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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate the number of shares outstanding of each of the issuer's common stock, as of June 30, 2002. 2,920,000 shares

This filing contains 14 pages.

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements

The following unaudited consolidated financial statements of the registrant and its subsidiary for the six months ended June 30, 2002, are as follows:

Consolidated balance sheets - June 30, 2002, and December 31, 2001.

Consolidated statements of income - For the three months and six months ended June 30, 2002, and June 30, 2001.

Consolidated statements of cash flows - For the six months ended June 30, 2002, and June 30, 2001.

Selected notes to consolidated financial statements.

At March 31, 2002, pursuant to discussions with federal bank examiners, the Bank changed its method of estimating its allowance for loan losses. The new method resulted in more conservative classification of specific commercial loans with documentation and structural deficiencies and retail loans with certain historical performance characteristics. Bank management has determined that the change in method is necessary to reflect increased loss inherent to such loans. As a result of the change in method, the provision for loan losses increased and net income decreased $4.4 million, $2.6 million, net of tax, or $.90 per share, for the quarter ended March 31, 2002. In addition, additional allowances of $.9 million were recorded for deterioration of loans in the normal course of business, in the first quarter of 2002.

The unaudited consolidated financial statements have been prepared on a consistent basis and in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. These adjustments, except as discussed in Note 1, were of a normal, recurring nature and consistent with generally accepted accounting principles. For further information, refer to the consolidated financial statements and footnotes included in the Corporation's annual report on Form 10-K for the year ended December 31, 2001.

The Bank is finalizing with the Office of the Comptroller of the Currency the terms and conditions of a written agreement that the Bank will enter into with the agency as a result of regulatory findings in a recently completed examination. These findings related to asset quality and management and board oversight of the lending function. This agreement is expected to become effective at the beginning of the third quarter. Management believes that the financial ramifications related to the agreement have been fully recorded.

Average earning assets increased 11.0% in the first half of 2002 compared to a 12.5% increase in the first half of 2001. The Corporation's only subsidiary at June 30, 2002 was First Farmers and Merchants National Bank. The Bank owns one hundred percent of F & M West, a Nevada subsidiary that provides advisory service for management of the Bank's investment portfolio. As a financial institution, the Bank's primary earning asset is loans. At June 30, 2002, average net loans had increased 12.1 % and represented 65.4 % of average earning assets. Approximately 43% of this increase is attributable to an acquisition of two offices of the Community Bank, an Alabama banking corporation, in Pulaski, Giles County, Tennessee, on March 29, 2002. This increase compares to an increase in average net loans at June 30, 2001 of 19.8 % and a 62.7 % component of average earning assets. Average investme nts accounted for 34.6 % of average earning assets at June 30, 2002, posting a 9.2% increase in the first half of 2002. No investments were acquired in the acquisition. Average total assets of $870 million at the end of the first half of 2002 compared to $726 million at the end of the first half of 2001. Period-end assets were $890 million compared to $821 million at December 31, 2001, an 8.3% increase including the acquisition and 4.0% without it.

The Bank maintains a formal asset and liability management process to control interest rate risk and assist management in maintaining reasonable stability in the gross interest margin as a result of changes in the level of interest rates and/or the spread relationships among interest rates. The Bank uses an earnings simulation model to evaluate the impact of different interest rate scenarios on the gross margin. Each month, the Asset/Liability Committee monitors the relationship of rate sensitive earning assets to rate sensitive interest bearing liabilities (interest rate sensitivity) which is the principal factor in determining the effect that fluctuating interest rates will have on future net interest income. Rate sensitive earning assets and interest bearing liabilities are those which can be repriced to current market rates within a defined time period. The following sections analyze the average balance sheet and the major components of the period-end balance sheet.

Available-for-sale securities are an integral part of the asset/liability management process. As such, they represent an important source of liquidity available to fund loans and accommodate asset reallocation strategies dictated by changes in bank operating and tax plans, shifting yield spread relationships, and changes in configuration of the yield curve. At June 30, 2002, the Bank's investment securities portfolio had $173.5 million available-for-sale securities, 61.0% of the total portfolio, and $110.9 million held-to-maturity securities, 39.0% of the portfolio. There were $117.2 million available-for-sale securities, 48.7% of the portfolio, and $123.2 million held-to-maturity securities, 51.3% of the portfolio, at December 31, 2001. Slowing loan demand contributed to this increased liquidity.

The loan portfolio is the largest component of earning assets and consequently provides the highest amount of revenues. The loan portfolio also contains, as a result of credit quality, the highest exposure to risk. When analyzing potential loans, management assesses both interest rate objectives and credit quality objectives in determining whether to make a given loan and the appropriate pricing for that loan. The Bank maintains a diversified portfolio in order to spread its risk and reduce its exposure to economic downturns which may occur in different segments of the economy or in particular industries. The average loan portfolio increased $55.8 million or 12.1 % in the first

six months of 2002. The acquisition contributed $23.8 million or about 43% of the increase. This compared to a $69.2 million or 19.8 % increase in the first six months of 2001. Commercial loans increased 21.3 %, about 15.5% of the increase from the acquisition; personal loans increased 5.1 %, the acquisition reversing a decline of 3.6%; and loans secured by real estate posted an 11.8 % growth, 65.9% from the acquisition, for the first six months of 2002. Commercial loan increases included new loans to several municipalities. Lower interest rates contributed to the increase in loans secured by real estate.

The analysis and review of asset quality by the Bank's credit administrator includes a formal review that is prepared quarterly to assess the risk in the loan portfolio and to determine the adequacy of the allowance for loan and lease losses. As discussed in Note 1, the Bank has changed its method of estimating the allowance for loan and lease losses. Management believes that the increased allowance for loan and lease losses (ALLL) is consistent with the requirements of generally accepted accounting principles based on information available at June 30, 2002. The changes in estimate methodology include:

• Stratification of the retail loan portfolio, segregating loans with characteristics that accentuate loss potential.
• Redefinition of the classification criteria of commercial loans to better reflect structural and documentation deficiencies that could impair collectibility.

Application of this new methodology has resulted in an abnormal addition to the Bank's allowance for loan and lease losses in the first quarter of 2002. Additions to the allowance during the first six months of 2002 were $5.7 million. The allowance for possible loan and lease losses was $12.3 million or 2.3 % of gross loans at June 30, 2002 which compares to $6.7 million or 1.3 % at December 31, 2001. Net charge offs for the first half of 2002 were $600 thousand, an annualized net charge off ratio of .22 %. Net charge offs for the first half of 2001 were $528 thousand, an annualized net charge off ratio of .21 %.

Management has developed a formal plan to provide better control over underwriting of loans and monitoring collectibility. That plan includes education and training of personnel to encourage more uniform application of the Bank's loan policies and procedures, changes in management information systems to better identify loans with adverse characteristics and better control corrective actions, hiring of additional credit analysts to support lenders in underwriting and monitoring of loans and strengthen oversight of the lending function, reevaluate the scope of loan reviews, and modify loan policies and procedures to facilitate improved credit operations in the future.

After this review, loans totaling $6.1 million, or 1.1 % of the portfolio, were classified as other assets especially mentioned. This compares to loans totaling $12.5 million so classified at December 31, 2001, and $4.4 million so classified at June 30, 2001. Loans totaling $30.5 million, 5.7 % of the portfolio, were classified as substandard at June 30, 2002. This compares to loans totaling $17.8 million so classified at December 31, 2001, $16.1 million so classified at June 30, 2001. Loans totaling $2.0 million,or .4 % of the portfolio, were classified as doubtful at June 30, 2002. This compares to $.5 million so classified at December 31, 2001 and $.7 million so classified at June 30, 2001. Loans having recorded investments of $12.1 million, or 2.2 % of the total portfolio, were identified as impaired at the end of the first six months of 2002 compared to $9.6 million at March 31, 2002, and $5.6 million at December 31, 2001.

The loan portfolio is well diversified with loans generally secured by tangible personal property, real property, or stock. The loans are expected to be repaid from cash flow or proceeds from the sale of selected assets of the borrowers. Collateral requirements for the loan portfolio are based on credit evaluation of the customer. Most of the Bank's activities are with customers located within southern middle Tennessee. The Bank does not have any significant concentrations in any one industry or customer.

There were no write downs of other real estate associated with declines in real estate values subsequent to foreclosure and disposition of the properties at less than their carrying value during the first six months of 2002. The carrying value of other real estate is included in other assets on the face of the balance sheet and represents real estate acquired through foreclosure and is stated at the lower of cost or fair value minus cost to sell. An allowance for other real estate owned is not maintained. Any decreases or losses associated with the properties have been charged to current income. Management evaluates properties included in this category on a regular basis. Actual foreclosures that were included in the carrying value for other real estate at June 30, 2002, December 31, 2001, and June 30, 2001, totaled $879 thousand, $873 thousand, and $561 thousand respectively.

The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Bank has in those particular financial instruments. The total outstanding loan commitments and stand-by letters of credit in the normal course of business at June 30, 2002, were $58.7 million and $4.9 million respectively. Loan commitments are agreements to lend to a customer as long as there is not a violation of any condition established in the contract. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to supp ort public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in making a loan.

The Bank does not have any foreign offices and all deposits are serviced in its twenty-one domestic offices. The bank's average deposits grew during the first six months of 2002 reflecting a 13.0 % growth compared to a 13.4 % growth in the first six months of 2001. 5.2% of this deposit growth is attributable to the acquisition. Transaction accounts had more competitive rates than certificates of deposit resulting in a 23.5% increase in interest checking and a 45.4% increase in savings accounts during the first six months of 2002. These deposits and demand deposits, representing 14.1% of average total deposits, are the nucleus of core deposits for the Bank.

Average shareholders' equity in the first six months of 2002 remained strong totaling $92.1 million at June 30, 2002, a 6.9 % increase from 2001 year end. The Corporation and the Bank are subject to federal regulatory risk-adjusted capital adequacy standards. Failure to meet capital adequacy requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that could have a direct material effect on the consolidated financial statements of the Corporation and its subsidiary, the Bank. The regulations require the Bank to meet specific capital adequacy guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital classification is also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Corporation and the Bank to maintain minimum amounts and ratios of Total Capital and Tier I Capital to risk-weighted assets and of Tier I Capital to average assets. Equity capital (net of certain adjustments for intangible assets and investments in non-consolidated subsidiaries and certain classes of preferred stock) are considered Tier 1 ("core") capital. Tier 2 ("total") capital consists of core capital plus subordinated debt, some types of preferred stock, and a defined percentage of the allowance for possible loan losses. As of June 30, 2002, the Corporation's total risk-based and core capital ratios were 14.5 % and 13.2 % respectively. The comparable ratios were 15.4% and 14.2% at year end 2001. As of June 30, 2002, the Bank's total risk-based and core capital ratios were 14.3% and 13.1% respectively. The comparable ratios were 15.2% and 13.9% at year end 2001. As of June 30, 2002, the Corporation and the Bank had a ratio of core capital to average total assets of 9.1 % and 8.3% respectively, compared to 9.1% and 8.9% at December 31, 2001. Management believes, as of June 30, 2002, that the Corporation and the Bank meet all capital adequacy requirements to which they are subject.

Most of the capital needs of the Bank have historically been financed through internal growth. The approval of the Comptroller of the Currency is required before the Bank's dividends in a given year may exceed the total of its net profit (as defined) for the year combined with retained net profits of the preceding two years.

Total interest income was 3.3 % higher in the first six months of 2002 than the first six months of 2001. Interest and fees earned on loans increased 3.4 % due to the increase in the volume of average loans. The acquisition discussed earlier contributed about 56% of the $846 thousand increase in earnings. Interest earned on investment securities and other investments increased 3.1 % compared to the first six months of 2001.

Total interest expense in the first six months of 2002 compared to the first six months of 2001 decreased 23.4%. The total cost of interest-bearing deposits declined as interest rates declined in the intervening quarters. As a policy, budgeted financial goals are monitored on a monthly basis by the Asset/Liability Committee where the actual dollar change in net interest income given different interest rate movements is reviewed. A negative dollar change in net interest income for a twelve month period of less than 4.5% of net interest income given a three hundred basis point shift in interest rates is considered an acceptable rate risk position. The net interest margin, on a tax equivalent basis, at June 30, 2002, 2001, and December, 31, 2001 was 4.42%, 4.17%, and 4.30% respectively.

Net interest income on a fully taxable equivalent basis is influenced primarily by changes in: (1) the volume and mix of earning assets and sources of funding; (2) market rates of interest, and (3) income tax rates. The impact of some of these factors can be controlled by management policies and actions. External factors also can have a significant impact on changes in net interest income from one period to another. Some examples of such factors are: (1) the strength of credit demands by customers; (2) Federal Reserve Board monetary policy, and (3) fiscal and debt management policies of the federal government, including changes in tax laws.

Noninterest income increased 1.3% during the first six months of 2002 compared to the first six months of 2001. Income from fiduciary services provided in the Bank's trust department represented approximately 20.0% of noninterest income and was up 6.2% compared to the first half of 2001. Other service fees are up 8.3% compared to the first six months of 2001 due to increases in sales of loans in the secondary market.

Noninterest expenses, excluding the provision for possible loan losses, were 16.2% more in the first six months of 2002 than in the first six months of 2001. Acquisitions contributed to increases in net occupancy and furniture and equipment expense, up 22.5% and 38.9% respectively, compared to the first half of last year.

Net income was adversely affected the first six months of 2002 declining $.60 per share due to the change in calculating the adequacy of the provision to the allowance for loan and lease losses and the additional provision for loan deterioration discussed earlier. However, income per share of $1.15 for the three months ended June 30, 2002 was up 22.3% over the three months ended June 30, 2001.

PART II - OTHER INFORMATION

Item 4. Submission of Matters to Vote of Security Holders

The annual Stockholders' Meeting was held April 16, 2002 in the Waymon L. Hickman Building at Columbia State Community College, Columbia, Tennessee at 4:00 P. M. CST, for the purpose of electing directors for the coming year. There was no solicitation in opposition to management's nominees listed in the proxy statement. All management nominees listed were elected with one exception. One of the nominees died prior to the meeting and was not replaced.

Item 6. Exhibits and Reports on Form 8-K

A Form 8-K, containing the certification our chief executive officer and chief financial officer were required to make with respect to this Form 10-Q by Section 906 of the Sarbanes-Oxley Act of 2002, was filed August 14, 2002.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

(Registrant)