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U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







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

For the quarterly period ended March 31, 2009



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

For the transition period from              to

Commission File Number: 0-49789





Henry County Bancshares, Inc.

(Exact name of registrant as specified in its
charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Georgia                                                        |  | 58-1485511                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification 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) 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 by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting
company in Rule 12b-2 of the Exchange Act.



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large Accelerated filer |  |  ̈ |  | Accelerated filer         |  | x
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller Reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

State the number of shares outstanding of each of the issuers classes of common equity, as of May 7, 2009: 14,245,690; $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- March 31, 2009 and December 31, 2008                                                  |  | 3   
|         |  |                                                                                                                   
|         |  | Consolidated Statements of Operations and Comprehensive Income (loss) - Three Months Ended March 31, 2009 and
2008 |  | 4   
|         |  |                                                                                                                   
|         |  | Consolidated Statements of Cash Flows  Three Months Ended March 31, 2009 and 2008                                 |  | 5   
|         |  |                                                                                                                   
|         |  | Notes to Consolidated Financial Statements                                                                         |  | 6-8 
|         |  |                                                                                                                   
|         |  | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations                      |  | 9-16
|         |  |                                                                                                                   
|         |  | Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                 |  | 19  
|         |  |                                                                                                                   
|         |  | Item 4. Controls and Procedures                                                                                    |  | 20  
|         |  |                                                                                                                   
|PART II. |  | OTHER INFORMATION                                                                                                  |  |     
|         |  |                                                                                                                   
|         |  | Item 4 - Submission of Matters to a Vote of Security Holders                                                       |  | 21  
|         |  |                                                                                                                   
|         |  | Item 6 - Exhibits and Reports on Form 8-K                                                                          |  | 21  
|         |  |                                                                                                                   
|         |  | Signatures                                                                                                         |  | 22  



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PART I - FINANCIAL INFORMATION

FINANCIAL STATEMENTS

HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2009 AND DECEMBER 31, 2008

(Unaudited)



|                                                                                         |  |               |             |   |                  |   |             |  
|---------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                         |  | March 31,2009 |             |   | December 31,2008 |  
|Assets                                                                                   |  |               |             |   |                  |   |             |  
|Cash and due from banks                                                                  |  | $             | 14,645,278  |   |                  | $ | 14,039,311  |  
|Interest- bearing deposits in banks                                                      |  |               | 3,576,248   |   |                  |   | 1,499,648   |  
|Federal funds sold                                                                       |  |               | 21,200,000  |   |                  |   | 14,300,000  |  
|Securities available for sale, at fair value                                             |  |               | 70,408,770  |   |                  |   | 60,455,998  |  
|Securities held to maturity, at cost, (fair value 2009 - $1,029,610; 2008 - $3,349,682)  |  |               | 1,045,198   |   |                  |   | 3,360,711   |  
|Restricted equity securities, at cost                                                    |  |               | 1,268,298   |   |                  |   | 1,643,251   |  
|Loans held for sale                                                                      |  |               | 759,423     |   |                  |   |            |  
|                                                                                         |  |              
|Loans                                                                                    |  |               | 530,509,557 |   |                  |   | 533,608,559 |  
|Less allowance for loan losses                                                           |  |               | 17,996,924  |   |                  |   | 17,730,410  |  
|                                                                                         |  |               |             |   |                  |   |             |  
|Loans, net                                                                               |  |               | 512,512,633 |   |                  |   | 515,878,149 |  
|                                                                                         |  |              
|Premises and equipment                                                                   |  |               | 9,791,574   |   |                  |   | 9,776,484   |  
|Other real estate                                                                        |  |               | 17,238,328  |   |                  |   | 18,397,754  |  
|Other assets                                                                             |  |               | 15,236,573  |   |                  |   | 16,526,168  |  
|                                                                                         |  |               |             |   |                  |   |             |  
|                                                                                         |  |              
|Total assets                                                                             |  | $             | 667,682,323 |   |                  | $ | 655,877,474 |  
|                                                                                         |  |               |             |   |                  |   |             |  
|                                                                                         |  |              
|Liabilities and Stockholders Equity                                                     |  |               |             |   |                  |   |             |  
|                                                                                         |  |              
|Deposits                                                                                 |  |               |             |   |                  |   |             |  
|Noninterest-bearing                                                                      |  | $             | 67,989,481  |   |                  | $ | 68,210,136  |  
|Interest-bearing                                                                         |  |               | 537,742,281 |   |                  |   | 522,266,489 |  
|                                                                                         |  |               |             |   |                  |   |             |  
|Total deposits                                                                           |  |               | 605,731,762 |   |                  |   | 590,476,625 |  
|Other borrowings                                                                         |  |               | 1,693,410   |   |                  |   | 2,598,266   |  
|Other liabilities                                                                        |  |               | 3,177,123   |   |                  |   | 3,459,932   |  
|                                                                                         |  |               |             |   |                  |   |             |  
|Total liabilities                                                                        |  |               | 610,602,295 |   |                  |   | 596,534,823 |  
|                                                                                         |  |               |             |   |                  |   |             |  
|                                                                                         |  |              
|Stockholders equity                                                                     |  |               |             |   |                  |   |             |  
|Preferred stock, no par value; 10,000,000 shares authorized; none issued                 |  |               |             |   |                  |   |             |  
|Common stock, par value $2.50; 30,000,000 shares authorized; 14,388,749.60 shares issued |  |               | 35,971,874  |   |                  |   | 35,971,874  |  
|Surplus                                                                                  |  |               | 739,560     |   |                  |   | 739,560     |  
|Retained earnings                                                                        |  |               | 21,784,395  |   |                  |   | 24,161,264  |  
|Accumulated other comprehensive income                                                   |  |               | 902,803     |   |                  |   | 788,557     |  
|Treasury stock, 143,060 shares                                                           |  |               | (2,318,604  | ) |                  |   | (2,318,604  | )
|                                                                                         |  |               |             |   |                  |   |             |  
|Total stockholders equity                                                               |  |               | 57,080,028  |   |                  |   | 59,342,651  |  
|                                                                                         |  |               |             |   |                  |   |             |  
|                                                                                         |  |              
|Total liabilities and stockholders equity                                               |  | $             | 667,682,323 |   |                  | $ | 655,877,474 |  
|                                                                                         |  |               |             |   |                  |   |             |  

See Notes to Consolidated Financial Statements.



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HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2009 AND 2008

(Unaudited)



|                                                                                                         |  |                             |            |   |      |   |           
|-------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ----------
|                                                                                                         |  | Three Months EndedMarch 31,
|                                                                                                         |  | 2009                        |            |   | 2008
|Interest income                                                                                          |  |                             |            |   |      |   |           
|Loans                                                                                                    |  | $                           | 5,880,699  |   |      | $ | 9,778,904 
|Taxable securities                                                                                       |  |                             | 598,973    |   |      |   | 1,150,634 
|Nontaxable securities                                                                                    |  |                             | 64,813     |   |      |   | 79,445    
|Deposits in banks                                                                                        |  |                             | 2,197      |   |      |   | 31,159    
|Federal funds sold                                                                                       |  |                             | 10,224     |   |      |   | 104,802   
|                                                                                                         |  |                             |            |   |      |   |           
|Total interest income                                                                                    |  |                             | 6,556,906  |   |      |   | 11,144,944
|                                                                                                         |  |                             |            |   |      |   |           
|                                                                                                         |  |                            
|Interest expense                                                                                         |  |                             |            |   |      |   |           
|Deposits                                                                                                 |  |                             | 3,835,972  |   |      |   | 5,808,918 
|Other borrowings                                                                                         |  |                             | 14,213     |   |      |   | 118,079   
|                                                                                                         |  |                             |            |   |      |   |           
|Total interest expense                                                                                   |  |                             | 3,850,185  |   |      |   | 5,926,997 
|                                                                                                         |  |                             |            |   |      |   |           
|                                                                                                         |  |                            
|Net interest income                                                                                      |  |                             | 2,706,721  |   |      |   | 5,217,947 
|Provision for loan losses                                                                                |  |                             | 1,600,000  |   |      |   | 1,110,000 
|                                                                                                         |  |                             |            |   |      |   |           
|Net interest income after provision for loan losses                                                      |  |                             | 1,106,721  |   |      |   | 4,107,947 
|                                                                                                         |  |                             |            |   |      |   |           
|                                                                                                         |  |                            
|Other operating income                                                                                   |  |                             |            |   |      |   |           
|Service charges on deposit accounts                                                                      |  |                             | 308,373    |   |      |   | 337,062   
|Other service charges and fees                                                                           |  |                             | 231,625    |   |      |   | 254,528   
|Mortgage banking income                                                                                  |  |                             | 95,101     |   |      |   | 120,605   
|                                                                                                         |  |                             |            |   |      |   |           
|Total other income                                                                                       |  |                             | 635,099    |   |      |   | 712,195   
|                                                                                                         |  |                             |            |   |      |   |           
|Other expenses                                                                                           |  |                             |            |   |      |   |           
|Salaries and employee benefits                                                                           |  |                             | 1,698,432  |   |      |   | 1,865,737 
|Occupancy and equipment expenses                                                                         |  |                             | 474,968    |   |      |   | 481,874   
|Other real estate losses                                                                                 |  |                             | 576,850    |   |      |   | 120,768   
|Other operating expenses                                                                                 |  |                             | 1,368,439  |   |      |   | 620,399   
|                                                                                                         |  |                             |            |   |      |   |           
|Total other expenses                                                                                     |  |                             | 4,118,689  |   |      |   | 3,088,778 
|                                                                                                         |  |                             |            |   |      |   |           
|                                                                                                         |  |                            
|Income (loss) before income taxes                                                                        |  |                             | (2,376,869 | ) |      |   | 1,731,364 
|                                                                                                         |  |                            
|Income tax expense                                                                                       |  |                             |           |   |      |   | 640,700   
|                                                                                                         |  |                             |            |   |      |   |           
|                                                                                                         |  |                            
|Net income (loss)                                                                                        |  |                             | (2,376,869 | ) |      |   | 1,090,664 
|                                                                                                         |  |                             |            |   |      |   |           
|                                                                                                         |  |                            
|Other comprehensive income:                                                                              |  |                             |            |   |      |   |           
|Unrealized gains on securities available for sale, net of tax                                            |  |                             | 114,246    |   |      |   | 386,741   
|                                                                                                         |  |                             |            |   |      |   |           
|                                                                                                         |  |                            
|Comprehensive income (loss)                                                                              |  | $                           | (2,262,623 | ) |      | $ | 1,477,405 
|                                                                                                         |  |                             |            |   |      |   |           
|Earnings (loss) per share (weighted average shares outstanding- 14,245,690 and 14,284,744, respectively) |  | $                           | (0.17      | ) |      | $ | 0.08      
|                                                                                                         |  |                             |            |   |      |   |           
|                                                                                                         |  |                            
|Cash dividends per share                                                                                 |  | $                           |           |   |      | $ | 0.06      
|                                                                                                         |  |                             |            |   |      |   |           

See Notes to Consolidated Financial Statements.



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HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2009 AND 2008

(Unaudited)



|                                                                                         |  |      |             |           |      |   |             |  
|---------------------------------------------------------------------------------------- |  | ---- | ----------- | --------- | ---- | - | ----------- | -
|                                                                                         |  | 2009 |             |           | 2008 |  
|OPERATING ACTIVITIES                                                                     |  |      |             |           |      |   |             |  
|Net income (loss)                                                                        |  | $    | (2,376,869  | )         |      | $ | 1,090,664   |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |      |             |           |      |   |             |  
|Depreciation                                                                             |  |      | 159,948     |           |      |   | 176,474     |  
|Net (increase) decrease in loans held for sale                                           |  |      | (759,423    | )         |      |   | 416,805     |  
|Provision for loan losses                                                                |  |      | 1,600,000   |           |      |   | 1,110,000   |  
|Loss on sale of other real estate                                                        |  |      | 420,010     |           |      |   |            |  
|Writedowns of other real estate owned                                                    |  |      | 156,840     |           |      |   | 109,064     |  
|Writedowns of restricted equity securities                                               |  |      | 275,353     |           |      |   |            |  
|Decrease in interest receivable                                                          |  |      | 190,982     |           |      |   | 964,790     |  
|Decrease in interest payable                                                             |  |      | (343,255    | )         |      |   | (419,002    | )
|Decrease in taxes receivable                                                             |  |      | 1,790,000   |           |      |   | 409,125     |  
|Increase in income taxes payable                                                         |  |      |            |           |      |   | 241,675     |  
|Net other operating activities                                                           |  |      | (689,795    | )         |      |   | 268,018     |  
|                                                                                         |  |      |             |           |      |   |             |  
|                                                                                         |  |     
|Net cash provided by operating activities                                                |  |      | 423,791     |           |      |   | 4,367,613   |  
|                                                                                         |  |      |             |           |      |   |             |  
|                                                                                         |  |     
|INVESTING ACTIVITIES                                                                     |  |      |             |           |      |   |             |  
|Purchases of securities available for sale                                               |  |      | (23,026,020 | )         |      |   | (23,037,629 | )
|Proceeds from maturities of securities available for sale                                |  |      | 13,246,348  |           |      |   | 31,451,075  |  
|Proceeds from maturities of securities held to maturity                                  |  |      | 2,315,513   |           |      |   | 1,048       |  
|Retirement of restricted equity securities                                               |  |      | 99,600      |           |      |   | 195,100     |  
|Net increase in federal funds sold                                                       |  |      | (6,900,000  | )         |      |   | (5,300,000  | )
|Net (increase) decrease in interest-bearing deposits in banks (2,076,600)                |  |      |             | 1,390,946 |     
|Net decrease in loans                                                                    |  |      | 132,201     |           |      |   | 5,723,814   |  
|Proceeds from sale of other real estate                                                  |  |      | 2,215,891   |           |      |   |            |  
|Purchase of premises and equipment                                                       |  |      | (175,038    | )         |      |   |            |  
|                                                                                         |  |      |             |           |      |   |             |  
|                                                                                         |  |     
|Net cash provided by (used in) investing activities                                      |  |      | (14,168,105 | )         |      |   | 10,424,354  |  
|                                                                                         |  |      |             |           |      |   |             |  
|                                                                                         |  |     
|FINANCING ACTIVITIES                                                                     |  |      |             |           |      |   |             |  
|Net increase (decrease) in deposits                                                      |  |      | 15,255,137  |           |      |   | (3,912,127  | )
|Net repayments of other borrowings                                                       |  |      | (904,856    | )         |      |   | (10,295,840 | )
|Dividends paid                                                                           |  |      |            |           |      |   | (854,741    | )
|Purchase of treasury stock                                                               |  |      |            |           |      |   | (60,750     | )
|                                                                                         |  |      |             |           |      |   |             |  
|                                                                                         |  |     
|Net cash provided by (used in) financing activities                                      |  |      | 14,350,281  |           |      |   | (15,123,458 | )
|                                                                                         |  |      |             |           |      |   |             |  
|                                                                                         |  |     
|Net increase (decrease) in cash and due from banks                                       |  |      | 605,967     |           |      |   | (331,491    | )
|                                                                                         |  |     
|Cash and due from banks, beginning of period                                             |  |      | 14,039,311  |           |      |   | 16,826,236  |  
|                                                                                         |  |      |             |           |      |   |             |  
|                                                                                         |  |     
|Cash and due from banks, end of period                                                   |  | $    | 14,645,278  |           |      | $ | 16,494,745  |  
|                                                                                         |  |      |             |           |      |   |             |  
|                                                                                         |  |     
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                        |  |      |             |           |      |   |             |  
|Cash paid (received) for:                                                                |  |      |             |           |      |   |             |  
|Interest                                                                                 |  | $    | 4,193,440   |           |      | $ | 6,345,999   |  
|                                                                                         |  |     
|Income taxes                                                                             |  | $    | (1,790,000  | )         |      | $ | 10,500      |  
|                                                                                         |  |     
|Noncash transactions                                                                     |  |      |             |           |      |   |             |  
|Other real estate acquired in settlement of loans                                        |  | $    | 1,633,315   |           |      | $ | 807,625     |  

See Notes to Consolidated Financial Statements.



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HENRY COUNTY BANCSHARES, INC. AND SUBSIDIARIES

NOTES 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 month period ended March 31,
2009 are not necessarily indicative of the results to be expected for the full year.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2009, the FASB released Proposed Staff Position SFAS 107-b and Accounting Principles Board (APB) Opinion No. 28-a, Interim
Disclosures about Fair Value of Financial Instruments (SFAS 107-b and APB 28-a). This proposal amends FASB Statement 107, Disclosures about Fair Values of Financial instruments, to require disclosure about fair value of financial
instruments in interim financial statements as well as in annual financial statements. The proposal also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in all interim financial statements. This
proposal is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The Company plans to adopt SFAS 107-b and APB 28-a and provide additional disclosure
requirements for the second quarter of 2009.

In March 2009, the FASB issued Proposed Staff Position SFAS 157-e, Determining Whether a
Market Is Not Active and a Transaction Is Not Distressed (SFAS 157-e). This proposal provides additional guidance in determining whether a market for a financial asset is not active and a transaction is not distressed for fair value
measurement purposes as defined in SFAS 157, Fair Value Measurements. SFAS 157-e is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The
Company plans to adopt the provisions of SFAS 157-e during the second quarter of 2009, but does not believe this guidance will have a significant impact on the Companys consolidated financial statements.

In March 2009, the FASB issued Proposed Staff Position SFAS 115-a, SFAS 124-a, and EIFT 99-20-b, Recognition and Presentation of
Other-Than-Temporary Impairments. This proposal provides guidance in determining whether impairments in debt securities are other than temporary, and modifies the presentation and disclosures surrounding such instruments. This Proposed Staff
Position is effective for interim periods ending after June 15, 2009, but early adoption is permitted for interim periods ending after March 15, 2009. The Company plans to adopt the provisions of this Proposed Staff Position during second
quarter 2009, but does not believe this guidance will have a significant impact on the Companys consolidated financial statements.



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OTHER RECENT DEVELOPMENTS

Federal Deposit Insurance Corporation Insurance Assessments

On February 27, 2009, the Federal Deposit Insurance Corporation (FDIC) adopted final rules modifying the risk-based assessment system and setting initial base assessment rates beginning April 1,
2009. Changes to the risk-based assessment system would include increasing premiums for institutions that rely on excessive amounts of brokered deposits, including CDARS, increasing premiums for excessive amounts of secured liabilities, including
Federal Home Loan Bank advances, and lowering premiums for smaller institutions with very high capital levels. In addition, due to extraordinary circumstances, the FDIC amended the Restoration Plan established October 7, 2008, extending to
seven years the time within which the reserve ratio must be returned to 1.15% and adopted an interim rule with request for comments imposing an emergency 20 basis points special assessment on June 30, 2009, which will be collected on
September 30, 2009, and possible additional special assessments of up to 10 basis points thereafter to prevent the reserve ratio from falling to a level that would adversely affect public confidence or to a level close to zero or negative. The
impact of the final rule and the proposed special assessment could have a significant impact on the Companys results of operations during 2009 as these additional assessments will be expensed as assessed.



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|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 accounting policies of the segments are the same as those described in the footnotes to the
December 31, 2008 consolidated financial statements as filed in our annual report on Form 10-K. 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 Three Months Ended March 31, 2009  |  | CommercialBanking |             |   | Mortgage |   |           | AllOther |  |   | Eliminations |   |  | Total |           
|Interest income                            |  | $                 | 6,560,769   |   |          | $ | 906       |          |  | $ |             |   |  | $     | (4,769     | ) |  | $ | 6,556,906   |  
|Interest expense                           |  |                   | 3,851,091   |   |          |   | 3,863     |          |  |   |             |   |  |       | (4,769     | ) |  |   | 3,850,185   |  
|Net interest income (expense)              |  |                   | 2,709,678   |   |          |   | (2,957    | )        |  |   |             |   |  |       |           |   |  |   | 2,706,721   |  
|Intersegment net interest income (expense) |  |                   | 2,957       |   |          |   | (2,957    | )        |  |   |             |   |  |       |           |   |  |   |            |  
|Other revenue from external sources        |  |                   | 536,548     |   |          |   | 95,101    |          |  |   | 3,450        |   |  |       |           |   |  |   | 635,099     |  
|Intersegment other revenues                |  |                   | 6,210       |   |          |   | (6,210    | )        |  |   |             |   |  |       |           |   |  |   |            |  
|Depreciation                               |  |                   | 158,387     |   |          |   |          |          |  |   | 1,561        |   |  |       |           |   |  |   | 159,948     |  
|Provision for loan losses                  |  |                   | 1,600,000   |   |          |   |          |          |  |   |             |   |  |       |           |   |  |   | 1,600,000   |  
|Segment profit (loss)                      |  |                   | (2,330,065  | ) |          |   | (33,255   | )        |  |   | (13,549      | ) |  |       |           |   |  |   | (2,376,869  | )
|Segment assets                             |  |                   | 668,014,673 |   |          |   | 1,371,750 |          |  |   | 230,529      |   |  |       | (1,934,629 | ) |  |   | 667,682,323 |  
|Expenditures for premises and equipment    |  |                   | 175,038     |   |          |   |          |          |  |   |             |   |  |       |           |   |  |   | 175,038     |  
|                                           | 
|                                           |  | INDUSTRY SEGMENTS |            
|For the Three Months Ended March 31, 2008  |  | CommercialBanking |             |   | Mortgage |   |           | AllOther |  |   | Eliminations |   |  | Total |           
|Interest income                            |  | $                 | 11,158,372  |   |          | $ | 2,952     |          |  | $ |             |   |  | $     | (16,380    | ) |  | $ | 11,144,944  |  
|Interest expense                           |  |                   | 5,929,949   |   |          |   | 13,428    |          |  |   |             |   |  |       | (16,380    | ) |  |   | 5,926,997   |  
|Net interest income (expense)              |  |                   | 5,228,423   |   |          |   | (10,476   | )        |  |   |             |   |  |       |           |   |  |   | 5,217,947   |  
|Intersegment net interest income (expense) |  |                   | 10,476      |   |          |   | (10,476   | )        |  |   |             |   |  |       |           |   |  |   |            |  
|Other revenue from external sources        |  |                   | 588,440     |   |          |   | 120,605   |          |  |   | 3,150        |   |  |       |           |   |  |   | 712,195     |  
|Intersegment other revenues                |  |                   | 6,210       |   |          |   | (6,210    | )        |  |   |             |   |  |       |           |   |  |   |            |  
|Depreciation                               |  |                   | 174,784     |   |          |   | 129       |          |  |   | 1,561        |   |  |       |           |   |  |   | 176,474     |  
|Provision for loan losses                  |  |                   | 1,110,000   |   |          |   |          |          |  |   |             |   |  |       |           |   |  |   | 1,110,000   |  
|Segment profit (loss)                      |  |                   | 1,796,045   |   |          |   | (56,838   | )        |  |   | (7,843       | ) |  |       |           |   |  |   | 1,731,364   |  
|Segment assets                             |  |                   | 705,972,888 |   |          |   | 1,278,068 |          |  |   | 296,076      |   |  |       | (2,164,786 | ) |  |   | 705,382,246 |  
|Expenditures for premises and equipment    |  |                   |            |   |          |   |          |          |  |   |             |   |  |       |           |   |  |   |            |  



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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 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 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, 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 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, 2008 as filed in our annual report on Form 10-K.

Certain accounting policies involve
significant judgments and assumptions by us which have a material impact on the carrying value of certain assets and liabilities and are particularly susceptible to significant change. 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.



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Determination of the Banks allowance for loan losses as well as allowance for other real estate owned have been
identified as critical accounting policies. Please see the portion of the discussion that addresses our allowance for loan losses for a description of our processes and methodology for determining our allowance for loan losses. The allowance for
other real estate owned is determined primarily using external appraisals and adjusting such appraised values for estimated disposal costs and other factors that management believes will impact appraised values.



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##### Table of Contents

Liquidity and Capital Resources

We manage our liquidity to ensure adequate cash flow for deposit withdrawals, credit commitments and repayments of borrowed funds. Liquidity needs are met through loan repayments, cash flows received from pay downs on
mortgage backed securities, net interest and fee income as well as continuously provided through the acquisition of new deposits, the renewal of maturing deposits and external borrowings. Management regularly monitors deposit flow and evaluates
alternate pricing structures to retain and grow deposits as needed. Traditional local deposit funding sources are supplemented by the use of FHLB borrowings as well as brokered deposits.

At March 31, 2009, 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       |   |  | MinimumRegulatoryRequirement |  
|                           |  | Consolidated |   |  | Bank                         |   | 
|Leverage capital ratios    |  | 8.45         | % |  | 8.42                         | % |  | 5.00  | %
|Risk-based capital ratios: |  |              |   |  |                              |   |  |       |  
|Tier 1 capital             |  | 10.03        |   |  | 10.00                        |   |  | 6.00  |  
|Total capital              |  | 11.30        |   |  | 11.26                        |   |  | 10.00 |  

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:



|                             |  |               |           
|---------------------------- |  | ------------- | ----------
|                             |  | March 31,2009
|Commitments to extend credit |  | $             | 58,975,000
|Letters of credit            |  |               | 4,875,000 
|                             |  |               |           
|                             |  | $             | 63,850,000
|                             |  |               |           

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:



|                                   |  |                        |         |                  |   |        
|---------------------------------- |  | ---------------------- | ------- | ---------------- | - | -------
|                                   |  | March 31,2009          |         | December 31,2008
|                                   |  | (Dollars in Thousands)
|Cash and due from banks            |  | $                      | 14,645  |                  | $ | 14,039 
|Interest-bearing deposits in banks |  |                        | 3,576   |                  |   | 1,500  
|Federal funds sold                 |  |                        | 21,200  |                  |   | 14,300 
|Securities                         |  |                        | 72,723  |                  |   | 65,460 
|Loans, net                         |  |                        | 512,513 |                  |   | 515,878
|Loans held for sale                |  |                        | 759     |                  |   |       
|Premises and equipment             |  |                        | 9,792   |                  |   | 9,776  
|Other real estate                  |  |                        | 17,238  |                  |   | 18,398 
|Other assets                       |  |                        | 15,236  |                  |   | 16,526 
|                                   |  |                        |         |                  |   |        
|                                   |  | $                      | 667,682 |                  | $ | 655,877
|                                   |  |                        |         |                  |   |        
|                                   |  |                       
|Total deposits                     |  | $                      | 605,732 |                  | $ | 590,477
|Other borrowings                   |  |                        | 1,693   |                  |   | 2,598  
|Other liabilities                  |  |                        | 3,177   |                  |   | 3,460  
|Stockholders equity               |  |                        | 57,080  |                  |   | 59,342 
|                                   |  |                        |         |                  |   |        
|                                   |  | $                      | 667,682 |                  | $ | 655,877
|                                   |  |                        |         |                  |   |        

Our assets increased by 1.80% in the first quarter of 2009. Net loans decreased by $3.4 million, primarily due to
the transfer of $1.6 million to other real estate owned as a result of foreclosures during the first quarter of 2009. Total deposits increased $15.2 million in the first quarter of 2009, which were primarily used to fund increases in investment
securities of $7.3 million and increases in federal funds sold of $6.9 million. The increase in deposit accounts were primarily a result of increases in certificates of deposit of $16.7 million, offset by decreases in interest bearing checking,
savings and demand deposit accounts of $1.5 million. Our total equity has decreased by $2,262,000 year-to-date as net losses of $2,376,000 were offset with increases in unrealized gains on securities available for sale, net of tax, of $114,000.



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##### Table of Contents

Results of Operations For The Three Months Ended March 31, 2009 and 2008

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



|                          |  |                             |        |   |      |   |       
|------------------------- |  | --------------------------- | ------ | - | ---- | - | ------
|                          |  | Three Months EndedMarch 31,
|                          |  | 2009                        |        |   | 2008
|                          |  | (Dollars in Thousands)     
|Interest income           |  | $                           | 6,557  |   |      | $ | 11,145
|                          |  |                            
|Interest expense          |  |                             | 3,850  |   |      |   | 5,927 
|                          |  |                             |        |   |      |   |       
|                          |  |                            
|Net interest income       |  |                             | 2,707  |   |      |   | 5,218 
|                          |  |                            
|Provision for loan losses |  |                             | 1,600  |   |      |   | 1,110 
|                          |  |                            
|Other income              |  |                             | 635    |   |      |   | 712   
|                          |  |                            
|Other expense             |  |                             | 4,118  |   |      |   | 3,089 
|                          |  |                             |        |   |      |   |       
|                          |  |                            
|Pretax income (loss)      |  |                             | (2,376 | ) |      |   | 1,731 
|                          |  |                            
|Income taxes (benefit)    |  |                             |       |   |      |   | 640   
|                          |  |                             |        |   |      |   |       
|                          |  |                            
|Net income (loss)         |  | $                           | (2,376 | ) |      | $ | 1,091 
|                          |  |                             |        |   |      |   |       

Our first quarter results were significantly impacted by increased provisions for loan losses and compressed net
interest margins, which together contributed to a net loss of $2,376,869, or $0.17 per share.

Our net interest income has decreased by $2,511,000 in the
first quarter of 2009 as compared to the same period in 2008. Our net yield on average interest-earning assets has decreased to 1.77% in the first quarter of 2009 as compared to 3.10% for the first quarter of 2008. The decrease in net yield on
average interest-earning assets is primarily due to a 245 basis point drop in our yield on loans. Our net yield on average interest-earning assets was 2.41% for the entire year of 2008. Our increasing levels of nonperforming loans have also
negatively affected our net interest margin. We reversed approximately $531,000 in interest income, including reversals of interest from prior periods, on loans placed on nonaccrual during the first quarter of 2009, effectively lowering our net
yield on average interest-earning assets by 35 basis points. Our net cost on average interest-bearing liabilities decreased to 2.88% in the first quarter of 2009 compared to 4.23% for the first quarter of 2008. The decrease in interest expense is
largely the result of a lower cost of funds during the first quarter of 2009 compared to 2008.



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##### Table of Contents

The provision for loan losses for the first quarter of 2009 was $1,600,000, an increase of $490,000 from the same quarter
in 2008. The amounts provided are due primarily to our assessment of the inherent risk in the portfolio at March 31, 2009. The allowance for loan losses as a percentage of total net outstanding loans was 3.39% at March 31, 2009 and 3.32%
at December 31, 2008. 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. Please see the information on page 15 for a further discussion of our allowance for
loan losses methodology.

The following table shows our nonperforming assets as of March 31, 2009, December 31, 2008, and March 31,
2008:



|                                                                                                         |  |                        |         |                  |   |               |  |   |       
|-------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | ---------------- | - | ------------- |  | - | ------
|                                                                                                         |  | March 31,2009          |         | December 31,2008 |   | March 31,2008
|                                                                                                         |  | (Dollars in Thousands)
|Nonaccrual loans                                                                                         |  | $                      | 87,425  |                  | $ | 77,804        |  | $ | 36,938
|Loans contractually past due ninety days or more as to interest or principal payments and still accruing |  |                        | 0       |                  |   | 20,066        |  |   | 3,012 
|Restructured loans                                                                                       |  |                        | 0       |                  |   | 0             |  |   | 0     
|                                                                                                         |  |                        |         |                  |   |               |  |   |       
|Total nonperforming loans                                                                                |  | $                      | 87,425  |                  | $ | 97,870        |  | $ | 39,950
|                                                                                                         |  |                        |        
|Other real estate                                                                                        |  |                        | 17,238  |                  |   | 18,398        |  |   | 11,093
|                                                                                                         |  |                        |         |                  |   |               |  |   |       
|Total nonperforming assets                                                                               |  | $                      | 104,663 |                  | $ | 116,268       |  | $ | 51,043
|                                                                                                         |  |                        |         |                  |   |               |  |   |       

Nonperforming assets consist of nonaccrual loans, loans restructured due to the debtors financial
difficulties, loans past due 90 days or more as to interest or principal and still accruing, and other real estate owned, which is real estate acquired through foreclosure. Nonaccrual loans are those loans on which recognition of interest income has
been discontinued. Restructured loans generally allow for an extension of the original repayment period or a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower. When management believes
there is sufficient doubt to the collecibility of principal or interest on any loan, or generally when loans are 90 days or more past due, the accrual of interest is discontinued and the loan is designated as nonaccrual, unless the loan is well
secured and in the process of collection. Interest payments received on nonaccrual loans are either applied against principal or reported as income according to managements judgment as to the collectibility of principal. Loans are returned to
an accrual status when those factors that indicated doubtful collectibility on a timely basis no longer exist. Other real estate owned is initially recorded at estimated fair value at the date of acquisition. A provision for estimated losses is
recorded when a subsequent decline in value occurs.

Nonperforming assets at March 31, 2009 amounted to approximately $105.0 million, or 19.11% of
total loans and other real estate. This compares to approximately $116.3 million or 20.33% of total loans and other real estate at December 31, 2008, and $51.0 million or 8.89% at March 31, 2008. Nonperforming loans continue to be
concentrated in our residential construction and land development portfolio, comprising 94% of total nonperforming loans.



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##### Table of Contents

Nonaccrual loans increased by $9.6 million or 12% during the three month period ended March 31, 2009. There was
significant movement within these loans during the first three months of this year, as $17.2 million went on nonaccrual status; $1.6 million went into foreclosure, $1.3 million was charged off and $1.3 million returned to accrual status as the loans
became upon the payment of past due interest. In addition to these changes, we have received $3.4 million in principal reductions in these loans during the first three months of this year.

Other real estate owned decreased by $1.16 million, or 6% during the three month period ended March 31, 2009. During the first quarter of this year, we foreclosed
on $1.6 million of real estate, incurred write downs and losses of $576,850 and sold $2.2 million of real estate. The total balance of $17.2 million at March 31, 2009 is distributed as follows; residential development (50%), homes and lots
(39%) and commercial real estate (11%).

The level of nonperforming assets continues to remain a significant concern to the Company, which is actively
working to resolve problem credits and to liquidate Bank owned real estate as appropriate purchasers can be found. The Company is represented by experienced legal counsel who is working to ensure that its interests are protected and that the Company
achieves maximum collection. The senior management of the Company meets with loan officers on a weekly basis to review nonperforming loans and to ensure that the Company is following its most effective plan for reduction or restructuring of these
credits. An additional committee of the Board of Directors has been formed to assist management in the evaluation and liquidation of owned real estate. With a declining housing sales market and lowering real property values, liquidation of real
estate at prices favorable to the Company is difficult. The Company continues to write down property or record reserves as required by ongoing evaluations of property values.

There are no loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have not been included in the table above and which represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results, liquidity or capital resources.



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##### Table of Contents

Information regarding certain loans and allowance for loan loss data through March 31, 2009 and 2008 is as follows:



|                                                                              |  |                             |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                              |  | Three Months EndedMarch 31, |        
|                                                                              |  | 2009                        |         |   | 2008 |  
|                                                                              |  | (Dollars in Thousands)      |        
|Average amount of loans outstanding                                           |  | $                           | 533,253 |   |      | $ | 568,571 |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Balance of allowance for loan losses at beginning of period                   |  | $                           | 17,730  |   |      | $ | 7,657   |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Loans charged off                                                             |  |                             |         |   |      |   |         |  
|Real estate                                                                   |  |                             | 1,342   |   |      |   | 50      |  
|Commercial                                                                    |  |                             |        |   |      |   |        |  
|Consumer installment                                                          |  |                             |        |   |      |   |        |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                             | 1,342   |   |      |   | 50      |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Loans recovered                                                               |  |                             |         |   |      |   |         |  
|Real estate                                                                   |  |                             |        |   |      |   |        |  
|Commercial                                                                    |  |                             |        |   |      |   |        |  
|                                                                              |  |                            
|Consumer installment                                                          |  |                             | 8       |   |      |   | 1       |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                             | 8       |   |      |   | 1       |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Net (charge-offs)/ recoveries                                                 |  |                             | (1,334  | ) |      |   | (49     | )
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Additions to allowance charged to operating expense during period             |  |                             | 1,600   |   |      |   | 1,110   |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Balance of allowance for loan losses at end of period                         |  | $                           | 17,996  |   |      | $ | 8,718   |  
|                                                                              |  |                             |         |   |      |   |         |  
|                                                                              |  |                            
|Ratio of net loans charged off during the period to average loans outstanding |  |                             | .25     | % |      |   | .01     | %
|                                                                              |  |                             |         |   |      |   |         |  

The allowance for loan losses is a reserve established through charges to earnings in the form of a provision for
loan losses. The provision for loan losses is based on managements evaluation and assessment of the allowance for loan losses. This assessment includes procedures to estimate probable losses and determine the adequacy and appropriateness of
the resulting allowance balance. The allowance for loan losses consists of two components: (1) a specific amount representative of identified credit exposures for each impaired loan based on an evaluation of the borrower and the underlying
collateral (SFAS 114 component); and (2) a general amount based upon historical losses that have been adjusted to estimate current probable losses based on the use of eight specific risk factors representative of various economic conditions and
characteristics of the loan portfolio, as well as additional general qualitative factors (SFAS 5 component).



16



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##### Table of Contents

We establish the specific amount by examining all impaired loans. Under generally accepted accounting principles, we may
measure the loss either by (1) the observable market price of the loan; or (2) the present value of expected future cash flows discounted at the loans effective interest rate; or (3) the fair value of the collateral if the loan
is collateral dependent. Because the significant majority of our impaired loans are collateral dependent, nearly all of our specific allowances are calculated on the fair value of the collateral. As of March 31, 2009, our impaired loans totaled
$94.5 million of which $49.8 million have specific loss allocations of $13.0 million recorded. As of December 31, 2008, our impaired loans totaled $94.4 million of which $46.8 million had specific loss allocations of $12.5 million. Changes in
nonperforming loans contributed to the increases in the loan loss provision for the three month period ended March 31, 2009. During the three month period ended March 31, 2009, changes in collateral values for impaired loans resulted in
increased provisions of $1.6 million. During the three month period ended March 31, 2009, the impaired loan allowances were reduced by $1.08 million as certain impaired loans were foreclosed upon. The remaining changes in the impaired loan
allowances were the result of changes in loans considered to be impaired. As previously discussed, nonperforming loans are concentrated in our residential construction and land development portfolio.

The general amount of the allowance is based upon historical losses that are adjusted to estimate current probable losses using eight specific risk factors. The risk
factors consist of: (1) economic factors including such matters as changes in the general economic conditions; (2) changes in local economic conditions; (3) concentrations of credit; (4) deterioration in asset values;
(5) slowing pace of housing sales; (6) deterioration in lot values; (7) higher loan to values given risk; and (8) level of loans secured by real estate. These factors are evaluated and assigned percentages to be allocated to the
portfolio, exclusive of the SFAS 114 component, on a quarterly basis. The weighting of these risk factors varies from period to period and will impact the allowance for loan losses as changes in the risk factors increase or decrease from quarter to
quarter. During the quarter ended March 31, 2009, changes in risk factors did not result in a significant change in the general amount of the allowance.

The Company has originated construction and land development loans where a component of the cost of the project was the interest required to service the debt during the construction period of the loan, sometimes known as interest reserves.
The Company allows disbursements of this interest component as long as the project is progressing as originally projected and if there has been no deterioration of the financial standing of the borrower or the underlying project. If the Company
makes a determination that there is such deterioration, or if the loan becomes non performing, the Company halts any disbursement of those funds identified for use in paying interest. In some cases, additional interest reserves may be taken by use
of deposited funds or through credit lines secured by separate and additional collateral.



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##### Table of Contents

Noninterest income

Other
operating income decreased in the first quarter of 2009 as compared to the same period in 2008 by $77,000 due primarily to decreases in service charges in deposit accounts of $29,000, decreases in other service charges and fees of $22,000 as well as
decreased mortgage banking income of $26,000 as a result of a lower volume in mortgage originations.

Noninterest expense

Other expenses increased by $1,029,000 in the first quarter of 2009 as compared to the same period in 2008. Other expenses increased during the first three months of 2009
compared to 2008 primarily as a result of increased real estate write downs and other losses of $456,000, as well as the write down of an investment in restricted equity securities of $275,000. Other operating expenses also increased as a result of
increased FDIC insurance premiums of $52,000, increased legal fees of $88,000 and increased expenses to carry other real estate of $316,000. The $168,000 decrease in salaries and employee benefits is primarily attributed to decreased incentive and
profit sharing expense accruals of $206,000.

Income Taxes

Income tax expense was $0 and $640,700 for the three month periods ended March 31, 2009 and 2008, respectively. As of December 31, 2008, due to uncertainties as to when the Company may return to a profitable status, the Company
recorded a valuation allowance for its deferred tax assets to the extent that these deferred tax assets cannot be converted to cash from recoverable income taxes in open tax years. As a result of continued uncertainties about when the Company may
return to a profitable status, no income tax benefit associated with the pre-tax loss of $2.1 million has been recorded for the first quarter of 2009. The effective tax rate for the first quarter of 2008 was approximately 37%.

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.



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|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 economic
value of equity over a twelve-month period is subjected to a 200 basis point increase and decrease in rates. The first quarter model reflects an increase of 34% in net interest income and a 9% increase in economic value of equity for a 200 basis
point increase in rates. The same model shows a 9% decrease in net interest income and an 18% decrease in economic value of equity for a 200 basis point decrease in rates. Our asset/liability 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

|ITEM 4. | Controls and Procedures
|------- | -----------------------

As of the end of the period covered by
this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and the Principal Financial and Accounting Officer, of the design and operation of our disclosure controls and procedures.
Based on this evaluation, our Chief Executive Officer and Principal Financial and Accounting Officer concluded that our disclosure controls and procedures are effective. In connection with the new rules, we are in the process of further reviewing
and documenting our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes designed to enhance their effectiveness and to ensure that our systems evolve with
our business.

There have been no changes in our internal controls or in other factors that could affect internal controls subsequent to the date of this
evaluation, and there have been no corrective actions with respect to significant deficiencies or material weaknesses.



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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 April 21, 2009.
| | --- | ---------------------------------------------------------------------------------



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

Paul J. Cates, Jr.

Phillip H. Cook

H.K. Elliott, Jr.

G.R. Foster, III

David H. Gill

Mary Lynn Lambert

Edwin C. Kelley, Jr.

Robert O. Linch

William C. Strom, Jr.

Ronald M. Turpin

James C. Waggoner

The shares represented at the meeting (10,146,341 or 71.22%) voted as follows: 10,146,341 voted unanimously for
the election of the directors.



|ITEM 6. | EXHIBITS.
|------- | ---------



| | (a) | Exhibits.
| | --- | ---------



| | 31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
| | ---- | --------------------------------------------------------------------------------------------------------------------------



| | 31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.
| | ---- | --------------------------------------------------------------------------------------------------------------------------



| | 32 | Certification of the Chief Executive Officer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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: May 7, 2009 |  | BY:                           |  | /s/ David H. Gill               
|                  |  |                               |  | David H. Gill, President and CEO
|                  |  |                               |  | (Principal Executive Officer)   



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