidated   financial
statements includes a table of Heartland's and the Bank's capital ratios and the
related requirements.

The most restrictive capital adequacy  requirement in place during 2002 and 2001
was from an agreement with the Bank's  regulators.  Effective May 11, 2002, with
the consent of the Bank,  the FDIC and DFI entered a formal order under  federal
and state banking  laws,  under which the Bank and its Directors are required to
take a number of affirmative steps to address regulatory concerns, including but
not limited to,  maintaining  the Bank's ratio of Tier 1 capital to assets at 8%
or above;  committing  not to declare or pay dividends to the  Corporation  that
would result in the Bank's  violation of the required  capital  ratio;  limiting
growth in total  assets to no more than three  percent in any three month period
without advance approval by the regulators, or more than 12% annually;  adopting
and  implementing  plans to resolve certain  criticized  assets;  eliminating or
restricting  future lending to borrowers whose loans have been criticized by the
regulators;  and  adopting  and  implementing  plans to reduce the volume of the
Bank's acquisition,  development and construction loans,  commercial real-estate
loans and high  loan-to-value  loans, as defined by FDIC Regulation Part 365, in
relation to its capital. See note 13 to the consolidated  financial  statements.
Heartland  and the Bank  intend  to  maintain  the  required  capital  levels by
accumulating  additional  retained  earnings  and  restricting  growth  in total
assets. PARENT COMPANY LIQUIDITY

Heartland's parent company liquidity improved during December 2001 as the result
of the issuance of $5,000 of long-term  subordinated  debentures  in  connection
with the issuance by its trust  subsidiary of trust  preferred  securities  (see
Note 8 to the consolidated  financial statements) and the application of some of
the proceeds by Heartland to retire its short term note  payable.  Heartland had
approximately  $1,752 of  parent-company  cash that would have been available at
December 31,  2002,  for the payment of interest  and other  obligations  on the
subordinated debentures.

In addition,  at December  31,  2002,  the Bank's Tier 1 capital to total assets
ratio was 8.45% (8.35% using average assets) and it could have paid dividends of
$802  without  violating  the  capital  ratio  maintenance   provisions  of  the
regulatory order that is discussed under the "Capital Adequacy" caption above.

The  restrictions  of the May 2002  Order  may  also  reduce  the  Corporation's
parent-company  liquidity  by  making  it  unlikely  that the Bank  will be in a
position  to  pay  dividends  to the  Corporation  during  the  period  of  such
restrictions,  and the Corporation may be required to infuse additional  capital
into the Bank from time to time if  necessary  in order for the Bank to maintain
any required  capital ratio.  See "LENDING  ACTIVITIES -- COMERCIAL  LENDING,  "
above,  for information  regarding the possible  injection by the Corporation of
approximately  $1,300 into the Bank during  2003 if  necessary  in order for the
Bank to meet  restrictions  of the May 2002  Order  relating  to the  volume  of
commercial  loans secured by real estate.  At December 31, 2002, the Corporation
had  sufficient  liquid assets to pay the interest  payable on the  subordinated
debentures  related  to the trust  preferred  securities  during  2002,  and the
Corporation  may elect to defer the payment of interest on such  debentures  for
certain periods of time in any event. The Corporation  therefore does not expect
that the maintenance  requirements with respect to the Bank's capital ratio that
are included in the May 2002 order will be material to parent-company  liquidity
during 2003.


SERVICE AREA

The Bank's primary service area is Johnson County, Indiana.  Johnson County lies
on the Southern border of Marion County and Indianapolis,  Indiana. The Bank has
one branch in Franklin and two in Greenwood, which are the two largest cities in
the  county.  The Bank  also  operates  from a fourth  branch  in  Bargersville,
Indiana.  Bargersville,  also in Johnson County, is approximately six miles west
of Franklin and seven miles south of Greenwood.


COMMON STOCK

Heartland  had  1,394,172  shares of Common  Stock  issued  and  outstanding  to
approximately  1,300  shareholders  (including  beneficial owners who held their
shares in street name) on March 10, 2003. The number of  shareholders  of record
was 298 on March 10, 2003 and 299 at December 31, 2002 and January 1, 2003.


Note. Dollar amounts in thousands except per share data.

<PAGE>




The Common  Stock has been quoted on the NASD  Over-the-Counter  Bulletin  Board
under the symbol HRTB since October 3, 1997. The following  table sets forth the
reported high and low bid prices of the Common Stock for the quarters  indicated
as reported on the NASD Over-the-Counter  Bulletin Board. (Data is retroactively
adjusted  for the five  percent  stock  dividends  issued  in  October  2000 and
November 2001).

                            High               Low

First Quarter 2001          $7.54             $6.47
Second Quarter 2001          7.85              6.58
Third Quarter 2001           7.93              6.64
Fourth Quarter 2001          8.10              6.85
First Quarter 2002           8.65             7.80
Second Quarter 2002          9.65              8.45
Third Quarter 2002           9.50              7.50
Fourth Quarter 2002          8.30              7.51

The prices  quoted above  represent  prices  between  dealers and do not include
adjustments  for mark-ups,  mark-downs  or  commissions  and do not  necessarily
represent actual transactions.

Heartland  has not  paid  cash  dividends  since  its  inception  and  does  not
anticipate doing so in the foreseeable future.


Note. Dollar amounts in thousands except per share data.

<PAGE>


FINANCIAL STATEMENTS

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

o     Report of Independent Auditors on consolidated financial statements.

o     Consolidated Balance Sheets at December 31, 2002 and 2001.

o     Consolidated  Statements  of Income for the years ended  December 31, 2002
      and 2001.

o     Consolidated  Statements  of  Changes in  Shareholders'  Equity for the
      years ended December 31, 2002 and 2001.

o     Consolidated  Statements of Cash Flows for the years ended
      December 31, 2002 and 2001.

o     Notes to consolidated financial statements.






<PAGE>


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









                         REPORT OF INDEPENDENT AUDITORS



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


We have  audited  the  accompanying  consolidated  balance  sheets of  Heartland
Bancshares,  Inc. as of December 31, 2002 and 2001 and the related  consolidated
statements  of income,  changes in  shareholders'  equity and cash flows for the
years then ended.  These  financial  statements  are the  responsibility  of the
Corporation's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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,  2002 and 2001,  and the  results of its
operations  and its cash  flows  for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.





                                          Crowe, Chizek and Company LLP

Indianapolis, Indiana
February 24, 2003



<PAGE>


                           HEARTLAND BANCSHARES, INC.
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 2002 and 2001
                          (Dollar amounts in thousands)

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



                                                             2002        2001
                                                             ----        ----
ASSETS
Cash and due from banks                                    $ 10,198   $  7,202
Federal funds sold                                           15,034      9,305
                                                           --------   --------
      Total cash and cash equivalents                        25,232     16,507

Time deposits with other financial institutions                 500        500
Securities available-for-sale                                19,566     17,603
Loans held for sale                                           7,156      4,597
Loans, net of allowance of $3,498 and $3,400                116,422    143,236
Premises and equipment, net                                   2,673      2,853
Federal Home Loan Bank stock                                    608        512
Accrued interest receivable and other assets                  4,500      3,709
                                                           --------   --------

                                                           $176,657   $189,517


LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
   Noninterest-bearing deposits                            $ 18,542   $ 17,687
   Interest-bearing demand and savings deposits              60,408     68,654
   Interest-bearing time deposits                            69,449     74,650
                                                           --------   --------
      Total deposits                                        148,399    160,991
   Repurchase agreements                                      6,251      5,554
   Other borrowings                                           4,000      4,000
   Trust preferred securities                                 5,000      5,000
   Accrued interest payable and other liabilities               807        709
                                                           --------   --------
      Total liabilities                                     164,457    176,254

Shareholders' equity
   Common stock, no par value:  10,000,000 shares
     authorized; 1,394,172 shares issued and outstanding      1,394      1,394
   Additional paid-in capital                                11,360     11,360
   Retained earnings/(accumulated deficit)                     (855)       358
   Accumulated other comprehensive income                       301        151
                                                           --------   --------
                                                             12,200     13,263
                                                           --------   --------
                                                           $176,657   $189,517
                                                           ========   ========

                            See accompanying notes.

<PAGE>


                           HEARTLAND BANCSHARES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share value)

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


                                                             2002        2001
                                                             ----        ----
Interest income
   Loans, including related fees                           $  9,654    $12,752
   Securities:
      Taxable                                                   965      1,365
      Non-taxable                                               123         67
   Short-term investments                                       230        225
                                                           --------    -------
                                                             10,972     14,409

Interest expense
   Deposits                                                   3,671      6,315
   Short-term borrowings                                         74        223
   Other borrowings                                             453        251
                                                           --------    -------
                                                              4,198      6,789

Net interest income                                           6,774      7,620

Provision for loan losses                                     3,150      2,967
                                                           --------    -------

Net interest income after provision for loan losses           3,624      4,653

Noninterest income
   Deposit service charges and fees                             601        545
   Commissions on investment sales                              389        392
   Gain on sale of securities                                    57          6
   Brokered mortgage loan fees                                  712        535
   Other                                                        176        118
                                                           --------    -------
                                                              1,935      1,596

Noninterest expense
   Salaries and employee benefits                             3,948      3,186
   Occupancy and equipment, net                                 680        510
   Data processing                                              817        644
   FDIC Insurance                                               227         62
   Professional fees                                            374        260
   Loss on sale and write-down of other real estate             525          -
   Other                                                      1,038        754
                                                              -----      -----
                                                              7,609      5,416

Income/(loss) before income taxes                            (2,050)       833

Income taxes                                                   (837)       304
                                                           --------    -------

Net income/(loss)                                          $ (1,213)   $   529
                                                           ========    =======

Basic and diluted earnings/(loss) per share                $    (.87)  $    .38
                                                           =========   ========

                            See accompanying notes.
<PAGE>


                           HEARTLAND BANCSHARES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
            Years ended December 31, 2002 and 2001 (Dollar amounts in
                        thousands, except per share data)

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


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

<S>                        <C>     <C>           <C>           <C>           <C>
Balance January 1, 2001    $1,328  $ 10,912      $  347        $   71        $12,658

Stock dividend of 5%
   (65,978 shares)             66       448        (518)                          (4)
Comprehensive income
   Net income for 2001                              529                          529
   Change in net unrealized
   gain/(loss) on securities
   available for sale, net                                         80             80
                                                                             -------
Total comprehensive income                                                       609
                           ------   -------      ------        ------        -------

Balance December 31, 2001   1,394    11,360         358           151         13,263

Comprehensive income/(loss)
   Net loss for 2002                             (1,213)                      (1,213)
   Change in net unrealized
     gain/(loss) on securities
     available for sale, net                                      150            150
Total comprehensive                                                          -------
  income/(loss)                                                               (1,063)
                           ------   -------      ------        ------        -------
Balance December 31, 2002  $1,394  $ 11,360      $ (855)       $  301        $12,200
                           ======  ========      ======        ======        =======


</TABLE>
                            See accompanying notes.
<PAGE>


                           HEARTLAND BANCSHARES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years ended December 31, 2002 and 2001
                          (Dollar amounts in thousands)

--------------------------------------------------------------------------------
                                                             2002        2001
                                                             ----        ----
Cash flows from operating activities
   Net income/(loss)                                       $ (1,213)  $    529
   Adjustments to reconcile net income/(loss) to net
     cash from operating activities
      Depreciation and amortization                             316        110
      (Gain)/loss on sale of securities                         (57)        (6)
      Loss on sale and write-down of other real estate          525          -
      Provision for loan losses                               3,150      2,967
      Change in assets and liabilities:
         Change in loans held for sale                       (2,559)    (4,597)
         Accrued interest receivable and other assets          (465)      (402)
         Accrued interest payable and other liabilities          98         13
                                                           --------   --------
            Net cash from operating activities                 (205)    (1,386)

Cash flows from investing activities
   Purchase of time deposits with other banks                     -       (500)
   Purchase of securities available-for-sale                (17,164)   (13,378)
   Proceeds from sales, calls and maturities of securities
     available-for-sale                                      15,514     17,801
   Loans made to customers, net of payments collected        21,585    (16,321)
   Purchase of FHLB stock                                       (96)       (62)
   Proceeds from sale of other real estate                    1,106          -
   Net purchases of property and equipment                     (120)      (778)
                                                           --------   --------
      Net cash from investing activities                     20,825    (13,238)

Cash flows from financing activities
   Net change in deposit accounts                           (12,592)    21,771
   Net change in short-term borrowings                          697     (3,719)
   Draws on note payable                                          -        917
   Repayments on note payable                                     -     (1,917)
   Draws on FHLB advances                                         -      6,000
   Repayments on FHLB advances                                    -     (4,000)
   Cash paid in lieu of fractional shares                         -         (4)
   Proceeds from trust preferred offering                         -      4,844
                                                           --------   --------

      Net cash from financing activities                    (11,895)    23,892
                                                           --------   --------

Net change in cash and cash equivalents                       8,725      9,268

Cash and cash equivalents at beginning of period             16,507      7,239
                                                           --------   --------

Cash and cash equivalents at end of period                 $ 25,232   $ 16,507
                                                           ========   ========

Supplemental  disclosures of cash flow  information  Cash paid during the period
   for:
      Interest                                             $  4,290   $  6,881
      Income taxes                                               92      1,033
Supplemental disclosure of non-cash activities:
   Transfer from loans to other real estate                $  2,079   $      -
                            See accompanying notes.

<PAGE>


                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

The Trust was formed during 2001 to issue the guaranteed beneficial interests in
the Corporation's subordinated debentures.

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

Securities:  Securities  are classified as available for sale when they might be
sold before maturity.  Securities  available for sale are carried at fair value,
with unrealized holding gains and losses reported in other comprehensive income,
net of tax. Other securities such as Federal Home Loan Bank stock are carried at
cost.

Interest income includes amortization of purchase premium or discount. Gains and
losses on sales are based on the amortized cost of the security sold. Securities
are written down to fair value when a decline in fair value is not temporary.

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.  Loans held for sale are
mortgage loans closed by the Bank and in the process of being  delivered to loan
brokers. These loans are carried at the lower of cost or market, on an aggregate
basis.
                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Interest income is not reported when full loan repayment is in doubt,  typically
when payments are  significantly  past due.  Payments received on such loans are
reported as  principal  reductions.  All  interest  accrued but not received for
loans  placed on  nonaccrual  is  reversed  against  interest  income.  Interest
received  on such loans is  accounted  for on the  cash-basis  or  cost-recovery
method,  until  qualifying for return to accrual.  Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought
current and future payments are reasonably assured.

Allowance  for Loan  Losses:  The  allowance  for  loan  losses  is a  valuation
allowance for probable  incurred  credit losses,  increased by the provision for
loan losses and decreased by charge-offs less recoveries.  Management  estimates
the allowance  balance required using past loan loss experience,  the nature and
volume of 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 losses are charged  against the  allowance  when  management  believes  the
uncollectibility of a loan balance is confirmed

A loan is  impaired  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.

Premises  and  Equipment:  Premises  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.

Company Owned Life Insurance:  The Company has purchased life insurance policies
on certain key executives.  Company owned life insurance is recorded at its cash
surrender  value, or the amount that can be realized and was carried at $960 and
$1,000 at December 31, 2002 and 2001 and shown in other assets.

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



                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock  Compensation:  Employee  compensation  expense  under  stock  options  is
reported using the intrinsic value method.  No stock-based  compensation cost is
reflected in net income, as all options granted had an exercise plan equal to or
greater than the market price of the  underlying  common stock at date of grant.
The following table  illustrates the effect on net income and earnings per share
if expense was  measured  using the fair value  recognition  provisions  of FASB
Statement No. 123, Accounting for Stock-Based Compensation.

                                                         2002         2001
                                                         ----         ----

Net income/(loss) as reported                        $  (1,213)   $     529
Deduct:  Stock-based compensation expense
  determined under fair value based method                  17           64
                                                         -----        -----
Pro forma net income/(loss)                          $  (1,230)   $     465
                                                     ==========   =========

Basic and diluted earnings/(loss) per share
  as reported                                        $    (.87)  $      .38
Pro forma basic and diluted earnings/(loss)
  per share                                               (.88)         .33

The pro forma  effects are computed  using an option  pricing  model,  using the
following weighted-average assumptions as of grant date (there were no grants in
2001).

                                                         2002
                                                         ----

   Risk-free interest rate                               3.55%
   Expected option life                                 5 years
   Expected stock price volatility                      13.37%
   Dividend yield                                        0.00%

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.


                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Earnings  Per  Share:  Basic  earnings  per share is net  income  divided by the
weighted  average  number of  shares  outstanding  during  the  period.  Diluted
earnings per share includes the dilutive effect of additional  potential  shares
issuable under stock options.  Earnings and dividends per share are restated for
all  stock  splits  and  dividends  through  the date of issue of the  financial
statements.

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  and is  recognized  as a  separate
component of equity.

Dividend  Restriction: Banking  regulations  require maintaining certain capital
levels and may limit the dividends  paid by the bank to the  holding  company or
by the holding company to shareholders.  See footnote 13.

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

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

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

Newly  Issued  But  Not  Yet  Effective  Accounting  Standards:  New  accounting
standards on asset  retirement  obligations,  restructuring  activities and exit
costs,  operating leases, and early  extinguishment of debt were issued in 2002.
Management determined that when the new accounting standards are adopted in 2003
they will not have a material  impact on the  Company's  financial  condition or
results of operations.



                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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


NOTE 2 - SECURITIES

The fair value of securities available for sale and the related gains and losses
recognized in other comprehensive income/loss were as follows:
                                                           Gross      Gross
                                                 Fair   Unrealized Unrealized
                                                 Value     Gains     Losses
                                                 -----      -----     ------
2002
   U.S. Government and its agencies            $ 7,937   $    104   $     -
   Obligations of states and political
     subdivisions                                2,709        119         -
   Mortgage backed securities                    7,826        212        (2)
   Corporate obligations                         1,094         54         -
                                               -------   --------   -------

                                               $19,566   $    489   $    (2)
                                               =======   ========   =======



2001
   U.S. Government and its agencies            $ 5,381   $     93   $   (12)
   Obligations of states and political
     subdivisions                                2,345         15        (2)
   Mortgage backed securities                    8,880        130        (8)
   Corporate obligations                           997         32         -
                                               -------   --------   -------

                                               $17,603   $    270   $   (22)
                                               =======   ========   =======

During 2002 and 2001,  gross  proceeds from sales of securities  were $3,035 and
$1,502. Recognized gains were $57 and $7 and recognized losses were $0 and $1.

The fair value of securities at December 31, 2002, by contractual  maturity,  is
shown below.

   Due in one year or less                                         $    195
   Due after one year through five years                              8,959
   Due after five years through ten years                             1,401
   Due after ten years                                                1,185
   Mortgage backed securities                                         7,826
                                                                   --------

                                                                   $ 19,566
                                                                   ========

Securities with a carrying value of $15,900 and $12,438 at December 31, 2002 and
2001 were pledged to secure borrowings and for other purposes.


                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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



NOTE 3 - LOANS

Loans at year-end are comprised of the following:

                                                          2002        2001
                                                          ----        ----

   Commercial loans and leases                          $ 66,861   $ 76,097
   Real estate construction and land development          12,489     23,150
   Residential real estate                                23,952     24,795
   Consumer                                               16,618     22,594
                                                        --------   --------
      Subtotal                                           119,920    146,636
   Less:  Allowance for loan losses                       (3,498)    (3,400)
                                                        --------   --------

                                                        $116,422   $143,236
                                                        ========   ========

Certain of the Company's officers and directors were loan customers of the Bank.
The balance of loans  outstanding  to these  individuals  was $1,530 and $466 at
December 31, 2002 and 2001. New loans  originated and advances on existing loans
during 2002 were $1,773,  repayments were $605 and reductions of $104 related to
changes in officers and directors.


NOTE 4 - ALLOWANCE FOR LOAN LOSSES

The activity in the allowance for loan losses is as follows:
                                                          2002        2001

   Beginning balance                                    $  3,400   $  2,667
   Provision charged to operations                         3,150      2,967
   Loans charged-off                                      (3,702)    (2,300)
   Recoveries on loans previously charged-off                650         66
                                                        --------   --------

   Ending balance                                       $  3,498   $  3,400
                                                        ========   ========

Information about impaired loans is as follows:
                                                          2002        2001
                                                          ----        ----
   Year-end loans with no allowance
     for loan losses allocated                          $      -   $      -
   Year-end loans with allowance for
     loan losses allocated                                 4,689      4,130
   Amount of the allowance allocated                         812        625
   Average of impaired loans during the year               4,239      3,075
   Interest income recognized during impairment                -         92
   Cash-basis interest income received during impairmen        -         45
   Non-performing loans:
      Loans on non accrual status at year end              4,857        663
      Loans delinquent greater than 90 days
            and still accruing at year end                   776         86

                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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

NOTE 4 - ALLOWANCE FOR LOAN LOSSES (Continued)

Nonperforming loans and impaired loans are defined  differently.  Some loans may
be included in both categories,  whereas other loans may only be included in one
category.


NOTE 5 - PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:
                                                          2002        2001
                                                          ----        ----

   Land                                                 $    205   $    205
   Buildings and improvements                              1,834      1,788
   Leasehold improvements                                    272        272
   Furniture and equipment                                 1,331      1,259
                                                        --------   --------
      Total                                                3,642      3,524
   Accumulated depreciation                                 (969)      (671)
                                                        --------   --------

      Premises and equipment, net                       $  2,673   $  2,853
                                                        ========   ========

Depreciation expense was $300 and $248 for 2002 and 2001.


NOTE 6 - DEPOSITS

Interest-bearing  time  deposits  issued  in  denominations  of $100 or  greater
totaled $26,418 and $28,682 at December 31, 2002 and 2001.

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

               2003                                     $ 54,228
               2004                                       11,045
               2005                                        1,527
               2006                                          693
               2007                                        1,956
               Thereafter                                      -
                                                        --------

                                                        $ 69,449
                                                        ========

Time  deposits  from  governmental  and  other  public  entities  such as school
corporations  and hospitals in the Bank's market area totaled $2,418 at December
31, 2002 and $12,349 at December 31, 2001.

Certain of the Company's  officers and directors  were deposit  customers of the
Bank.  The balance of deposits  with these  individuals  was $11,481 and $331 at
December 31, 2002 and 2001.
                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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

NOTE 7 - REPURCHASE AGREEMENTS AND OTHER BORROWINGS

Securities sold under agreements to repurchase are secured by pledged securities
with a  carrying  amount  of  $9,212  and  $9,904  at  year-end  2002 and  2001.
Securities sold under agreements to repurchase are financing  arrangements  that
have daily maturities and variable interest rates.

Information  concerning  securities  sold  under  agreements  to  repurchase  is
summarized as follows:
                                                           2002       2001
                                                           ----       ----

   Average daily balance during the year                 $  4,855   $ 5,797
   Average interest rate during the year                     1.52%     3.54%
   Maximum month-end balance during the year             $  7,364   $10,201
   Weighted average interest rate at year-end                 .75%     1.50%

Other borrowings consisted of advances from the Federal Home Loan Bank (FHLB) at
December 31, 2002 and 2001.  FHLB  advances  are payable at maturity,  generally
with a  prepayment  penalty.  They are  collateralized  by a pledge of  specific
securities. Interest is payable monthly.

FHLB advances are comprised of the following individual advances at December 31:

              Maturity date   Interest Rate       2002       2001
              -------------   -------------       ----       ----

               July 14, 2003      4.66%         $  2,000   $ 2,000
               October 30, 2003   3.08             1,000     1,000
               November 1, 2004   3.68             1,000     1,000
                                                --------   -------

                                                $  4,000   $ 4,000
                                                ========   =======


NOTE 8 - TRUST PREFERRED SECURITIES

On December 18, 2001, Trust Preferred Securities totaling $5,000 were issued. On
that date,  Heartland  (IN)  Statutory  Trust I  completed  an offering of 5,000
shares of Trust  Preferred  Securities  with a liquidation  preference of $1 per
security.  The  proceeds  of the  offering  were  loaned to the  Corporation  in
exchange for  subordinated  debentures  with terms that are similar to the Trust
Preferred Securities, which subordinated debentures are the sole asset of Trust.
Issuance costs of $156 paid from the proceeds are being amortized over the first
five years of the securities. The securities and distributions are guaranteed by
the  Corporation,  which is  reflected  on the balance  sheet by the  guaranteed
preferred  beneficial  interest in the  Corporation's  subordinated  debentures.
Distributions  on the securities are payable  quarterly in arrears at the annual
rate  of  LIBOR  plus  3.60%,  and  are  included  in  interest  expense  in the
consolidated statement of income. The rate cannot exceed 12.50%.

                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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

NOTE 8 - TRUST PREFERRED SECURITIES (Continued)

The Trust Preferred  Securities,  which mature December 18, 2031, are subject to
mandatory  redemption,  in whole or in part, upon repayment of the  subordinated
debentures  at  maturity  or  their  earlier   redemption  at  the   liquidation
preference.  The  subordinated  debentures are redeemable  prior to the maturity
date at the  option  of the  Corporation  on or after  December  18,  2006.  The
subordinated   debentures  are  also   redeemable  in  whole  or  in  part  from
time-to-time,  upon the  occurrence of specific  events defined within the trust
indenture.  The  Corporation  has  the  option  to  defer  distributions  on the
subordinated  debentures  from  time-to-time  for a  period  not  to  exceed  20
consecutive quarters.

NOTE 9 - EMPLOYEE BENEFIT PLANS

A 401(k)  retirement  savings  plan is  maintained  for the  benefit of eligible
employees. The Plan requires employees to be 21 years of age before entering the
Plan.  Employee  contributions  are limited to a maximum of 15% of their salary.
The  Plan  provides  for a 50%  matching  of the  first  6% of  employee  salary
contributions and allows for an annual discretionary contribution.  Participants
are  fully  vested  in  salary   deferral   contributions.   Employer   matching
contributions  vest at a rate of 20% per year of employment and are fully vested
after the  completion  of 5 years of service  with the Bank after  entering  the
plan.  The 401(k)  contribution  charged to expense was $65 and $38 for 2002 and
2001.

NOTE 10 - STOCK OPTION PLANS

At December 31, 2002,  the  Corporation  maintained  two stock option plans:  an
employee  plan  (under  which  options  may  be  granted  through  2007)  and  a
non-employee  director  plan (under  which no new  options may be granted  after
September,  2002).  Under the terms of these  plans,  options  for up to 265,000
shares  of the  Corporation's  common  stock may be  granted  to  employees  and
directors of the Corporation and its subsidiaries. The exercise price of options
granted to employees  under the employee plan is determined at the time of grant
by an  administrative  committee  appointed by the Board of Directors and in any
event,  will not be less than fair market value of the shares of common stock at
the time the option is granted.

Employee  options are immediately  exercisable with respect to 20 percent of the
shares  covered by the option and 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 ten years
after date of grant.

Non-employee  director  options issued under the expired  non-employee  director
plan  provided for a vesting  schedule,  and the holders of all options  granted
under that plan that were  outstanding at December 31, 2002, have satisfied that
vesting schedule and all of such options are now exercisable in full.




                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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



NOTE 10 - STOCK OPTION PLAN (Continued)

The option  plans  provide  usual and  customary  provisions  providing  for the
adjustment of the number and type of shares subject to grants under the plans in
the event of certain corporate events,  and the acceleration of the rights of an
optionee to exercise unvested stock options in certain events.

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

                                       2 0 0 2                 2 0 0 1
                                       -------                 -------
                                             Weighted-                Weighted-
                                              Average                  Average
                                             Exercise                 Exercise
                                  Options      Price       Options      Price
                                  -------      -----       -------      -----
   Outstanding - beginning
     of period                     147,735    $  9.07      147,735    $  9.07
   Granted                           5,500       9.07            -         -
   Exercised                             -         -             -         -
   Forfeited                       (18,191)      9.07            -         -
                                 ---------    -------    ---------    ------

   Outstanding-end of period       135,044    $  9.07      147,735    $  9.07
                                 =========    =======    =========    =======

   Exercisable at end of period    125,021    $  9.07      139,860    $  9.07
                                 =========    =======    =========    =======

   Weighted average remaining life
     of outstanding options           5.41 years              6.23 years

   Weighted average fair value of
     options granted during the year          $  1.11                 $     -
                                              =======                 =======

In January of 2003,  the Board of  Directors  of the  Corporation  adopted a new
non-employee  director  plan under  which the  Corporation  reserved  for future
issuance pursuant to option grants an aggregate of 50,000 shares. In conjunction
with the adoption of that plan,  the Board of Directors  granted  under that new
plan options to purchase an aggregate of 42,000 shares, exercisable in full from
date of grant, at $9.07 per share for ten years.  In addition,  the stock option
committee of the Board of Directors in January 2003 granted options to employees
under the employee  plan,  exercisable at $9.07 per share for ten years (subject
to the vesting schedule  specified above) with respect to an aggregate of 41,500
shares.




                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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



NOTE 11 - INCOME TAXES

Income tax expense/(benefit) was as follows:
                                                            2002      2001
                                                            ----      ----

   Current                                               $   (653)  $   502
   Deferred                                                  (184)     (198)
                                                         --------   -------

      Total                                              $   (837)  $   304
                                                         ========   =======

Effective  tax rates  differ from  federal  statutory  rates  applied to pre-tax
income due to the following:
                                                            2002      2001
                                                            ----      ----
   Federal statutory rate times
     financial statement income/(loss)                   $   (697)  $   283
   Effect of:
      Tax-exempt income                                       (38)      (18)
      State taxes, net of federal tax effect                 (111)       48
      Other, net                                                9        (9)
                                                         --------   -------

         Total                                           $   (837)  $   304
                                                         ========   =======


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

                                                            2002      2001
                                                            ----      ----
   Deferred tax assets:
      Allowance for loan losses                           $   950   $ 1,070
      Deferred compensation                                    69        36
      State net operating loss carryforward                    83         -
      Other                                                    44         6
                                                          -------   -------
                                                            1,146     1,112
   Deferred tax liabilities:
      Depreciation                                            (87)      (83)
      Cash to accrual adjustment                             (213)     (319)
      Net unrealized gains on securities                     (186)      (97)
      Other                                                    (1)      (49)
                                                         --------   -------
                                                             (487)     (548)
                                                         --------   -------
      Total                                              $    659   $   564
                                                         ========   =======

The Company has a net operating loss  carryforward for state income tax purposes
of $1,473 expiring in 2017.




                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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


NOTE 12 - EARNINGS PER SHARE

Basic and diluted earnings per share were computed by dividing net income by the
weighted  average  number of shares  outstanding,  which was  1,394,172 for both
periods.  The outstanding stock options were not dilutive in either period,  but
could become dilutive in the future.


NOTE 13 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS

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

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




                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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


NOTE 13 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS (Continued)

At year end 2002 and 2001, the Bank was well-capitalized.  Actual capital levels
and minimum required levels were:

                                                                Minimum Required
                                                                      To Be Well
                                            Minimum Required  Capitalized Under
                                               For Capital    Prompt Corrective
                               Actual       Adequacy PurposesAction Regulations
                               ------       -----------------------------------
                           Amount    Ratio   Amount   Ratio    Amount    Ratio
                           ------    -----   ------   -----    ------    -----
2002 - Bank
----
Total capital
(to risk weighted assets) $16,509    12.96% $10,188    8.00%  $12,735    10.00%
Tier 1 capital
(to risk weighted assets)  14,935    11.73    5,094    4.00     7,641     6.00
Tier 1 capital
(to average assets)        14,935     8.35    7,150    4.00     8,938     5.00

2002 - Corporation
----
Total capital
(to risk weighted assets) $18,473    14.48% $10,205    8.00%     N/A
Tier 1 capital
(to risk weighted assets)  15,865    12.44    5,103    4.00      N/A
Tier 1 capital
(to average assets)        15,865     8.86    7,159    4.00      N/A


2001 - Bank
----
Total capital
(to risk weighted assets) $17,752    12.45%  $11,410   8.00%  $14,263    10.00%
Tier 1 capital
(to risk weighted assets)  15,949    11.18     5,705   4.00     8,558     6.00
Tier 1 capital
(to average assets)        15,949     8.53     7,476   4.00     9,345     5.00


2001 - Corporation
----
Total capital
(to risk weighted assets) $19,916    13.95%  $11,422   8.00%     N/A
Tier 1 capital
(to risk weighted assets)  17,483    12.24     5,711   4.00      N/A
Tier 1 capital
(to average assets)        17,483     9.35     7,476   4.00      N/A

Effective May 11, 2002, with the consent of the Bank, the FDIC and DFI entered a
formal order under federal and state banking laws,  under which the Bank and its
Directors  are  required  to take a  number  of  affirmative  steps  to  address
regulatory concerns,  including but not limited to, maintaining the Bank's ratio
of Tier 1 capital  to assets at 8% or above;  committing  not to  declare or pay
dividends to the  Corporation  that would result in the Bank's  violation of the
required  capital ratio;  limiting  growth in total assets to no more than three
percent in any three month period without advance approval by the regulators, or
more than 12%  annually;  adopting  and  implementing  plans to resolve  certain
criticized assets;  eliminating or restricting future lending to borrowers whose
loans have been  criticized  by the  regulators;  and adopting and  implementing
plans  to  reduce  the  volume  of  the  Bank's  acquisition,   development  and
construction loans,  commercial  real-estate loans and high loan-to-value loans,
as defined by FDIC Regulation Part 365, in relation to its capital.

                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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

NOTE 13 - CAPITAL REQUIREMENTS AND REGULATORY MATTERS (Continued)

These  restrictions  have  adversely  affected,  and are likely to  continue  to
adversely affect, the Bank's net interest income and net interest margin in 2002
and future periods,  because the restrictions have required that the Bank reduce
the outstanding  balances of  higher-yielding  types of loans during 2002. These
restrictions  have also  resulted,  and are likely to  continue  to  result,  in
increased  non-interest  expense during 2002 and future periods due to increased
consulting,  legal,  accounting,  staffing and other compliance costs associated
with responding to these restrictions.

The restrictions may also reduce the Corporation's  parent-company  liquidity by
making it unlikely  that the Bank will be in a position to pay  dividends to the
Corporation during the period of such  restrictions,  and the Corporation may be
required  to  infuse  additional  capital  into  the Bank  from  time to time if
necessary  in order for the Bank to maintain  any  required  capital  ratio.  At
December 31, 2002,  the  Corporation  had  sufficient  liquid  assets to pay the
interest payable on the subordinated  debentures  related to the trust preferred
securities  during 2002, and the  Corporation  may elect to defer the payment of
interest  on such  debentures  for  certain  periods of time in any  event.  The
Corporation  therefore does not expect that the  maintenance  requirements  with
respect to the Bank's capital ratio that are included in the May 2002 order will
be material to parent-company liquidity during 2003.


NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES

The Bank leases certain  facilities  and land under  operating  leases  expiring
through 2016. The related lease expense was $310 and $191 for 2002 and 2001.
Future minimum lease payments are as follows:

                  2003                              $    311
                  2004                                   313
                  2005                                   288
                  2006                                   288
                  2007                                   313
                  Thereafter                           2,306
                                                    --------

                     Total minimum lease payments   $  3,819
                                                    ========




                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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



NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

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


Off-balance sheet financial  instruments whose contract amount represents credit
risk are summarized as follows:
                                       2 0 0 2                  2 0 0 1
                                       -------                  -------
                                  Fixed     Variable       Fixed      Variable
                                  Rate        Rate         Rate         Rate
                                  ----        ----         ----         ----
   Commitments to make loans    $      -   $    3,538   $        -   $   4,992
   Unused lines of credit              -       21,953            -      24,187
   Letters of credit                   -        1,347            -       1,283


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 $950 and  $1,324  at  December  31,  2002 and  2001.  These
reserves do not earn interest.




                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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



NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying  value and  estimated  fair values of the  Corporation's  financial
instruments were as follows at December 31:
                                       2 0 0 2                 2 0 0 1
                                       -------                 -------
                                   Carrying     Fair       Carrying     Fair
                                     Value      Value        Value      Value
                                     -----      -----        -----      -----
   Financial assets:
      Cash and cash equivalents   $  25,232  $  25,232  $   16,507    $  16,507
      Time deposits with other
        financial institutions          500        500         500          500
      Securities available-for-sale  19,566     19,566      17,603       17,603
      Loans held for sale             7,156      7,263       4,597        4,634
      Loans, net                    116,422    118,352     143,236      145,394
      FHLB stock                        608        608         512          512
      Accrued interest receivable       718        718       1,228        1,228



   Financial liabilities:
      Deposits                    $(148,399) $(149,134) $(160,991)    $(162,157)
      Repurchase agreements          (6,251)    (6,251)    (5,554)       (5,554)
      Other borrowings               (4,000)    (4,048)    (4,000)       (4,034)
      Trust preferred securities     (5,000)    (5,000)    (5,000)       (5,000)
      Accrued Interest Payable         (151)      (151)      (243)         (243)

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





                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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



NOTE 16 - PARENT COMPANY STATEMENTS

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

                            CONDENSED BALANCE SHEETS

                                                             2002        2001
                                                             ----        ----
ASSETS
Cash                                                       $  1,752   $  2,022
Investment in bank                                           15,236     16,100
Other assets                                                    221        141
                                                           --------   --------

                                                           $ 17,209   $ 18,263
                                                           ========   ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities                                                $  5,009   $  5,000
Shareholders' equity                                         12,200     13,263
                                                           --------   --------

                                                           $ 17,209   $ 18,263
                                                           ========   ========


                         CONDENSED STATEMENTS OF INCOME

                                                             2002        2001
                                                             ----        ----

Interest income                                            $     21  $       5

Interest expense                                               (289)       (72)

Other expense                                                   (63)       (39)

Tax benefit                                                     132         36
                                                           --------   --------
Income/(loss) before equity
 in undistributed earnings of bank                             (199)       (70)

Equity in undistributed earnings/(loss) of bank              (1,014)       599
                                                           --------   --------


Net income/(loss)                                          $ (1,213)  $    529
                                                           ========   ========




                                  (Continued)

<PAGE>
                           HEARTLAND BANCSHARES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2002 and 2001
              (Dollar amounts in thousands, except per share data)


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


NOTE 16 - PARENT COMPANY STATEMENTS (Continued)

                       CONDENSED STATEMENTS OF CASH FLOWS
                                                               2002       2001
                                                               ----       ----

Cash flows from operating activities
   Net income/(loss)                                        $ (1,213)  $   529
   Adjustments to reconcile net income/(loss) to net cash
     from operating activities
      Amortization                                                33         3
      Equity in undistributed earnings/(loss) of bank          1,014      (599)
      Other assets and other liabilities, net                   (104)      (80)
                                                            --------   -------
         Net cash from operating activities                     (270)     (147)

Cash flows from investing activities
   Purchase of stock in bank                                       -    (2,000)

Cash flows from financing activities
   Proceeds from issuance of subordinated debt                     -     5,000
   Cash paid in lieu of fractional shares                          -        (4)
   Repayments on note payable                                      -    (1,917)
   Draws on note payable                                           -       917
                                                            --------   -------
      Net cash from financing activities                           -     3,996
                                                            --------   -------

Net change in cash and cash equivalents                         (270)    1,849

Beginning cash and cash equivalents                            2,022       173
                                                            --------   -------

Cash and cash equivalents at end of period                  $  1,752   $ 2,022
                                                            ========   =======

NOTE 17 - OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) components and related taxes were as follows:

                                                            2002       2001
                                                            ----       ----
   Unrealized holding gains and losses on
     securities available-for-sale                       $    296   $   136
   Reclassification adjustment for gains
     and losses later recognized in income                    (57)       (6)
                                                         --------   -------
   Net unrealized gains and losses                            239       130
   Tax effect                                                 (89)      (50)
                                                         --------   -------
      Other comprehensive income (loss)                  $    150   $    80
                                                         ========   =======




<PAGE>





DIRECTORS AND OFFICERS OF HEARTLAND COMMUNITY BANK

Directors:

Gordon R. Dunn,        Sharon Acton,    Robert Richardson,    Steve Bechman,
Chairman of the Board  Director         Director              Director

Patrick A. Sherman,  John Norton,     J. Michael Jarvis,    Jeffrey L. Goben,
Vice Chairman        Director         Director              Director

Officers:

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

Jeffrey L. Goben,                       Michael Schofield,
Executive Vice President,               Investment Officer, Heartland
Chief Operating Officer and Secretary   Investment Services

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

Eric Johnson,                           Judy Peel,
Chief Credit Officer                    Assistant Vice President, Loan Officer

Jeff Joyce,                             Kathee Pruitt,
Vice President and Controller           Assistant Vice President, Branch Manager

R. Trent McWilliams,                    Robert Henderson,
Vice President, Business Development    Assistant Vice President,
                                        Commercial Loan Officer

Tony Anderson,                          Chad Riddle,
Vice President, Mortgage Loans          Assistant Vice President,
                                        Commercial Loan Officer

Pam Fender,                             Ken Yedlick,
Vice President, Deposit Operations      Commercial Loan Officer

Robert Maher,                           Melissa Duke,
Vice President, CD Brokerage Program    Commercial Loan Officer

Alexa McKnight,                         Pat Purtell,
Assistant Vice President,               Loan Officer
Branch Operations

Terri Webb,                             Connie Hann,
Assistant Vice President,               Mortgage Loan Officer
Loan Operations

Tonia Bussinger,                        Michael Yovanoff,
Collections Officer                     Portfolio Manager

Lisa Shirar,                            Trudy Holtsclaw,
Compliance Officer                      Branch Manager


<PAGE>


Banking Facilities

Franklin:                              Greenwood:
420 North Morton Street (US 31)        489 South State Road 135
Franklin, Indiana  46131               Greenwood, Indiana  46142
Phone (317) 738-3915                   Phone (317) 881-3915
FAX (317) 738-7315                     FAX (317) 859-3849

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

Operations and Commercial Loan Center
460 North Morton Street (US 31)
Franklin, Indiana 46131
Phone (317) 738-3915
FAX (317) 736-5022

World Wide Web:
www.HeartlandBancshares.com

Investor Relations/Analyst Contact

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
















ANNUAL REPORT ON FORM 10-KSB

UPON WRITTEN REQUEST HEARTLAND WILL PROVIDE TO EACH SHAREHOLDER, WITHOUT CHARGE,
A COPY (WITHOUT  EXHIBITS) OF HEARTLAND'S ANNUAL REPORT ON FORM 10-KSB FOR 2002,
AS FILED  WITH THE  SECURITIES  AND  EXCHANGE  COMMISSION.  REQUESTS  SHOULD  BE
DIRECTED TO JEFF JOYCE,  CFO,  HEARTLAND  BANCSHARES,  INC. PO BOX 469 FRANKLIN,
INDIANA 46131.