PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements. (Continued)

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have made judgments and estimates which have significantly impacted our financial position and results of operations.
       The allowance for loan losses is maintained at a level which is considered to be adequate to reflect estimated credit losses for specifically identified loans as well as estimated probable credit losses inherent in the remainder of the loan portfolio at the balance sheet date. The allowance is increased by the provision for loan losses, which is charged against current period operating results and decreased by the amount of charge-offs, net of recoveries. A formal review of the allowance for loan losses is prepared quarterly to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses. Our methodology of assessing the appropriateness of the allowance consists of several elements, which include the formula allowance, specific allowances and the unallocated allowance.
       The formula allowance is calculated by applying loss factors to outstanding loans and certain unused commitments. For purposes of the quarterly review, the loan portfolio is separated by loan type, and each type is treated as a homogeneous pool. Each loan is assigned a risk rating by loan officers using established credit policy guidelines. These risk ratings are periodically reviewed and all risk ratings are subject to review by an independent Credit Review Department. Each risk rating is assigned an allocation percentage which, when multiplied times the dollar value of loans in that risk category, results in the amount of the allowance for loan losses allocated to these loans. Allocation percentages are based on our historical loss experience and may be adjusted for significant factors that, in management's judgment, affect the collectibility of the portfolio as of the evaluation date.
       Specific allowances are established in cases where management has identified significant conditions or circumstances related to a credit that management believes indicates the probability that a loss has been incurred in excess of the amount determined by the application of the above formula.  Every nonperforming loan in excess of $25,000 and all loans classified as "Other Assets Especially Mentioned" over $100,000 are reviewed quarterly by the Board's Executive and Loan Committee to review the level of loan losses required to be specifically allocated.
      The unallocated allowance is based upon management's evaluation of various conditions that are not directly measured in the determination of the formula and specific allowances. The conditions evaluated in connection with the unallocated allowance may include existing economic and business conditions affecting our key lending areas, credit quality trends, collateral values, loan volumes and concentrations and specific industry conditions.

       Net income of the registrant was $1,980,399 for the first six months of 2002. This amounted to a decrease of $115,545, or 5.8 percent, compared to the first six months of 2001.  For the three-month period ended June 30, 2002, net income increased $46,375, or 4.6 percent, as compared to the three-months ended June 30, 2001.  Net interest income after provision for credit losses was $7,136,883 for the first six months of 2002 as compared to $6,495,617 for the first six months of 2001.
       Net interest income, the largest component of net income for the registrant, is the difference between income earned on loans and investments and interest paid on deposits and other sources of funds. Net interest income increased $490,384, or 14.2 percent during the second quarter of 2002 as compared to the second quarter of 2001.  Total interest income decreased $471,161, or 7.0 percent for the second quarter of 2002 as compared to the same period in 2001. The decrease in total interest income was due mainly to the lower interest rate environment that has been in effect since the first quarter of 2001. However, the decrease

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in total interest income was more than offset by a decrease in total interest expense of $961,545, or 29.3 percent for the second quarter of 2002 as compared to the same period in 2001. The decrease in total interest expense was again primarily due to the lower interest rate environment. The percentage change was greater for the total interest expense than the total interest income primarily due to the general decline in the level of interest rates that occurred in 2001 and continued through the first quarter of 2002. Interest rates stabilized somewhat during the second quarter of 2002; however, interest rates were at historically low levels and continued to fall slightly throughout the second quarter of 2002. Since the registrant is liability sensitive, this declining interest rate environment that was present throughout 2001, caused the average interest rate paid on deposits to decrease faster than the average rate earned on loans and investments.
       Net interest income, exclusive of the provision for credit losses, of the registrant for the six-month period ending June 30, 2002 increased by $620,615, or 8.9 percent, as compared to the six months ending June 30, 2001. Total interest income decreased $1,096,101, or 8.1 percent for the first six months of 2002 as compared to the same period in 2001. This decrease was primarily the result of the declining interest rate environment which caused the interest income on loans to decrease $792,069 for the first six months of 2002 as compared to the same period of 2001. However, the decrease in total interest income was offset by a decrease in total interest expense of $1,716,716, or 25.9 percent for the first six months of 2002 as compared to the same period in 2001. The decrease in total interest expense was primarily caused by a $2,006,291 decrease in interest expense on time deposits for the six months ended June 30, 2002 as compared to the same period in 2001.&nb sp; 
       Total other income decreased $25,822, or 3.0 percent for the three-month period ended June 30, 2002 as compared to the three-month period ended June 30, 2001. This decrease in other income for the three-month period ended June 30, 2002 was primarily due to a $146,048 decrease in service charges on deposit accounts that was partially offset by an increase of $96,968 in other income as compared to the three-month period ended June 30, 2001.
       Total other income increased $13,909, or 0.8 percent for the six-month period ended June 30, 2002 as compared to the six-month period ended June 30, 2001. The increase was primarily due to a $153,401 increase in other income and a $116,523 increase in mortgage banking fees that was offset by a decrease of $248,937 in service charges on deposit accounts for the first six months of 2002 as compared to the same period in 2001.  
       For the three-month period ended June 30, 2002, total other expenses increased $471,882 as compared to the three-month period ended June 30, 2001. Salaries and employee benefits increased $192,416, or 12.3 percent for the three-months ended June 30, 2002 as compared to the three-months ended June 30, 2001. Also, furniture and equipment expense increased $92,956, or 51.4 percent during the second quarter of 2002 as compared to the second quarter of 2001. This large increase in furniture and equipment expense was primarily due to a significant upgrade in computer equipment by the registrant's subsidiary bank during 2001, resulting in increased depreciation expense in 2002. In addition, other operating expenses increased $121,357, or 20.8 percent for the three months ended June 30, 2002 as compared to the same period in 2001. This increase in other operating expenses was primarily caused by expenses associated with the operation of the registrant's indirect subsidiary, First Pulaski Reinsurance Company (FPRC). FPRC received its license to operate during the third quarter of 2001; thus it had no income or expense reportable during the first two quarters of 2001.
       Total other expenses increased $827,396, or 16.1 percent, for the six-months ended June 30, 2002 as compared to same period last year. For the six-month period ended June 30, 2002 salaries and employee

benefits increased $353,272, or 12.9 percent as compared to the same period of 2001. Also, furniture and equipment expenses reflected the increased depreciation expense mentioned earlier resulting in an increase of $144,211 for the first six months of 2002 as compared to the same period of 2001. Other operating expenses increased $200,465, or 16.0 percent for the six months ended June 30, 2002 as compared to the same period of 2001, again reflecting the effect of FPRC. 
      The provision for credit losses for the six-months ended June 30, 2002, decreased $20,651, or 4.6 percent, over the same period in 2001. For the three-month period ended June 30, 2002, the decrease in provision for credit losses was $60,476 or 24.6 percent over the same period of 2001.  The decrease in the provision for loan losses in 2002 is primarily due to the closing of the registrant's wholly-owned finance company subsidiary, Heritage Financial of the Tennessee Valley, Inc. ("Heritage Financial") during the second quarter of 2001. The loan portfolio held by Heritage Financial was riskier than the loan portfolio held by the registrant's wholly-owned bank subsidiary, First National Bank of Pulaski (the "Bank").  This resulted in increased provision for possible credit losses in 2001. The provision for possible credit losses is based on past loan experience and other factors that, in management's judgment, deserve current recognition in estimating possible credit losses. Such factors include past loan loss experience, growth and composition of the loan portfolio, review of specific problem loans, the relationship of the allowance for credit losses to outstanding loans and current economic conditions that may affect the borrower's ability to repay.
       For the three-month period ended June 30, 2002, income before taxes increased $53,156, or 3.5 percent, as compared to the three months ended June 30, 2001.  Applicable income taxes increased $6,781, or 1.3 percent for the three-month period ended June 30, 2002 as compared to the same period in 2001.
       For the six-month period ended June 30, 2002, the income before taxes decreased $172,221, or 5.6 percent, as compared to the six-month period ended June 30, 2001. Applicable income taxes decreased $56,676, or 5.8 percent for the six-months ended June 30, 2002 as compared to the six-months ended June 30, 2002.       
       On a weighted average per share basis, net income was $1.22 per share based on 1,629,524 shares for the first six months of 2002 as compared to $1.29 per share on 1,621,120 shares for the first six months of 2001. On a fully diluted basis, net income per share was $1.21 for the first six months of 2002 on 1,640,677 shares as compared to $1.28 on 1,631,120 shares for the first six months of 2001. On a weighted average per share basis, net income was $0.65 per share based on 1,628,611 shares for the three months ended June 30, 2002 as compared to $0.63 per share based on 1,620,874 shares for the same period of 2001. On a fully diluted basis, net income per share was $0.65 per share for the three months ended June 30, 2002 on 1,640,131 shares as compared to $0.62 on 1,630,874 shares for the same period of 2001.

sold decreased $1,573,000, or 19.1 percent to $6,650,000 at June 30, 2002, from $8,223,000 at December 31, 2001. The decrease in federal funds sold was the result of loans growing more quickly than deposits.
       Total liabilities increased by 3.0% to $331,455,228 for the six months ended June 30, 2002, compared to $321,896,577 at December 31, 2001. This increase was primarily due to a $5,059,772 or 1.6 percent increase in interest bearing deposits and a $4,550,200 or 10.8 percent increase in non-interest bearing deposits for the six months ended June 30, 2002.  Non-performing assets increased to approximately $5,938,400 for the six-months ended June 30, 2002 compared to approximately $2,865,100 at December 31, 2001.  Non-performing assets at June 30, 2002 included approximately $535,700 in other real estate owned, approximately $5,136,000 in non-accrual loans, and approximately $266,700 in loans past due ninety days or more as to interest or principal payment. There were no restructured loans at June 30, 2002.  The increase in the registrant's non-accrual loans at June 30, 2002 was principally related to the registrant's placement of a United States Department of Agriculture guaranteed loan on non-accrual status. Eighty percent of the principal amount of the loan is guaranteed by the United States Department of Agriculture and the registrant believes that its credit exposure on the loan is approximately $870,000, or twenty percent of the principal, which amount, the registrant believes is fully secured by the value of the underlying collateral that is available to the bank. At December 31, 2001, the corresponding figures were approximately $296,700 in other real estate owned, approximately $2,166,000 in non-accrual loans, approximately $402,400 in loans past due ninety days or more, and no loans restructured.
       Net charge-offs for the six-months ended June 30, 2002 were approximately $430,000 for a net charge-off ratio of .20 percent. This compares to net charge-offs of approximately $353,000 for the six-months ended June 30, 2001 for a net charge-off ratio of .20 percent and net charge-offs of approximately $843,000 for the year ended December 31, 2001 for a net charge-off ratio of .40 percent.
       The registrant has computed allowances for credit losses which management believes to be sufficient. The allowance for credit losses has decreased $21,604 since December 31, 2001. The total allowance for credit losses was $3,065,982 as of June 30, 2002. The allowance for credit losses was 51.6 percent of non-performing assets as of June 30, 2002 and 107.8 percent of non-performing assets as of December 31, 2001. However, as mentioned previously, a substantial portion of non-accrual loans at June 30, 2002 was government guaranteed. If the guaranteed portion of non-accrual loans is deducted from non-performing assets, the allowance for credit losses was 124.1 percent of non-performing assets as of June 30, 2002. Management believes that the reserve for credit losses is sufficient to cover potential losses in the loan portfolio.

       Marketable investment securities, particularly those of short maturities, are the principal source of asset liquidity. Securities maturing in one year or less amounted to $14,878,588 at June 30, 2002, representing 12.6 percent of the registrant's investment portfolio as compared to 8.4 percent one year earlier. These securities may be sold in response to changes in interest rates, changes in prepayment risk, the need to increase regulatory capital, or asset/liability strategy. Management classifies all of the Company's investment portfolio in the available-for-sale category and reports these securities at fair value. Management does not anticipate the sale of a material amount of investment securities in the foreseeable future. Other sources of liquidity include maturing loans and federal funds sold.   
       At June 30, 2002, the registrant had unfunded loan commitments outstanding of approximately $28,800,000 and outstanding standby letters of credit of approximately $525,000. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these commitments, the bank has the ability to liquidate federal funds sold or securities available-for-sale, or on a short -term basis to borrow and purchases federal funds form other financial institutions.
       The registrant does not anticipate that there will be any unusual demands, commitments, or events that could adversely impact the liquidity of the registrant.

	For	Against	Abstain
David E. Bagley	999,651	21,965	39,056
Johnny Bevill	999,401	22,215	39,056
James K. Blackburn, IV	1,021,416	200	39,056
Wade Boggs	970,494	51,122	39,056
James H. Butler	970,494	51,122	39,056
James T. Cox	1,020,831	785	39,056
Parmenas Cox	1,019,679	1,937	39,056
Gregory G. Dugger	970,294	51,322	39,056
Charles D. Haney	998,441	23,175	39,056
James Rand Hayes	970,494	51,122	39,056
Mark A. Hayes	969,944	51,672	39,056
William A. McNairy	999,851	21,765	39,056
W. Harwell Murrey	969,794	51,822	39,056
Bill Yancey	1,021,616	0	39,056

     On the basis of these figures, the above named directors were declared duly elected.

     (a)  Exhibit 11.    Statement of Computation of Per Share Earnings
           Exhibit 99.1  Certification of James T. Cox, pursuant to 18 U.S.C. Section 1350 - - the Sarbanes-Oxley Act of 2002.
           Exhibit 99.2  Certification of Harold Bass, pursuant to 18 U.S.C. Section 1350 - - the Sarbanes-Oxley Act of 2002.