x	Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 2003 or
o	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from___________ to ___________

CAVALRY BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Tennessee	62-1721072
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer I.D. Number)

114 West College Street, Murfreesboro, Tennessee	37130
(Address of Principal Executive Offices)	(Zip Code)

(615) 893-1234

Registrant’s telephone number, including area code

Yes x

No o

Yes x

No o

Part I	Financial Information	Page
Item 1.	Financial Statements
	Consolidated Balance Sheets at June 30, 2003 (unaudited)
	and December 31, 2002	1
	Consolidated Statements of Income (unaudited) for the Three Months and Six Months
	Ended June 30, 2003 and 2002	2
	Consolidated Statements of Comprehensive Income (unaudited) for the
	Three and Six Months Ended June 30, 2003 and 2002	3
	Consolidated Statements of Cash Flows (unaudited) for the Six Months
	Ended June 30, 2003 and 2002	4
	Notes to Consolidated Financial Statements (unaudited)	5-8
Item 2.	Management’s Discussion and Analysis of Financial
	Condition and Results of Operations	8-10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	11
Item 4.	Controls and Procedures	11
Part II	Other Information	12
Item 4.	Submission of Matters to a Vote of Security Holders	12
Item 6.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	12
Signatures		13

	1

		Three Months Ended						Six Months Ended
		June 30,						June 30,
			2003			2002			2003			2002
Interest and dividend income:
Loans		$	5,045			5,304			10,069			10,530
Investment securities			306			312			589			705
Other			101			269			227			569
Total interest and dividend income			5,452			5,885			10,885			11,804
Interest expense - deposits			1,399			1,770			2,918			3,694
Interest expense - borrowings			25			5			49			11
Total interest expense			1,424			1,775			2,967			3,705
Net interest income			4,028			4,110			7,918			8,099
Provision for loan losses			45			54			101			163
Net interest income after provision
for loan losses			3,983			4,056			7,817			7,936
Non-interest income:
Servicing income			60			55			131			124
Gain on sale of loans, net			1,702			581			3,024			1,150
Gain on sale of investment securities, net			-			-			11			-
Deposit servicing fees and charges			1,192			921			2,247			1,800
Trust service fees			248			296			494			552
Commissions and other non-banking fees			650			555			1,350			1,054
Other operating income			163			301			377			500
Total non-interest income			4,015			2,709			7,634			5,180
Non-interest expenses:
Salaries and employee benefits			3,877			3,018			7,536			5,810
Occupancy expense			344			302			659			572
Supplies, communications and other
office expenses			252			263			505			522
Federal insurance premiums			17			16			32			32
Advertising expense			122			176			223			263
Equipment and service bureau expense			736			707			1,431			1,331
Other operating expense			561			434			1,081			890
Total non-interest expenses			5,909			4,916			11,467			9,420
Income before income taxes			2,089			1,849			3,984			3,696
Income tax expense			811			676			1,538			1,454
Net income		$	1,278			1,173			2,446			2,242
Basic earnings per share		$	0.20			0.18			0.38			0.35
Diluted earnings per share		$	0.19			0.17			0.37			0.34
Weighted average shares outstanding -Basic			6,392,100			6,436,781			6,379,006			6,465,859
Weighted average shares outstanding -Diluted			6,694,136			6,756,723			6,640,591			6,626,098

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2003			2002			2003			2002
Net income		$	1,278			1,173			2,446			2,242
Other comprehensive income, net of tax:
Unrealized losses on investment securities
available-for-sale			5			71			(25	)		(71	)
Reclassification adjustment for gains included in net income			-			-			(7	)		-
Comprehensive income		$	1,283			1,244			2,414			2,171

	3

		2003			2002
Operating activities:
Net cash provided by operating activities		$	10,106			11,426
Investing activities:
Increase in loans receivable, net			(21,585	)		(12,140	)
Principal payments on investment securities			4,556			1,538
Purchase of investment securities
available-for-sale			(52,457	)		(9,355	)
Purchase of Federal Reserve Stock			-			(1,240	)
Proceeds from maturities of investment securities			29,750			16,000
Proceeds from sales of investment securities
available-for-sale			2,511			-
Purchase of office properties and equipment			(1,669	)		(2,819	)
Proceeds from sale of foreclosed assets			378			81
Cash paid in acquisition of Miller & Loughry			-			(1,964	)
Net cash used in investing activities			(38,516	)		(9,899	)
Financing activities:
Net increase (decrease) in deposits			7,577			(14,608	)
Retirement of common stock			(137	)		(1,546	)
Dividends paid			(636	)		(610	)
Net decrease in borrowings			(28	)		(27	)
Net cash provided by (used in)
financing activities			6,776			(16,791	)
Decrease in cash and cash equivalents			(21,634	)		(15,264	)
Cash and cash equivalents, beginning of period			73,162			69,281
Cash and cash equivalents, end of period		$	51,528			54,017
Supplement Disclosures of Cash
Flow Information:
Payments during the period for:
Interest		$	2,982			3,736
Income taxes		$	1,750			1,350
Supplemental Disclosures of Noncash
Investing and Financing Activities :
Increase in deferred tax asset related
to unrealized loss on investments		$	18			46
Net unrealized losses on investment
securities available for sale		$	(50	)		(117	)
Dividends declared and payable		$	341			349

	4

		Three Months Ended						Six Months Ended
		June 30,						June 30,
			2003			2002			2003			2002
Net income:
As reported		$	1,278			1,173			2,446			2,242
Deduct: Total stock-based employee compensation expense determined under fair value methods for all awards granted, net of related tax effects			(32	)		(33	)		(63	)		(66	)
Pro forma net income		$	1,246			1,140			2,383			2,176
Earnings per share:
Basic - as reported		$	0.20			0.18			0.38			0.35
Basic – pro forma		$	0.19			0.18			0.37			0.34
Diluted – as reported		$	0.19			0.17			0.37			0.34
Diluted – pro forma		$	0.19			0.17			0.36			0.33

		Three Months Ended June 30,						Six Months Ended June 30,
		2003			2002			2003			2002
Basic EPS:
Net income		$	1,278,000			1,173,000			2,446,000			2,242,000
Average common shares outstanding			6,392,100			6,436,781			6,379,006			6,465,859
Earnings per share - basic		$	0.20			0.18			0.38			0.35
Diluted EPS:
Net income		$	1,278,000			1,173,000			2,446,000			2,242,000
Average common shares outstanding			6,392,100			6,436,781			6,379,006			6,465,859
Dilutive effect of stock options			302,036			319,942			261,585			160,239
Average dilutive shares outstanding			6,694,136			6,756,723			6,640,591			6,626,098
Earnings per share - diluted		$	0.19			0.17			0.37			0.34

	6

For the three months ended			Banking			Mortgage Banking			Trust			Insurance			Eliminations			Consolidated
June 30, 2003:
Interest revenue		$	5,452			-			-			-			-			5,452
Other income-external customers			1,483			60			248			522			-			2,313
Interest expense			1,424			-			-			-			-			1,424
Depreciation and amortization			313			91			17			15			-			436
Other significant items:
Provision for loan losses			45			-			-			-			-			45
Gain on sales of assets			-			1,702			-			-			-			1,702
Segment profit			1,771			360			40			15			(97	)		2,089
Segment assets			461,580			11,809			351			2,842			(2,281	)		474,301

For the three months ended		Banking			Mortgage Banking			Trust			Insurance			Eliminations			Consolidated
June 30, 2002:
Interest revenue		$	5,885			-			-			-			-			5,885
Other income-external customers			1,384			55			296			368			-			2,103
Interest expense			1,775			-			-			-			-			1,775
Depreciation and amortization			269			47			1			9			-			326
Other significant items:
Provision for loan losses			54			-			-			-			-			54
Gain on sales of assets			25			581			-			-			-			606
Segment profit			1,897			-			43			9			(100	)		1,849
Segment assets			413,837			4,832			379			2,629			(2,218	)		419,459

For the six months ended			Banking			Mortgage Banking			Trust			Insurance			Eliminations			Consolidated
June 30, 2003:
Interest revenue		$	10,885			-			-			-			-			10,885
Other income-external customers			2,861			131			494			1,113			-			4,599
Interest expense			2,967			-			-			-			-			2,967
Depreciation and amortization			614			181			33			30			-			858
Other significant items:
Provision for loan losses			101			-			-			-			-			101
Gain on sales of assets			11			3,024			-			-			-			3,035
Segment profit			3,470			449			65			115			(115	)		3,984
Segment assets			461,580			11,809			351			2,842			(2,281	)		474,301

For the six months ended		Banking			Mortgage  Banking			Trust			Insurance			Eliminations			Consolidated
June 30, 2002:
Interest revenue		$	11,804			-			-			-			-			11,804
Other income-external customers			2,507			124			552			822			-			4,005
Interest expense			3,705			-			-			-			-			3,705
Depreciation and amortization			515			91			12			18			-			636
Other significant items:
Provision for loan losses			163			-			-			-			-			163
Gain on sales of assets			25			1,150			-			-			-			1,175
Segment profit (loss)			3,619			(5	)		116			85			(119	)		3,696
Segment assets			413,837			4,832			379			2,629			(2,218	)		419,459

	10

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a financial institution, the Company’s primary component of market risk is interest rate risk. Ultimately, fluctuations in interest rates will impact liquidity, the level of income and expense recorded on most of the Company’s assets and liabilities, and the market value of interest-earning assets and interest-bearing liabilities. The Company is not subject to foreign exchange or commodity price risk. The Company does not own any trading assets.

Interest rate risk is managed by management in accordance with policies approved by the Bank’s Board of Directors. Management formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, management considers the impact on earnings and capital of the current outlook on interest rates, potential changes in interest rates, regional economy, liquidity, business strategies and other factors. Management meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market value of assets and liabilities, unrealized gains and losses, purchase and sales activities, commitments to originate loans and the maturities of investments. Management uses an analysis of r elationships between interest-earning assets and interest-bearing liabilities to manage interest rate risk.

The following table presents the Company's repricing gap at June 30, 2003. The table indicates that at June 30, 2003 the Company was asset sensitive up to one year and had a positive cumulative GAP for all time periods. This would indicate an increase in earnings in a rising rate environment.

		Within Six Months			Six Months to One Year			After One to Three Years			After Three to Five Years			Over Ten Years			Total
		(in thousands)
Interest-earning assets:
Loans receivable, net		$	117,842			44,740			53,746			93,557			23,064			332,949
FHLB & FRB stock			2,929			-			-			-			-			2,929
Investment securities available-for-sale			32,193			11,142			4,823			5,090			86			53,334
Interest-bearing deposits with other
financial institutions			24,683			-			-			-			-			24,683
Total rate sensitive assets		$	177,647			55,882			58,569			98,647			23,150			413,895
Interest-bearing liabilities:
Deposits:
Savings deposits		$	2,077			2,077			8,308			8,308			-			20,770
Demand deposits			112,430			7,245			28,981			28,982			-			177,638
Certificates of deposit			55,047			41,510			32,757			18,841			22			148,177
Borrowings			27			27			1,109			1,109			644			2,916
Total rate sensitive liabilities		$	169,581			50,859			71,155			57,240			666			349,501
Excess (deficiency) of interest sensitive
assets over interest sensitive liabilities		$	8,066			5,023			(12,586	)		41,407			22,484			64,394
Cumulative excess (deficiency) of
interest sensitive assets		$	8,066			13,089			503			41,910			64,394			64,394
Cumulative ratio of interest-earning assets
to interest-bearing liabilities			104.76	%		105.94	%		100.17	%		112.01	%		118.42	%		118.42	%
Interest sensitivity gap to total rate sensitive assets			1.95	%		1.21	%		(3.04)	%		10.00	%		5.43	%		15.56	%
Ratio of interest-earning assets to
interest -bearing liabilities			104.76	%		109.88	%		82.31	%		172.34	%		3,475.98	%		118.42	%
Ratio of cumulative gap to total rate sensitive assets			1.95	%		3.16	%		0.12	%		10.13	%		15.56	%		15.56	%

The gap analysis provides the basis for more detailed analysis in a simulation model. Also gap results are popular rate risk indicators. However, to truly evaluate the impact of rate change on income, simulation is the best technique because variables are changed for various rate conditions. Each category’s interest change is calculated as rates ramp up and down. In addition the prepayment speeds and repricing speeds are changed.

Rate Shock is a method for stress testing the Net Interest Margin (NIM) over the next four quarters under several rate change levels. These levels span four 100 basis point increments up and down from the current interest rates. In order to simulate activity, maturing balances are replaced with new balances at the new rate level and repricing balances are adjusted to the new rate shock level. The interest is recalculated for each level along with the new average yield. NIM is then calculated and a margin risk profile is developed. This simulation reveals that the Bank will experience a loss in Net Interest Income if rates decline in the next year. The magnitude and severity of potential loss for a 100 basis point decline in rates under projected growth conditions would be a decline of 13 basis points.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures.

In accordance with Rule 13a- 15(b) of the Securities Exchange Act of 1934(the "Exchange Act"), an evaluation was carried out with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a- 15(e) and 15 d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon their evaluation of these disclosure controls and procedures, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that material information relatin g to the Company, including its consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this quarterly report on Form 10-Q was being prepared.

Changes in internal controls over financial reporting.

There was not any change in the Company’s internal control over financial reporting that occurred during the three months ended June 30, 2003 that has materially affected, or is reasonably likely to affect, the Company’s internal control over financial reporting.

	11

Part II. Other Information

Item 1. Legal Proceedings

None

Item 2. Changes in Securities and use of Proceeds

Not applicable

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Submission of Matters to a Vote of Security Holders

 

On April 24, 2003 at the annual meeting of shareholders of Cavalry Bancorp, Inc. the following Directors were elected for three-year terms:

Name	For	Withhold
Ronald F. Knight	5,589,866	9,720
Tim J. Durham	5,554,556	45,030

 

       There were no abstentions or broker non-votes.

       The term of the following directors continued after the meeting:

       Terry G. Haynes

       William H. Huddleston, IV

       Gary Brown

       Ed C. Loughry, Jr.

       William Kent Coleman

       James C. Cope

    

Item 5. Other Information

None

Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

  

   (a) Exhibits

31.1    CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2    CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1    CEO Certification Pursuant 18 U.S.C. Section 1350, Sarbanes – Oxley Act 2002

32.2    CFO Certification Pursuant 18 U.S.C. Section 1350, Sarbanes – Oxley Act 2002

(b) Reports on Form 8-K

 

The Company furnished a report on Form 8-K under Item 9 dated April 25, 2003, reporting the announcement of the Company’s earnings for the first quarter of 2003.

 

The Company filed a report on Form 8-K under Item 5 dated April 30, 2003 announcing the re-election of directors Tim J. Durham and Ronald F. Knight, each for three-year terms, at the Annual Stockholder’s Meeting held on April 24, 2003.    

Not withstanding the foregoing, information furnished under Items 9 and 12 of our current Reports on Form 8-K, including the related Exhibits, shall not be deemed to be filed for the purpose of Section 18 of the Securities Exchange Act of 1934.

	12

A signed original of this written statement required by Section 906 has been provided to Cavalry Bancorp, Inc. and will be retained by Cavalry Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Pursuant to the requirements of section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		CAVALRY BANCORP, INC.
Date: August 8, 2003	by
		Ed C. Loughry, Jr.
		Chairman of the Board and Chief Executive Officer

 

Date: August 8, 2003	by
		Hillard C. Gardner
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

	13