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

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      The allowance for loan losses is maintained at a level that 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, as well as specific allowances.
       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 substandard or worse 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 provision for credit losses for the three-months ended June 30, 2003, increased $277,563 to $462,758 from $185,195 over the same period in 2002. For the six-month period ended June 30, 2003, the increase in provision for credit losses was $390,536 to $815,351 from $424,815 over the same period of 2002.  The increase in the provision for loan losses for both periods of 2003 was primarily the result of a deterioration in local economic conditions and one large line that was charged off during the first quarter of 2003.  As a result of increases in net loan losses and problem loans compared to prior periods, the registrant anticipates that the provision for loan losses and allowance for loan losses will continue at increased levels through the remainder of 2003.
       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. A more detailed description of the allowance for loan losses can be found under the section titled "Critical Accounting Policies."
       For the three-month period ended June 30, 2003, income before taxes increased $286,462, or 18.2 percent, to $1,864,438 as compared to $1,577,976 for the three months ended June 30, 2002.  Applicable income taxes increased $125,418, or 24.5 percent for the three-month period ended June 30, 2003 as compared to the same period in 2002.
       For the six-month period ended June 30, 2003, income before taxes increased $663,571, or 22.8 percent, to $3,572,613 as compared to $2,909,042 for the six-month period ended June 30, 2002. Applicable income taxes increased $213,488, or 23.0 percent for the six-months ended June 30, 2003 as compared to the six-months ended June 30, 2002.       
       The effect on net income and earnings per share if stock based compensation was measured using the fair value recognition provisions of Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation," would not be material for any periods presented.
       On a basic, weighted average per share basis, net income was $1.48 per share based on 1,643,156 weighted shares outstanding for the first six months of 2003 as compared to $1.22 per share on 1,629,524 weighted shares outstanding for the first six months of 2002. On a fully diluted basis, net income per share was $1.47 for the first six months of 2003 on 1,655,535 weighted shares outstanding as compared to $1.21 on 1,640,677 weighted shares outstanding for the first six months of 2002. On a weighted average per share basis, net income was $0.75 per share based on 1,643,353 weighted shares outstanding for the three months ended June 30, 2003 as compared to $0.65 per share based on 1,628,611 weighted shares outstanding for the same period of 2002. On a fully diluted basis, net income per share was $0.74 for the three months ended June 30, 2003 on 1,655,430 weighted shares outstanding as compared to $0.65 on 1,640,131 weighted shares outstanding for the same period of 2002.
  

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     The following table shows the return on assets (net income divided by average total assets) and return on equity (net income divided by average stockholders' equity (net of unrealized gain or loss on securities)) for the six months ended June 30, 2003 (annualized) and for the year ended December 31, 2002.

       The registrant's total assets increased 5.9 percent to $404,058,976 during the six months ended June 30, 2003, from $381,669,730 at December 31, 2002. Loans and leases, net of allowance for credit losses, totaled $232,277,465 at June 30, 2003, a 1.2 percent increase compared to $229,445,808 at December 31, 2002. Investment securities increased $15,340,833, or 13.4 percent, to $129,502,141 at June 30, 2003, from $114,161,308 at December 31, 2002.  The unrealized gain on securities, net of tax, was $3,041,527 at June 30, 2003 as compared to $2,232,258 at December 31, 2002. The increase in unrealized gains on securities occurred as a result of the lower general level of interest rates during 2003 as compared to 2002.  Federal funds sold increased $3,741,000, to $8,961,000 at June 30, 2003, from $5,220,000 at December 31, 2002. The increase in both investment securities and federal funds sold was the result of deposits growing more rapidly than loans.
       Total liabilities increased by 6.1% to $358,155,524 for the six months ended June 30, 2003, compared to $337,667,481 at December 31, 2002. This increase was primarily due to a $22,449,946 or 7.8 percent increase in interest bearing deposits for the six months ended June 30, 2003. Much of the increase in deposits during the first two quarters of 2003 occurred in time deposits. 
      Non-performing assets decreased to approximately $6,888,100 at June 30, 2003 compared to approximately $8,760,700 at December 31, 2002.  Non-performing assets at June 30, 2003 included $3,508,939 in other real estate owned, $3,108,929 in non-accrual loans, and $270,199 in loans past due ninety days or more as to interest or principal payment. Additionally, there were approximately $250,000 in restructured loans at June 30, 2003.  At December 31, 2002, the corresponding figures were $1,129,191 in other real estate owned, $7,236,654 in non-accrual loans, $394,898 in loans past due ninety days or more, and $464,000 loans restructured. The allowance for loan losses was 1.11 times the balance of nonaccrual loans at June 30, 2003 as compared to 0.53 at December 31, 2002. The l arge volume in the registrant's non-accrual loans at December 31, 2002 was principally related to two credit lines of the registrant's subsidiary bank. The largest line placed on nonaccrual status was a large United States Department of Agriculture guaranteed loan that was placed on nonaccrual status during the second quarter of 2002. Eighty percent of the principal and accrued interest of the loan is guaranteed by the United States Department of Agriculture. The remaining twenty percent credit exposure on the loan is secured by the underlying collateral on the loan. During the second quarter of 2003, the bank foreclosed on the underlying collateral and received a payment from the United States Department of Agriculture for eighty percent of the estimated shortfall between the remaining principal balance and the estimated net realizable value of the underlying collateral. This foreclosure led to the large increase in other real estate owned at June 30, 2003 as compared to December 31, 2002.

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Management no longer believes that the underlying collateral is sufficient to secure the entire unguaranteed portion of the loan. Management has estimated the credit exposure on the loan and included the exposure in its allowance for loan losses calculation for June 30, 2003. The second large line was placed on nonaccrual status during the fourth quarter of 2002. This line consists primarily of commercial real estate and land development loans and resulted in most of the net charged-off loans during the first six months of 2003. This line remained on nonaccrual status as of June 30, 2003.
       Nonaccrual loans are those for which management has discontinued accrual of interest because there exists significant uncertainty as to the full and timely collection of either principal or interest or such loans have become contractually past due 90 days with respect to principal or interest unless such loans are well secured and in the process of collection. The additional amount of interest that would have been recorded during the first six months of 2003 if the above nonaccrual loans had been current in accordance with their original terms was approximately $149,000.
       Loans that are classified as "substandard" or worse by the registrant represent loans to which management questions the borrowers' ability to comply with the present loan repayment terms. As of June 30, 2003, there were approximately $7,500,000 in loans that were classified as "substandard" or worse and accruing interest. This compares to approximately $10,900,000 in loans that were classified as "substandard" or worse and accruing interest as of June 30, 2002.
       Credit risk represents the maximum accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted and any collateral or security proved to be of no value. Concentrations of credit risk or types of collateral arising from financial instruments exist in relation to certain groups of customers. A group concentration arises when a number of counterparties have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The registrant does not have a significant concentration to any individual customer or counterparty. The major concentrations of credit risk for the registrant arise by collateral type in relation to loans and credit commitments. The only significant concentration that exists is in loans secured by real estate and agricultural related loans. Although the registrant has a loan portfolio diversified by type of risk, the ability of its customers to honor their contracts is to some extent dependent upon their regional economic condition. A geographic concentration arises because the registrant grants commercial, real estate and consumer loans primarily to customers in Giles, Marshall and Lincoln Counties, Tennessee. In order to mitigate the impact of credit risk, management strives to identify loans experiencing difficulty early enough to correct the problems and to maintain an allowance for loan losses at a level management believes is sufficient to cover inherent losses in the loan portfolio.
      Net charge-offs for the six-months ended June 30, 2003 were approximately $1,182,900 for a net charge-off ratio of 0.50 percent. This compares to net charge-offs of approximately $430,000 for the six-months ended June 30, 2002 for a net charge-off ratio of 0.20 percent. As discussed previously, one large line was primarily responsible for the increase in net loan charge-offs during the first six months of 2003.
       The total allowance for credit losses decreased to $3,442,119 as of June 30, 2003 from $3,809,625 as of December 31, 2002. The decrease of $367,506 in the allowance for credit losses during the first six months of 2003 was primarily due to the large commercial real estate and land development credit line mentioned previously. As of December 31, 2002, management had estimated the credit exposure on this line in its calculation for the allowance for credit losses. Subsequently, during the first quarter of 2003, much of the exposure for this line was charged-off, thus decreasing the allowance for credit losses. Management believes that the allowance for credit losses is sufficient to cover potential losses in the loan portfolio.

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  PART I - FINANCIAL INFORMATION
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       Liquidity is the ability to fund increases in loan demand or to compensate for decreases in deposits and other sources of funds, or both. Maintenance of adequate liquidity is an essential component of the financial planning process. The objective of asset/liability management is to provide an optimum balance of liquidity and earnings. Cash and cash equivalents increased $1,259,853 between December 31, 2002 and June 30, 2003. 
        Marketable investment securities, particularly those of short maturities, are the principal source of asset liquidity. Securities maturing in one year or less amounted to $17,174,585 at June 30, 2003, representing 13.3 percent of the registrant's investment portfolio as compared to 12.6 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. As mentioned previously, federal funds sold increased by $3,741,000.   
       At June 30, 2003, the registrant had unfunded loan commitments outstanding of approximately $23,670,000 and outstanding standby letters of credit of approximately $1,060,000. 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 purchase federal funds from other financial institutions.
       The registrant's bank subsidiary originates residential mortgage loans for sale in the secondary market which it may be required to repurchase if a default occurs with respect to the payment of any of the first four installments of principal and interest after a loan is sold and the default continues for a period of 90 days. These loans are considered in the computation of the allowance for loan losses to cover future defaults. The total mortgage loans sold with repurchase requirements outstanding as of June 30, 2003 was approximately $10,870,000.
       The registrant does not anticipate that there will be any unusual demands, commitments, or events that could adversely impact the liquidity of the registrant.

       The registrant's primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on a large portion of the registrant's assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, other than those which possess a short term to maturity. Based upon the nature of the registrant's operations, the registrant is not subject to foreign currency exchange or commodity price risk.
       Interest rate risk management focuses on the earnings risk associated with changing interest rates, as well as the risk to the present value of the registrant's equity. Management seeks to maintain profitability in both immediate and long-term earnings through funds management and interest rate risk management. The registrant's rate sensitive position has an important impact on earnings and the present value of the registrant's equity. Management of the registrant meets regularly to analyze the rate sensitivity position, focusing on the spread between the cost of funds and interest yields generated primarily through loans and investments. Management also seeks to maintain stability in the net interest margin under varying interest rate environments. These goals are accomplished through the development and implementation of lending, funding and pricing strategies designed to maximize net interest income under varying interest rate environments subject to specific liquidity and interest rate risk guidelines.
       Analysis of rate sensitivity and rate gap analysis are the primary tools used to assess the direction and magnitude of changes in net interest income resulting from changes in interest rates. Included in the analysis are cash flows and maturities of financial instruments, changes in market conditions, and pricing and deposit volume and mix. Since these assumptions are inherently uncertain, net interest income can not be precisely estimated nor can the impact changes in interest rates be precisely predicted. Actual results will differ due to timing, magnitude and frequency of interest rate changes and changes in market conditions and management's strategies, among other factors.
       There have been no material changes in reported market risks during the quarter ended June 30, 2003.

	For	Against	Abstain
David E. Bagley	1,009,797	49,169	5,480
Johnny Bevill	1,005,615	53,351	5,480
James K. Blackburn, IV	1,019,436	39,530	5,480
Wade Boggs	1,005,615	53,351	5,480
James H. Butler	1,005,415	53,551	5,480
James T. Cox	1,057,731	1,235	5,480
Parmenas Cox	1,058,496	470	5,480
Gregory G. Dugger	1,005,615	53,351	5,480
Charles D. Haney	1,031,261	27,705	5,480
James Rand Hayes	1,005,615	53,351	5,480
Mark A. Hayes	1,010,865	48,101	5,480
W. Harwell Murrey	1,005,615	53,351	5,480
Bill Yancey	1,019,436	39,530	5,480

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

     (a)    Exhibit 31.1 Certification of Mark A. Hayes, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
             Exhibit 31.2 Certification of Tracy Porterfield, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
             Exhibit 32.1 Certification of Mark A. Hayes, pursuant to 18 U.S.C. Section 1350 - the Sarbanes-Oxley
                                Act of 2002.
             Exhibit 32.2 Certification of Tracy Porterfield, pursuant to 18 U.S.C. Section 1350 - the Sarbanes-
                                Oxley Act of 2002.