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U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q

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| | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ---------------------------------------------------------------------------------------

| |  | For the quarterly period ended June 30, 2002
| |  | --------------------------------------------

| | o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------

| |  | For the transition period fromto
| |  | --------------------------------

Commission File Number:
0-49789

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Henry County Bancshares, Inc.(Exact name of small business issuer as specified in its charter)

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| | Georgia(State or other jurisdiction ofincorporation or organization) |  | 58-1485511(IRS EmployerIdentification No.) | 
| | -------------------------------------------------------------------- |  | ------------------------------------------ | 

4806 N. Henry Blvd., Stockbridge, Georgia 30281(Address of principal executive offices)

(770)
474-7293(Issuers telephone number)

N/A(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 o

State the number of shares outstanding of each of the issuers classes of common equity, as of August 15, 2002: 7,160,992; $2.50 par value

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HENRY COUNTY BANCSHARES, INC AND SUBSIDIARIES

INDEX

|         |  |                       |  |                                                                                                                | Page
|-------- |  | --------------------- |  | -------------------------------------------------------------------------------------------------------------- | ----
|         |  |                       |  |                                                                                                                |     
|PART I.  |  | FINANCIAL INFORMATION | 
|         |  |                       |  |                                                                                                                |     
|         |  | Item 1.               |  | Financial Statements                                                                                           |     
|         |  |                       |  |                                                                                                                |     
|         |  |                       |  | Consolidated Balance Sheets- June 30, 2002 and December 31, 2001                                               | 3   
|         |  |                       |  |                                                                                                                |     
|         |  |                       |  | Consolidated Statements of Income and Comprehensive Income  Three and Six Months Ended June 30, 2002 and 2001 | 4   
|         |  |                       |  |                                                                                                                |     
|         |  |                       |  | Consolidated Statements of Cash Flows - Six Months Ended June 30, 2002 and 2001                                | 5   
|         |  |                       |  |                                                                                                                |     
|         |  |                       |  | Notes to Consolidated Financial Statements                                                                     | 6-8 
|         |  |                       |  |                                                                                                                |     
|         |  | Item 2.               |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                          | 9-15
|         |  |                       |  |                                                                                                                |     
|         |  | Item 3.               |  | Quantitative and Qualitative Disclosures About Market Risk                                                     | 15  
|         |  |                       |  |                                                                                                                |     
|         |  |                       |  |                                                                                                                |     
|         |  |                       |  |                                                                                                                |     
|PART II. |  | OTHER INFORMATION     | 
|         |  |                       |  |                                                                                                                |     
|         |  | Item 4.               |  | Submission of Matters to a Vote of Security Holders                                                            | 16  
|         |  |                       |  |                                                                                                                |     
|         |  | Item 6.               |  | Exhibits and Reports on Form 8-K                                                                               | 16  
|         |  |                       |  |                                                                                                                |     

|           |   
|---------- | --
|           |   
|SIGNATURES | 17
|           |   
|           |   



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PART I - FINANCIAL INFORMATIONFINANCIAL STATEMENTS

HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETSJUNE 30, 2002 AND DECEMBER 31, 2001(Unaudited)

|                                                                                              |  | 2002 |             | 2001 |  
|--------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | -
|                                                                                              |  |      |             |      |  
|                                                                                              |  |      |             |      |  
|Assets                                                                                        |  |      |             |      |  
|Cash and due from banks                                                                       |  | $    | 25,024,729  |      | $
|Interest bearing deposits in banks                                                            |  |      | 2,709,393   |      |  
|Federal funds sold                                                                            |  |      | 29,000,000  |      |  
|Securities available-for-sale, at fair value                                                  |  |      | 76,072,227  |      |  
|Securities held-to-maturity, at cost, (fair value 2002 $2,424,000; 2001      $3,574,000)      |  |      | 2,377,538   |      |  
|Restricted equity securities, at cost                                                         |  |      | 1,250,000   |      |  
|Loans held for sale                                                                           |  |      | 870,478     |      |  
|                                                                                              |  |      |             |      |  
|Loans                                                                                         |  |      | 340,885,477 |      |  
|Less allowance for loan losses                                                                |  |      | 3,658,818   |      |  
|                                                                                              |  |      |             |      |  
|Loans, net                                                                                    |  |      | 337,226,659 |      |  
|                                                                                              |  |      |             |      |  
|Premises and equipment                                                                        |  |      | 8,403,840   |      |  
|Other assets                                                                                  |  |      | 4,837,109   |      |  
|                                                                                              |  |      |             |      |  
|                                                                                              |  |      |             |      |  
|Total assets                                                                                  |  | $    | 487,771,973 |      | $
|                                                                                              |  |      |             |      |  
|                                                                                              |  |      |             |      |  
|Liabilities and Stockholders Equity                                                          |  |      |             |      |  
|Deposits                                                                                      |  |      |             |      |  
|Noninterest-bearing                                                                           |  | $    | 74,666,955  |      | $
|Interest-bearing                                                                              |  |      | 335,510,568 |      |  
|                                                                                              |  |      |             |      |  
|Total deposits                                                                                |  |      | 410,177,523 |      |  
|Other borrowings                                                                              |  |      | 30,891,384  |      |  
|Other liabilities                                                                             |  |      | 2,487,289   |      |  
|                                                                                              |  |      |             |      |  
|Total liabilities                                                                             |  |      | 443,556,196 |      |  
|                                                                                              |  |      |             |      |  
|                                                                                              |  |      |             |      |  
|Commitments and contingencies                                                                 |  |      |             |      |  
|                                                                                              |  |      |             |      |  
|Stockholders equity                                                                          |  |      |             |      |  
|Common stock, par value $2.50; 10,000,000 shares authorized;        7,237,065.6 shares issued |  |      | 18,092,664  |      |  
|Capital surplus                                                                               |  |      | 739,560     |      |  
|Retained earnings                                                                             |  |      | 26,195,573  |      |  
|Accumulated other comprehensive income                                                        |  |      | 581,396     |      |  
|Treasury stock                                                                                |  |      | (1,393,416  | )    |  
|                                                                                              |  |      |             |      |  
|Total stockholders equity                                                                    |  |      | 44,215,777  |      |  
|                                                                                              |  |      |             |      |  
|                                                                                              |  |      |             |      |  
|Total liabilities and stockholders equity                                                    |  | $    | 487,771,973 |      | $
|                                                                                              |  |      |             |      |  

See Notes to Consolidated Financial Statements.



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HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOMETHREE AND SIX MONTHS ENDED JUNE 30, 2002 AND
2001(Unaudited)

|                                                                              |  | Three Months EndedJune 30, |           | Six Months EndedJune 30, |  
|----------------------------------------------------------------------------- |  | -------------------------- | --------- | ------------------------ | -
|                                                                              |  |                            |           |                          |  
|                                                                              |  | 2002                       |           | 2001                     |  
|                                                                              |  |                            |           |                          |  
|Interest income                                                               |  |                            |           |                          |  
|Loans                                                                         |  | $                          | 5,788,360 |                          | $
|Taxable securities                                                            |  |                            | 923,718   |                          |  
|Nontaxable securities                                                         |  |                            | 187,355   |                          |  
|Deposits in banks                                                             |  |                            | 30,963    |                          |  
|Federal funds sold                                                            |  |                            | 60,327    |                          |  
|                                                                              |  |                            |           |                          |  
|Total interest income                                                         |  |                            | 6,990,723 |                          |  
|                                                                              |  |                            |           |                          |  
|                                                                              |  |                            |           |                          |  
|Interest expense                                                              |  |                            |           |                          |  
|Deposits                                                                      |  |                            | 2,530,074 |                          |  
|Other borrowings                                                              |  |                            | 335,928   |                          |  
|                                                                              |  |                            |           |                          |  
|Total interest expense                                                        |  |                            | 2,866,002 |                          |  
|                                                                              |  |                            |           |                          |  
|                                                                              |  |                            |           |                          |  
|Net interest income                                                           |  |                            | 4,124,721 |                          |  
|Provision for loan losses                                                     |  |                            | 152,000   |                          |  
|                                                                              |  |                            |           |                          |  
|Net interest income after provision for           loan losses                 |  |                            | 3,972,721 |                          |  
|                                                                              |  |                            |           |                          |  
|                                                                              |  |                            |           |                          |  
|Other operating income                                                        |  |                            |           |                          |  
|Service charges on deposit accounts                                           |  |                            | 542,156   |                          |  
|Other service charges and fees                                                |  |                            | 185,520   |                          |  
|Mortgage banking income                                                       |  |                            | 300,613   |                          |  
|Gain on sales of securities available-for-        sale                        |  |                            | 35,278    |                          |  
|                                                                              |  |                            |           |                          |  
|Total other income                                                            |  |                            | 1,063,567 |                          |  
|                                                                              |  |                            |           |                          |  
|                                                                              |  |                            |           |                          |  
|Other expenses                                                                |  |                            |           |                          |  
|Salaries and employee benefits                                                |  |                            | 1,356,041 |                          |  
|Occupancy and equipment expenses                                              |  |                            | 365,974   |                          |  
|Other operating expenses                                                      |  |                            | 529,764   |                          |  
|                                                                              |  |                            |           |                          |  
|Total other expenses                                                          |  |                            | 2,251,779 |                          |  
|                                                                              |  |                            |           |                          |  
|                                                                              |  |                            |           |                          |  
|Income before income taxes                                                    |  |                            | 2,784,509 |                          |  
|                                                                              |  |                            |           |                          |  
|Income tax expense                                                            |  |                            | 1,004,281 |                          |  
|                                                                              |  |                            |           |                          |  
|                                                                              |  |                            |           |                          |  
|Net income                                                                    |  |                            | 1,780,228 |                          |  
|                                                                              |  |                            |           |                          |  
|Other comprehensive income (loss):                                            |  |                            |           |                          |  
|Unrealized gains (losses) on securities        available-for-sale, net of tax |  |                            | 582,222   |                          |  
|                                                                              |  |                            |           |                          |  
|                                                                              |  |                            |           |                          |  
|Comprehensive income                                                          |  | $                          | 2,362,450 |                          | $
|                                                                              |  |                            |           |                          |  
|                                                                              |  |                            |           |                          |  
|Earnings per share                                                            |  | $                          | 0.25      |                          | $
|                                                                              |  |                            |           |                          |  
|Cash dividends per share                                                      |  | $                          | 0.08      |                          | $
|                                                                              |  |                            |           |                          |  

See Notes to Consolidated Financial Statements.



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HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWSSIX MONTHS ENDED JUNE 30, 2002 AND 2001(Unaudited)

|                                                                                         |  | 2002 |             | 2001 |  
|---------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | -
|                                                                                         |  |      |             |      |  
|OPERATING ACTIVITIES                                                                     |  |      |             |      |  
|Net income                                                                               |  | $    | 3,521,570   |      | $
|Adjustments to reconcile net income to net cash provided by operating        activities: |  |      |             |      |  
|Gain on sales of securities available-for-sale                                           |  |      | (35,278     | )    |  
|Depreciation                                                                             |  |      | 292,134     |      |  
|Net decrease in loans held for sale                                                      |  |      | 704,678     |      |  
|Provision for loan losses                                                                |  |      | 302,000     |      |  
|Decrease in interest receivable                                                          |  |      | 147,825     |      |  
|Increase (decrease) in interest payable                                                  |  |      | (75,939     | )    |  
|Net other operating activities                                                           |  |      | 1,060,077   |      |  
|                                                                                         |  |      |             |      |  
|                                                                                         |  |      |             |      |  
|Net cash provided by operating activities                                                |  |      | 5,917,067   |      |  
|                                                                                         |  |      |             |      |  
|                                                                                         |  |      |             |      |  
|INVESTING ACTIVITIES                                                                     |  |      |             |      |  
|Purchases of securities available-for-sale                                               |  |      | (12,271,890 | )    |  
|Proceeds from sales of securities available-for-sale                                     |  |      | 10,636,562  |      |  
|Proceeds from maturities of securities available-for-sale                                |  |      | 26,756,490  |      |  
|Proceeds from maturities of securities held-to-maturity                                  |  |      | 1,144,701   |      |  
|Purchase of restricted equity securities                                                 |  |      | (169,000    | )    |  
|Net (increase) decrease in federal funds sold                                            |  |      | 14,800,000  |      |  
|Net (increase) decrease in interest-bearing deposits in banks                            |  |      | 2,223,051   |      |  
|Net increase in loans                                                                    |  |      | (36,217,708 | )    |  
|Purchase of premises and equipment                                                       |  |      | (1,254,055  | )    |  
|                                                                                         |  |      |             |      |  
|                                                                                         |  |      |             |      |  
|Net cash provided by (used in) investing activities                                      |  |      | 5,648,151   |      |  
|                                                                                         |  |      |             |      |  
|                                                                                         |  |      |             |      |  
|FINANCING ACTIVITIES                                                                     |  |      |             |      |  
|Net increase (decrease) in deposits                                                      |  |      | (26,486,429 | )    |  
|Net proceeds from other borrowings                                                       |  |      | 15,199,754  |      |  
|Dividends paid                                                                           |  |      | (1,145,757  | )    |  
|Purchase of treasury stock                                                               |  |      | (312,442    | )    |  
|                                                                                         |  |      |             |      |  
|                                                                                         |  |      |             |      |  
|Net cash provided by (used in) financing activities                                      |  |      | (12,744,874 | )    |  
|                                                                                         |  |      |             |      |  
|                                                                                         |  |      |             |      |  
|Net increase (decrease) in cash and due from banks                                       |  |      | (1,179,656  | )    |  
|                                                                                         |  |      |             |      |  
|Cash and due from banks, beginning of period                                             |  |      | 26,204,385  |      |  
|                                                                                         |  |      |             |      |  
|                                                                                         |  |      |             |      |  
|Cash and due from banks, end of period                                                   |  | $    | 25,024,729  |      | $
|                                                                                         |  |      |             |      |  
|                                                                                         |  |      |             |      |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                        |  |      |             |      |  
|Cash paid for:                                                                           |  |      |             |      |  
|Interest                                                                                 |  | $    | 5,978,807   |      | $
|                                                                                         |  |      |             |      |  
|Income taxes                                                                             |  | $    | 2,084,164   |      | $

See Notes to Consolidated Financial Statements.



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HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)

NOTE
1.      BASIS OF PRESENTATION

| |  | The consolidated financial information for Henry County Bancshares, Inc. (the Company) included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim period.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The results of operations for the three and six month periods ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 2.      SUPPLEMENTAL SEGMENT INFORMATION

| |  | The Company has two reportable segments: commercial banking and mortgage loan origination. The commercial banking segment provides traditional banking services offered through the Bank. The mortgage loan origination
segment provides mortgage loan origination services offered through First Metro.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Company evaluates performance based on profit and loss from operations before income taxes not including nonrecurring gains and losses.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Company accounts for intersegment revenues and expenses as if the revenue/expense transactions were to third parties, that is, at current market prices.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Companys reportable segments are strategic business units that offer different products and services. They are managed separately because each segment has different types and levels of credit and interest rate
risk.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                               |  | INDUSTRY SEGMENTS |            
|---------------------------------------------- |  | ----------------- | -----------
|                                               |  |                   |            
|For the Six Months EndedJune 30, 2002          |  | CommercialBanking |            
|                                               |  |                   |            
|Interest income                                |  | $                 | 14,091,700 
|Interest expense                               |  |                   | 5,905,443  
|Net interest income (expense)                  |  |                   | 8,186,257  
|Intersegment net interest income     (expense) |  |                   | 41,697     
|Other revenue from external sources            |  |                   | 1,390,914  
|Intersegment other revenues                    |  |                   | 27,500     
|Depreciation                                   |  |                   | 286,590    
|Provision for loan losses                      |  |                   | 302,000    
|Segment profit                                 |  |                   | 5,506,568  
|Segment assets                                 |  |                   | 487,575,559
|Expenditures for premises and     equipment    |  |                   | 1,254,055  



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NOTE 2.      SUPPLEMENTAL SEGMENT INFORMATION (Continued)

|                                               |  | INDUSTRY SEGMENTS |            
|---------------------------------------------- |  | ----------------- | -----------
|                                               |  |                   |            
|For the Six Months EndedJune 30, 2001          |  | CommercialBanking |            
|                                               |  |                   |            
|Interest income                                |  | $                 | 17,517,313 
|Interest expense                               |  |                   | 9,069,494  
|Net interest income (expense)                  |  |                   | 8,447,819  
|Intersegment net interest income     (expense) |  |                   | 127,539    
|Other revenue from external sources            |  |                   | 1,446,884  
|Intersegment other revenues                    |  |                   | 21,500     
|Depreciation                                   |  |                   | 278,502    
|Provision for loan losses                      |  |                   | 300,000    
|Segment profit                                 |  |                   | 5,859,194  
|Segment assets                                 |  |                   | 478,536,803
|Expenditures for premises and     equipment    |  |                   | 125,140    

|                                               |  | INDUSTRY SEGMENTS |          
|---------------------------------------------- |  | ----------------- | ---------
|                                               |  |                   |          
|For the Three Months EndedJune 30, 2002        |  | CommercialBanking |          
|                                               |  |                   |          
|Interest income                                |  | $                 | 7,003,583
|Interest expense                               |  |                   | 2,866,002
|Net interest income (expense)                  |  |                   | 4,137,581
|Intersegment net interest income     (expense) |  |                   | 12,860   
|Other revenue from external sources            |  |                   | 762,954  
|Intersegment other revenues                    |  |                   | 13,750   
|Depreciation                                   |  |                   | 147,195  
|Provision for loan losses                      |  |                   | 152,000  
|Segment profit                                 |  |                   | 2,805,455
|Expenditures for premises and     equipment    |  |                   | 677,589  

|                                               |  | INDUSTRY SEGMENTS |          
|---------------------------------------------- |  | ----------------- | ---------
|                                               |  |                   |          
|For the Three Months EndedJune 30, 2001        |  | CommercialBanking |          
|                                               |  |                   |          
|Interest income                                |  | $                 | 8,555,385
|Interest expense                               |  |                   | 4,430,996
|Net interest income (expense)                  |  |                   | 4,124,389
|Intersegment net interest income     (expense) |  |                   | 76,483   
|Other revenue from external sources            |  |                   | 749,694  
|Intersegment other revenues                    |  |                   | 10,750   
|Depreciation                                   |  |                   | 139,251  
|Provision for loan losses                      |  |                   | 150,000  
|Segment profit                                 |  |                   | 2,813,327
|Expenditures for premises and     equipment    |  |                   | 108,085  
|                                               |  |                   |          





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NOTE 3.      CURRENT ACCOUNTING DEVELOPMENTS

| |  | There are no recent accounting pronouncements that have had, or are expected to have, a material effect on the Companys financial statements.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------

8



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following is managements discussion and analysis of certain
significant factors which have affected the financial position and operating results of the Henry County Bancshares, Inc. and its subsidiaries, The First State Bank and First Metro Mortgage Co., during the periods included in the accompanying
consolidated financial statements.

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

Certain of the statements made herein under the caption
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) are forward-looking statements for purposes of the Securities Act of 1933, as amended, (the Securities Act) and
the Securities Exchange Act of 1934, as amended (the Exchange Act), and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Henry County
Bancshares, Inc. to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward looking statements include statements using the words such as may,
will, anticipate, should, would, believe, contemplate, expect, estimate, continue, may, intend, or other similar
words and expressions of the future. Our actual results may differ significantly from the results we discuss in these forward-looking statements.

These forward-looking statements involve risks and uncertainties
and may not be realized due to a variety of factors, including, without limitation: the effects of future economic conditions; governmental monetary and fiscal policies, as well as legislative and regulatory changes; the risks of changes in interest
rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities, and other interest-sensitive assets and liabilities; interest rate risks; the effects of competition from other commercial banks, thrifts,
mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in the our market area and elsewhere, including
institutions operating regionally, nationally, and internationally, together with such competitors offering banking products and services by mail, telephone, computer, and the Internet.

Critical Accounting
Policies

We have adopted various accounting policies which govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements. Our
significant accounting policies are described in the footnotes to the consolidated financial statements at December 31, 2001 as filed in our registration statement on Form 10.

Certain accounting policies involve
significant judgments and assumptions by us which have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgments and assumptions we use are
based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could
have a material impact on our carrying values of assets and liabilities and our results of operations.

We believe the allowance for loan losses is a critical accounting policy that requires the most significant
judgments and estimates used in preparation of our consolidated financial statements. Please see the portion of this discussion that addresses our allowance for loan losses for a description of our processes and methodology for determining our
allowance for loan losses.



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##### Table of Contents

Liquidity and Capital Resources

Our liquidity and capital resources are monitored on a periodic basis by management, State
and Federal regulatory authorities. As determined under guidelines established by regulatory authorities and internal policy, our liquidity ratio of 22% at June 30, 2002 was considered satisfactory.

At June 30,
2002, our capital ratios were in excess of the regulatory minimum capital requirements to be classified as well-capitalized. The regulatory minimum capital requirements to be classified as well-capitalized and our actual capital ratios on a
consolidated and bank-only basis are as follows:

|                           |  | Actual       |       |      | 
|-------------------------- |  | ------------ | ----- | ---- | 
|                           |  |              |       |      | 
|                           |  | Consolidated |       | Bank | 
|                           |  |              |       |      | 
|                           |  |              |       |      | 
|Leverage capital ratios    |  |              | 9.15  | %    | 
|Risk-based capital ratios: |  |              |       |      | 
|Core capital               |  |              | 11.84 |      | 
|Total capital              |  |              | 12.83 |      | 

Off-Balance Sheet Risk

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet
the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the
amount recognized in the balance sheets.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit
is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. A summary of our commitments is as follows:

|                             |  | June 30,2002 |           
|---------------------------- |  | ------------ | ----------
|                             |  |              |           
|                             |  |              |           
|Commitments to extend credit |  | $            | 83,972,000
|Letters of credit            |  |              | 2,852,000 
|                             |  |              |           
|                             |  | $            | 86,824,000
|                             |  |              |           

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation
of the customer.



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##### Table of Contents

Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. Those letters of credit are
primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral is required in instances which we deem
necessary.

Financial Condition

Following is a summary of our balance sheets for the periods indicated:

|                                   |  | June 30,2002           |         | December 31,2001 |  
|---------------------------------- |  | ---------------------- | ------- | ---------------- | -
|                                   |  |                        |         |                  |  
|                                   |  | (Dollars in Thousands) |        
|                                   |  |                        |        
|Cash and due from banks            |  | $                      | 25,025  |                  | $
|Interest-bearing deposits in banks |  |                        | 2,709   |                  |  
|Federal funds sold                 |  |                        | 29,000  |                  |  
|Securities                         |  |                        | 79,700  |                  |  
|Loans, net                         |  |                        | 337,227 |                  |  
|Loans held for sale                |  |                        | 870     |                  |  
|Premises and equipment             |  |                        | 8,404   |                  |  
|Other assets                       |  |                        | 4,837   |                  |  
|                                   |  |                        |         |                  |  
|                                   |  | $                      | 487,772 |                  | $
|                                   |  |                        |         |                  |  
|                                   |  |                        |         |                  |  
|Total deposits                     |  | $                      | 410,178 |                  | $
|Other borrowings                   |  |                        | 30,891  |                  |  
|Other liabilities                  |  |                        | 2,487   |                  |  
|Stockholders equity               |  |                        | 44,216  |                  |  
|                                   |  |                        |         |                  |  
|                                   |  | $                      | 487,772 |                  | $
|                                   |  |                        |         |                  |  

Our assets decreased by 2% for the first six months of 2002. A $32 million decrease in public deposits was the primary reason total deposits decreased by $26.5 million. Proceeds from
sales and maturities of securities, increases in other borrowings and non-public deposit growth, and a decrease in federal funds sold funded net loan growth of $35.9 million. Our loan to deposit ratio has increased to 83% at June 30, 2002 from
70% at December 31, 2001 due to loan growth and the decrease in total deposits. Our total equity has increased by $2.5 million year-to-date as net income of $3.5 million and increased unrealized gains on securities available-for-sale, net of
tax, of $429,000 was offset by dividends paid of $1.1 million, and the purchase of treasury stock of $312,000.



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##### Table of Contents

Results of Operations For The Three and Six Months Ended June 30, 2002 and 2001

Following is a summary of our
operations for the periods indicated.

|                          |  | Three Months EndedJune 30, |      
|------------------------- |  | -------------------------- | -----
|                          |  |                            |      
|                          |  | 2002                       |      
|                          |  |                            |      
|                          |  | (Dollars in Thousands)     |      
|                          |  |                            |      
|Interest income           |  | $                          | 6,991
|Interest expense          |  |                            | 2,866
|                          |  |                            |      
|Net interest income       |  |                            | 4,125
|Provision for loan losses |  |                            | 152  
|Other income              |  |                            | 1,063
|Other expense             |  |                            | 2,252
|                          |  |                            |      
|Pretax income             |  |                            | 2,784
|Income taxes              |  |                            | 1,004
|                          |  |                            |      
|Net income                |  | $                          | 1,780
|                          |  |                            |      

|                          |  | Six Months EndedJune 30, |       
|------------------------- |  | ------------------------ | ------
|                          |  |                          |       
|                          |  | 2002                     |       
|                          |  |                          |       
|                          |  | (Dollars in Thousands)   |       
|                          |  |                          |       
|Interest income           |  | $                        | 14,048
|Interest expense          |  |                          | 5,903 
|                          |  |                          |       
|Net interest income       |  |                          | 8,145 
|Provision for loan losses |  |                          | 302   
|Other income              |  |                          | 2,148 
|Other expense             |  |                          | 4,453 
|                          |  |                          |       
|Pretax income             |  |                          | 5,538 
|Income taxes              |  |                          | 2,016 
|                          |  |                          |       
|Net income                |  | $                        | 3,522 
|                          |  |                          |       



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##### Table of Contents

Our net interest income increased by $77,000 in the second quarter of 2002 but decreased by $175,000 in the first six months of 2002 as compared to the same periods
in 2001. Our net yield on average interest-earning assets decreased to 3.69% in the first six months of 2002 as compared to 3.81% in the first six months of 2001 and 3.79% for the entire year of 2001. The decrease in year-to-date net interest income
and net yield is due primarily to the yields earned on loans that have decreased to 7.05% in the first six months of 2002 as compared to 9.02% in the first six months of 2001. The cost of funds has decreased as well, decreasing to 3.30% in the first
six months of 2002 as compared to 5.06% in the first six months of 2001.

The provision for loan losses increased by $2,000 for the second quarter and first six months of 2002 as compared to the same periods in
2001. The amounts provided are due primarily to loan growth and our assessment of the inherent risk in the loan portfolio. The allowance for loan losses as a percentage of total loans was 1.07% at June 30, 2002 as compared to 1.11% at December 31,
2001. The allowance for loan losses is maintained at a level that is deemed appropriate by management to adequately cover all known and inherent risks in the loan portfolio. Our evaluation of the loan portfolio includes a continuing review of loan
loss experience, current economic conditions which may affect the borrowers ability to repay and the underlying collateral value.

Information with respect to nonaccrual, past due and restructured loans at
June 30, 2002 and 2001 is as follows:

|                                                                                                             |  | June 30,               |      
|------------------------------------------------------------------------------------------------------------ |  | ---------------------- | -----
|                                                                                                             |  |                        |      
|                                                                                                             |  | 2002                   |      
|                                                                                                             |  |                        |      
|                                                                                                             |  | (Dollars in Thousands) |      
|                                                                                                             |  |                        |      
|Nonaccrual loans                                                                                             |  | $                      | 225  
|Loans contractually past due ninety days or more as to interest or     principal payments and still accruing |  |                        | 421  
|Restructured loans                                                                                           |  |                        | 0    
|Potential problem loans                                                                                      |  |                        | 2,647
|Interest income that would have been recorded on nonaccrual and     restructured loans under original terms  |  |                        | 10   
|Interest income that was recorded on nonaccrual and restructured loans                                       |  |                        | 0    

Potential problem loans are defined as loans about which we have serious doubts as to the ability of the borrower to comply with the present loan repayment terms and which may
cause the loan to be placed on nonaccrual status, to become past due more than ninety days, or to be restructured.

Our policy is to discontinue the accrual of interest income when, in the opinion of management,
collection of such interest becomes doubtful. This status is accorded interest when (1) there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected and (2) the
principal or interest is more than ninety days past due, unless the loan is both well-secured and in the process of collection. Accrual of interest on such loans is resumed when, in managements judgment, the collection of interest and
principal becomes probable.



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##### Table of Contents

Loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been included in the table above do not represent or
result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity or capital resources. These classified loans do not represent material credits about which management is aware of any
information which causes management to have serious doubts as to the ability of such borrowers to comply with the loan repayment terms.

Information regarding certain loans and allowance for loan loss data
through June 30, 2002 and 2001 is as follows:

|                                                                                 |  | Six Months EndedJune 30, |        
|-------------------------------------------------------------------------------- |  | ------------------------ | -------
|                                                                                 |  |                          |        
|                                                                                 |  | 2002                     |        
|                                                                                 |  |                          |        
|                                                                                 |  | (Dollars in Thousands)   |        
|                                                                                 |  |                          |        
|Average amount of loans outstanding                                              |  | $                        | 324,978
|                                                                                 |  |                          |        
|                                                                                 |  |                          |        
|Balance of allowance for loan losses at beginning of period                      |  | $                        | 3,377  
|                                                                                 |  |                          |        
|                                                                                 |  |                          |        
|Loans charged off                                                                |  |                          |        
|Real estate                                                                      |  |                          |       
|Commercial                                                                       |  |                          |       
|Consumer installment                                                             |  |                          | (40    
|                                                                                 |  |                          |        
|                                                                                 |  |                          | (40    
|                                                                                 |  |                          |        
|                                                                                 |  |                          |        
|Loans recovered                                                                  |  |                          |        
|Real estate                                                                      |  |                          |       
|Commercial                                                                       |  |                          |       
|Consumer installment                                                             |  |                          | 20     
|                                                                                 |  |                          |        
|                                                                                 |  |                          | 20     
|                                                                                 |  |                          |        
|                                                                                 |  |                          |        
|Net (charge-offs)/ recoveries                                                    |  |                          | (20    
|                                                                                 |  |                          |        
|                                                                                 |  |                          |        
|Additions to allowance charged to operating expense during period                |  |                          | 302    
|                                                                                 |  |                          |        
|                                                                                 |  |                          |        
|Balance of allowance for loan losses at end of period                            |  | $                        | 3,659  
|                                                                                 |  |                          |        
|                                                                                 |  |                          |        
|Ratio of net loans charged off during the period to    average loans outstanding |  |                          | .01    
|                                                                                 |  |                          |        

The allowance for loan losses is maintained at a level that is deemed appropriate by us to adequately cover all known and inherent risks in the loan portfolio. Our evaluation considers
significant factors relative to the credit risk and loss exposure in the loan portfolio, including past due and classified loans, historical experience, underlying collateral values, and current economic conditions that may affect the
borrowers ability to repay. The allowance for loan losses is evaluated by segmenting the loan portfolio into unclassified and classified loans. An allowance percentage is applied to the unclassified loans to establish a general allowance for
loan losses. The allowance percentage determined is based upon our experience specifically and the historical experience of the banking industry generally. The classified loans, including impaired loans, are analyzed individually in order to
establish a specific allowance for loan losses. A loan is considered



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##### Table of Contents

impaired when it is probable that we will be unable to collect all principal and interest due in accordance with the contractual terms of the loan
agreement.

Other income decreased by $215,000 and $184,000 in the second quarter and first six months of 2002, respectively, as compared to the same periods in 2001. The decreases are due to a reduction in
mortgage banking income occurring during the second quarter of 2002 and decreased service charges on deposit accounts.

Other expenses have remained fairly stable as indicated by a decrease of $28,000 in the
second quarter of 2002 and an increase of $39,000 fir the first six months of 2002 as compared to the same periods in 2001.

We have provided for income taxes at an effective tax rate of 36% for the first six
months of 2002 and 2001.

We are not aware of any known trends, events or uncertainties, other than the effect of events as described above, that will have or are reasonably likely to have a material effect on
our liquidity, capital resources or operations. We are also not aware of any current recommendations by the regulatory authorities which, if they were implemented, would have such an effect.

|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

We are exposed only to U.S. dollar interest rate changes and accordingly, we manage exposure by considering
the possible changes in the net interest margin. We do not have any trading instruments nor do we classify any portion of the investment portfolio as held for trading. We do not engage in any hedging activities or enter into any derivative
instruments with a higher degree of risk than mortgage-backed securities that are commonly pass through securities. Finally, we have no exposure to foreign currency exchange rate risk, commodity price risk, and other market risks. Interest rates
play a major part in the net interest income of a financial institution. The sensitivity to rate changes is known as interest rate risk. The repricing of interest earning assets and interest-bearing liabilities can influence the changes
in net interest income. As part of our asset/liability management program, the timing of repriced assets and liabilities is referred to as Gap management. It is our policy to maintain a Gap ratio in the one-year time horizon of .80 to
1.20.

GAP management alone is not enough to properly manage interest rate sensitivity, because interest rates do not respond at the same speed or at the same level to market rate changes. For example, savings
and money market rates are more stable than loans tied to a Prime rate and thus respond with less volatility to a market rate change.

We use a third party simulation model to monitor changes in net
interest income due to changes in market rates. The model of rising, falling and stable interest rate scenarios allow management to monitor and adjust interest rate sensitivity to minimize the impact of market rate swings. The analysis of impact on
net interest margins as well as market value of equity over a twelve-month period is subjected to a 200 basis point increase and decrease in rate. The June model reflects an increase of 15% in net interest income and a 5% increase in market value
equity for a 200 basis point increase in rates. The same model shows a 14% decrease in net interest income and a 14% decrease in market value equity for a 200 basis point decrease in rates. Our investment committee monitors changes on a quarterly
basis, measures the changing values based on the models performance and determines an appropriate interest rate policy for management to follow in order to minimize the impact on earnings and market value equity in the projected rate
environment.



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##### Table of Contents

II - OTHER INFORMATION

|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|------- | ----------------------------------------------------

(a)      The annual meeting of the stockholders of the Company was held on March 13, 2002.

(b)      The
following directors were elected at the meeting to serve for a one-year term.

| |  | Hans M. Broder, Jr.Paul J. Cates, Jr.H.K. Elliott, Jr.G.R. Foster, IIIDavid H. GillMary Lynn
LambertEdwin C. Kelley, Jr.Robert O. LinchRonald M. TurpinJames C. Waggoner
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The shares represented at the meeting (5,174,073 or 72.05%) voted unanimously for the election of the directors.
| |  | ----------------------------------------------------------------------------------------------------------------

|ITEM 6. | EXHIBITS AND REPORTS ON FORM 8-K.
|------- | ---------------------------------

(a)      Exhibits.

| | 99.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------
| |      | 
| | 99.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)      Reports on Form 8-K.

None.



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##### Table of Contents

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

| |  |  | HENRY COUNTY BANCSHARES, INC.(Registrant)
| |  |  | -----------------------------------------

|                        |  |    
|----------------------- |  | ---
|DATE: November 12, 2002 |  | By:
|                        |  |    
|                        |  |    



|                        |  |    
|----------------------- |  | ---
|DATE: November 12, 2002 |  | By:
|                        |  |    
|                        |  |