<PAGE>



                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB



MARK ONE

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                 For the quarterly period ended MARCH 31, 2003

[ ]     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 0-24161
                                                -------

                           MURFREESBORO BANCORP, INC.
                           --------------------------
             (Exact Name of Registrant as Specified in Its Charter)

        Tennessee                                         62-1694317
(State or Other Jurisdiction of                (IRS Employer Identification No.)
Incorporation or Organization)

              615 Memorial Boulevard, Murfreesboro, Tennessee 37129
              -----------------------------------------------------
              (Address of principal executive offices and Zip Code)

                                 (615) 890-1111
                                 --------------
              (Registrant's telephone Number, including area code)

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 an accelerated filer (as
defined in Rule 12b-2 of the Act).

YES                NO   X
   -------           -------

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.

Common stock outstanding: 907,609 shares at May 12, 2003.



<PAGE>


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


                           MURFREESBORO BANCORP, INC.

                        CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

                                 MARCH 31, 2003



                                 C O N T E N T S

                                                                       Page
                                                                      Number
                                                                      ------

Consolidated Balance Sheets .........................................    2

Consolidated Statements of Operations ...............................    3

Consolidated Statements of Cash Flows ...............................    4

Notes to Consolidated Financial Statements ..........................   5-6







                                       1
<PAGE>




                           MURFREESBORO BANCORP, INC.
                           CONSOLIDATED BALANCE SHEETS
             AS OF MARCH 31, 2003 (UNAUDITED) AND DECEMBER 31, 2002

                       (Tabular amounts are in thousands)

<TABLE>
<CAPTION>
                                           ASSETS
                                                                               March 31,   December 31,
                                                                                 2003         2002
                                                                               ---------   ------------
<S>                                                                            <C>          <C>
Cash and due from banks                                                        $  4,030     $  3,448
Federal funds sold                                                                4,618        5,322
                                                                               --------     --------
   Total cash and cash equivalents                                                8,648        8,770
                                                                               --------     --------

Securities available for sale                                                    28,774       31,905
                                                                               --------     --------

Loans, less allowance for possible loan losses
   of $967,000 and $918,000, respectively                                       106,380      100,992
Premises and equipment, net                                                       4,735        4,879
Accrued interest receivable                                                         856          896
Other assets                                                                      2,180        2,258
Deferred tax assets                                                                 348          277
                                                                               --------     --------
   Total assets                                                                $151,921     $149,977
                                                                               ========     ========

                                 LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
Deposits                                                                       $129,407     $127,307
Short-term borrowings                                                             1,585        1,900
Advances from Federal Home Loan Bank                                              6,000        6,000
Accrued interest payable                                                            441          352
Accrued expenses and other liabilities                                              982        1,038
Subordinated convertible capital debentures                                       3,000        3,000
                                                                               --------     --------
   Total liabilities                                                            141,415      139,597
                                                                               --------     --------


Shareholders' equity:
Preferred stock, no assigned value or rights, 1,000,000 shares authorized,
   no shares issued or outstanding                                                 --           --
Common stock, $5.00 par value, 2,000,000 shares authorized
   and 907,609 shares issued and outstanding                                      4,538        4,538
Additional paid-in capital                                                        4,530        4,530
Retained earnings                                                                 1,278        1,096
                                                                               --------     --------
   Realized shareholders' equity                                                 10,346       10,164
Accumulated other comprehensive income                                              160          216
                                                                               --------     --------
   Total shareholders' equity                                                    10,506       10,380
                                                                               --------     --------
   Total liabilities and shareholders' equity                                  $151,921     $149,977
                                                                               ========     ========
</TABLE>


See notes to consolidated financial statements.


                                       2
<PAGE>


                           MURFREESBORO BANCORP, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE QUARTERS ENDED MARCH 31, 2003 AND 2002
                                   (UNAUDITED)

           (Tabular amounts are in thousands except per share amounts)

<TABLE>
<CAPTION>
                                                                       2003       2002
                                                                      ------     ------
<S>                                                                   <C>        <C>
Interest income:
   Interest and fees on loans                                         $1,811     $1,905
   Interest on investment securities                                     235        185
   Interest on federal funds sold                                         17         15
                                                                      ------     ------
     Total interest income                                             2,063      2,105
                                                                      ------     ------
Interest expense:
   Interest on negotiable order of withdrawal accounts                    14         35
   Interest on money market demand accounts                               56         89
   Interest on savings deposits                                            2          3
   Interest on certificates of deposit                                   613        690
                                                                      ------     ------
     Total interest expense on deposits                                  685        817
   Interest on subordinated convertible capital debentures                48         48
   Interest on short-term borrowings and advances from FHLB               39         25
                                                                      ------     ------
     Total interest expense                                              772        890
                                                                      ------     ------

     Net interest income                                               1,291      1,215
Provision for possible loan losses                                        64       --
                                                                      ------     ------
     Net interest income after provision for possible loan losses      1,227      1,215
                                                                      ------     ------

Non-interest income:
   Service charges on deposits                                            23         21
   Insufficient fund income                                              147        140
   Mortgage loan origination fees                                         66         46
   Brokerage fees                                                         49         55
   Other fees and commissions                                             34         25
   Increase in cash surrender value of officers' life insurance           22         24
   Other non-interest income                                              59         47
                                                                      ------     ------
     Total non-interest income                                           400        358
                                                                      ------     ------
Non-interest expense:
   Salaries and employee benefits                                        712        675
   Occupancy expenses, net                                                86         79
   Furniture and equipment expense                                        87         88
   Advertising expenses                                                   25         43
   Data processing expenses                                               94         94
   Other non-interest expense                                            343        317
                                                                      ------     ------
     Total non-interest expense                                        1,347      1,296
                                                                      ------     ------
Income before income taxes                                               280        277
Income tax expense                                                        99        101
                                                                      ------     ------
                Net income                                            $  181     $  176
                                                                      ======     ======
Earnings per share:
      Basic:
                Net income                                            $ 0.20     $ 0.19
                                                                      ======     ======
      Diluted:
                Net income                                            $ 0.18     $ 0.18
                                                                      ======     ======
</TABLE>


See notes to consolidated financial statements.


                                       3
<PAGE>


                           MURFREESBORO BANCORP, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE QUARTERS ENDED MARCH 31, 2003 AND 2002
                                  (UNAUDITED)

                       (Tabular amounts are in thousands)

<TABLE>
<CAPTION>
                                                                                  2003          2002
                                                                                --------      --------
<S>                                                                             <C>           <C>
Operating activities:
   Net income                                                                   $    181      $    176
   Adjustments to reconcile net income to net cash provided
     by (used in) operating activities:
     Provision for possible loan losses                                               64            --
     Provision for depreciation, amortization and accretion, net                     209           121
     Stock dividend on Federal Home Loan Bank stock                                   (4)           (4)
     Changes in assets and liabilities:
        Decrease (increase) in accrued interest receivable                            40           (84)
        Increase in cash surrender value of officers' life insurance                 (41)          (24)
        Increase in deferred tax asset                                               (40)          (21)
        Decrease (increase) in other assets                                          119             3
        Increase (decrease) in accrued interest payable                               89            (7)
        Increase (decrease) in accrued expenses and other liabilities                (56)         (245)
                                                                                --------      --------
     Net cash provided by (used in) operating activities                             561           (85)
                                                                                --------      --------

Investing activities:
   Purchase of securities available for sale                                      (1,000)       (7,793)
   Maturities and calls of securities available for sale                           4,000         6,000
   Increase in loans, net                                                         (5,452)       (1,483)
   Additions to premises and equipment                                               (16)           (5)
                                                                                --------      --------
   Net cash used in investing activities                                          (2,468)       (3,281)
                                                                                --------      --------

Financing activities:
   Net increase in deposits                                                        2,100         8,877
   Net decrease in short-term borrowings                                            (315)         (507)
                                                                                --------      --------
   Net cash provided by financing activities                                       1,785         8,370
                                                                                --------      --------

Net increase (decrease) in cash and cash equivalents                                (122)        5,004

Cash and cash equivalents at the beginning of the period                           8,770         5,385
                                                                                --------      --------

Cash and cash equivalents at the end of the period                              $  8,648      $ 10,389
                                                                                ========      ========

Supplemental disclosure of other cash flow information:

Cash paid during the quarter for:

        Interest                                                                $    683      $    897
                                                                                ========      ========
        Income taxes                                                            $    236      $     50
                                                                                ========      ========

Non-cash transactions:
        Change in unrealized gain on securities available for sale              $    (87)     $   (138)
                                                                                ========      ========
</TABLE>


See notes to consolidated financial statements.



                                       4
<PAGE>




                           MURFREESBORO BANCORP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2003
                                  (UNAUDITED)

(1)      BASIS OF PRESENTATION

         The consolidated financial statements include the accounts of the
         Company's wholly owned subsidiary, Bank of Murfreesboro (Bank), which
         is a full service bank, and its wholly owned subsidiaries; Bank M
         Insurance Group, Inc. (BIG), Bank M Mortgage Group, Inc. (BMG), Bank M
         Investment Center, Inc (BIC), HometownWorld, Inc. (HTW), and Bank M
         (BM). BIG offers insurance products, principally to the Bank or for
         loans originated by the Bank or its subsidiaries. BMG originates
         mortgage loans for sale to third parities as loan correspondents. BIC
         offers retail investment services to the general public, HTW and BM had
         minimal activity during the quarter ended March 31, 2003 and 2002.
         Intercompany accounts and transactions have been eliminated. The
         accompanying consolidated financial statements have been prepared
         without audit, pursuant to the rules and regulations of the Securities
         and Exchange Commission. Certain information and footnote disclosures
         normally included in financial statements prepared in accordance with
         generally accepted accounting principles have been condensed or omitted
         pursuant to such rules and regulations. In the opinion of management,
         the consolidated financial statements contain all adjustments and
         disclosures necessary to summarize fairly the financial position of the
         Company as of March 31, 2003 and December 31, 2002, the results of
         operations for the quarters ended March 31, 2003 and 2002, and changes
         in cash flows for the quarters ended March 31, 2003 and 2002. The
         interim consolidated financial statements should be read in conjunction
         with the notes to the consolidated financial statements presented in
         the Company's Annual Report to Shareholders. The results of the interim
         periods are not necessarily indicative of the results to be expected
         for the complete fiscal year.








                                       5
<PAGE>


(2)      COMPREHENSIVE INCOME

         Statement of Financial Accounting Standards ("SFAS") No. 130,
         "Reporting Comprehensive Income," was adopted by the Company on January
         1, 1998. SFAS 130 establishes standards for reporting comprehensive
         income. Comprehensive income includes net income and other
         comprehensive net income which is defined as non-owner related
         transactions in equity. The following table sets forth the amounts of
         other comprehensive income (loss) included in equity along with the
         related tax effect for the quarters ended March 31, 2003 and 2002,
         respectively.

<TABLE>
<CAPTION>
                                                                                    Tax         Net of
                                                                    Pre-Tax      (Expense)       Tax
                                                                    Amount        Benefit       Amount
                                                                    -------      ---------      ------

                                                                             (In thousands)
<S>                                                                  <C>           <C>          <C>
         Quarter ended March 31, 2003:

         Net unrealized gain on securities available for sale        $ (87)        $  31        $ (56)
                                                                     -----         -----        -----
         Other comprehensive loss                                    $ (87)        $  31        $ (56)

         Quarter ended March 31, 2002:

         Net unrealized loss on securities available for sale        $(138)        $  52        $ (86)
                                                                     -----         -----        -----

         Other comprehensive loss                                    $(138)        $  52        $ (86)
</TABLE>



(3)      EARNINGS PER SHARE

         The weighted average number of common shares outstanding during the
         quarters ended March 31, 2003 and 2002 was 907,609. The effect of
         dilutive common stock options was 29,834 shares for the quarter ended
         March 31, 2003. The dilutive effect of common stock options is
         estimated at 18,863 for the quarter ended March 31, 2002. For the
         quarter ended March 31, 2003 and 2002, the effect of the subordinated
         convertible capital debentures was to reflect the issuance of 240,000
         shares of common stock and a reduction in interest expense of $48,000
         and an additional tax expense of $18,000, for each period.



                                       6
<PAGE>


PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

The Company's Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the information and
tables which follow.

SUMMARY

Net income for the quarter ended March 31, 2003 was $181,000 and the net income
for the quarter ended March 31, 2002 was $176,000.

FINANCIAL CONDITION

Earning Assets. Average earning assets for the quarter ended March 31, 2003
totaled $136,819,000, which represented 91.4% of average total assets. Earning
assets totaled $140,657,000 at March 31, 2003. Average earning assets for the
quarter ended March 31, 2002 totaled $122,452,000, which represented 91.8% of
average total assets. Earning assets totaled $127,328,000 at March 31, 2002.

Loan Portfolio. The Company's average loans for the quarter ended March 31, 2003
were $102,070,000 and for the quarter ended March 31, 2002 were $97,507,000. The
balance in total loans at March 31, 2003 was $107,347,000 and $98,981,000 at
March 31, 2002.

Investment Portfolio. The Company's investment securities portfolio averaged
$28,927,000 for the quarter ended March 31, 2003 and $21,478,000 for the quarter
ended March 31, 2002. The portfolio totaled $28,774,000 at March 31, 2003 and
$21,987,000 at March 31, 2002.

The Company maintains an investment strategy of seeking portfolio yields within
acceptable risk levels, as well as providing liquidity. The Company maintains
two classifications of investment securities: "Held to Maturity" and "Available
for Sale." The "Available for Sale" securities are carried at fair market value,
whereas the "Held to Maturity" securities are carried at amortized book value.

At March 31, 2003, the unrealized gain in the "Available for Sale" portfolio
amounted to $259,000 and there was an unrealized gain of $91,000 at March 31,
2002. The average balance of securities "Available for Sale" during the quarter
ended March 31, 2003 was $28,927,000 and the balance at March 31, 2003 was
$28,774,000. The average balance of securities "Available for Sale" during the
quarter ended March 31, 2002 was $21,478,000 and the balance at March 31, 2002
was $21,987,000. There were no securities classified as Held to Maturity" during
the quarter ended March 31, 2003 or March 31, 2002.

Deposits. The Company's average deposits were $126,826,000 for the quarter ended
March 31, 2003. This included average non-interest-bearing deposits of
$9,789,000, average certificates of deposit of $78,924,000, average saving
deposits of $1,709,000 and average interest-bearing transaction accounts of
$36,404,000. The Company's average deposits for the quarter ended March 31, 2002
were $114,050,000. This included average non-interest-bearing deposits of
$8,790,000, average certificates of deposit of $72,838,000, average savings
deposits of $1,086,000 and average interest-bearing transaction accounts of
$31,336,000. Deposits at March 31, 2003 were $129,407,000 and $119,894,000 at
March 31, 2002.

Capital Resources. Shareholders' equity totaled $10,506,000 at of March 31,
2003. This included $9,068,000 of common stock and additional paid-in-capital
plus retained earnings of $1,278,000 and other comprehensive loss in the form of
an unrealized loss on securities available for sale of $160,000.


                                       7
<PAGE>


Long-Term Debt. The Company issued $3,000,000 of floating rate subordinated
convertible capital debentures ("debentures) during September 1999. Issuance
costs related to the debentures is approximately $25,000. The debentures convert
to common stock of the Corporation on August 31, 2011 at a conversion factor
based upon the market value of the common stock on that date. If converted
before that date, the conversion will be based upon one share of common stock
for every $12.50 of debentures held. The debentures began accruing interest on
January 1, 2000 and pay interest every December 15 with the final interest
payment being made at maturity. Interest payment is based upon a rate equal to
the weighted average prime rate less 0.5%. The debentures contain a floor of
6.5% for the average rate for the period. Interest expense for the quarter ended
March 31, 2003 and 2002 on the debentures totaled $48,000.


BALANCE SHEET MANAGEMENT

Liquidity Management. Liquidity is the ability of a company to convert assets
into cash without significant loss and to raise funds by increasing liabilities.
Liquidity management involves having the ability to meet the day-to-day cash
flow requirements of its customers, whether they are depositors wishing to
withdraw funds or borrowers requiring funds to meet their credit needs.

The primary function of asset/liability management is not only to assure
adequate liquidity in order for the Company to meet the needs of its customer
base, but to maintain an appropriate balance between interest-sensitive assets
and interest-sensitive liabilities so that the Company can profitably deploy its
assets. Both assets and liabilities are considered sources of liquidity funding
and both are, therefore, monitored on a daily basis.

The asset portion of the balance sheet provides liquidity primarily through
investments in federal funds and maturities of investment securities. Additional
sources of liquidity are loan repayments and possible prepayments from the
mortgage-backed securities from the investment portfolio.

The liability portion of the balance sheet provides liquidity through various
interest bearing and non-interest bearing deposit accounts. At March 31, 2003
and March 31, 2002, the Company had $3,300,000 and $3,500,000, respectively, of
federal funds purchase lines available at three correspondent banks. None of
these lines were drawn at March 31, 2003 or March 31, 2002.

Because of the level of capital obtained in formation and from the funds derived
from the long-term debt issued in September 1999, no additional capital funds or
long-term debt are anticipated to be deemed necessary during the next twelve
months.

RESULTS OF OPERATIONS

Net Interest Income. Net interest income is the principal component of a
financial institution's income stream and represents the spread between interest
and fee income generated from earning assets and the interest expense paid on
deposits. The following discussion is on a fully taxable equivalent basis.

Net interest income for the quarter ended March 31, 2003 totaled $1,291,000.
This was the result of interest income of $2,063,000 and interest expense of
$772,000. Interest income produced by the loan portfolio totaled $1,811,000,
interest income on investment securities totaled $235,000 and interest income on
federal funds totaled $17,000. Interest expense included $613,000 of interest
expense on certificates of deposit, interest expense of $14,000 on
interest-bearing transaction accounts, interest expense of $56,000 on money
market demand accounts, interest expense on savings accounts of $2,000, interest
expense on short-term borrowings of $3,000, interest expense on advances from
the FHLB of Cincinnati of $36,000 and interest expense on subordinated
convertible debentures of $48,000.

Net interest income for the quarter ended March 31, 2002 totaled $1,215,000.
This was the result of interest income of $2,105,000 and interest expense of
$890,000. Interest income produced by the loan portfolio totaled $1,905,000,
interest income on investment securities totaled $185,000, and interest income



                                       8
<PAGE>



on federal funds totaled $15,000. Interest expense included $690,000 of interest
expense on certificates of deposit, interest expense of $35,000 on
interest-bearing transaction accounts, interest expense of $89,000 on money
market demand accounts, interest expense of $3,000 on savings accounts, interest
expense of $5,000 on short-term borrowings, interest expense on advances from
the FHLB of Cincinnati of $20,000 and interest expense of $548,000 on the
subordinated convertible capital debentures.

The trend in net interest income is commonly evaluated in terms of average rates
using the net interest margin and the interest rate spread. The net interest
margin, or the net yield on earning assets, is computed by dividing fully
taxable equivalent net interest income by average earning assets. This ratio
represents the difference between the average yield on average earning assets
and the average rate paid for all funds used to support those earning assets.

The net interest margin for the quarter ended March 31, 2003 was 3.83%. The net
cost of funds, defined as interest expense divided by average-earning assets,
was 2.29% and the yield on earning assets was 6.12% for the quarter ended March
31, 2002. The net interest margin for the quarter ended March 31, 2002 was
4.02%. The net cost of funds for the quarter ended March 31, 2002 was 2.95% and
the yield on earning assets was 6.97%.

The interest rate spread measures the difference between the average yield on
earning assets and the average rate paid on interest bearing sources of funds.
The interest rate spread eliminates the impact of non-interest bearing funds and
gives a direct perspective on the effect of market interest rate movements.
During recent years, the net interest margins and interest rate spreads have
been under intense pressure to maintain historical levels, due in part to tax
laws that discouraged investment in tax-exempt securities and intense
competition for funds with non-bank institutions. The interest rate spread for
the quarter ended March 31, 2003 was 3.67% and for the quarter ended March 31,
2002 was 3.81%.

Allowance for Possible Loan Losses. Lending officers are responsible for the
ongoing review and administration of each loan. They make the initial
identification of loans that present some difficulty in collection or where
there is an indication that the probability of loss exists. Lending officers are
responsible for the collection effort on a delinquent loan. Senior management is
informed of the status of delinquent and problem loans on a monthly basis.

Senior management makes recommendations monthly to the board of directors as to
charge-offs. Senior management reviews the allowance for possible loan losses on
a quarterly basis. The Company's policy is to discontinue interest accrual when
payment of principal and interest is 90 days or more in arrears, unless there is
sufficient collateral to justify continued accrual.

The allowance for possible loan losses represents management's assessment of the
risks associated with extending credit and its evaluation of the quality of the
loan portfolio. Management analyzes the loan portfolio to determine the adequacy
of the allowance for possible loan losses and the appropriate provisions
required to maintain a level considered adequate to absorb anticipated loan
losses. In assessing the adequacy of the allowance, management reviews the size,
quality and risk of loans in the portfolio. Management also considers such
factors as loan loss experience, the amount of past due and non-performing
loans, specific known risk, the status and amount of non-performing assets,
underlying collateral values securing loans, current and anticipated economic
conditions and other factors which affect the allowance for potential credit
losses.

While it is the Company's policy to charge off in the current period the loans
in which a loss is considered probable, there are additional risks of future
losses that cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy,
management's judgment as to the adequacy of the allowance is necessarily
approximate and imprecise.

Management believes that the $967,000 at March 31, 2003 and $918,000 at December
31, 2002 in the allowance for possible loan losses are adequate to absorb known
risks in the portfolio. No assurance can be given, however, that adverse
economic circumstances will not result in increased losses in the loan
portfolio, and require greater provisions for possible loan losses in the
future.


                                       9
<PAGE>


Non-performing Assets. Non-performing assets include non-performing loans and
foreclosed real estate held for sale. Non-performing loans include loans
classified as non-accrual or renegotiated. The Company's policy is to place a
loan on non-accrual status when it is contractually past due 90 days or more as
to payment of principal or interest unless there is reason to believe the
collection of principal and interest is fairly certain. At the time a loan is
placed on non-accrual status, interest previously accrued but not collected is
reversed and charged against current earnings. Recognition of any interest after
a loan has been placed on non-accrual is accounted for on a cash basis.

There were no impaired loans or foreclosed real estate held for sale at March
31, 2003 or at December 31, 2002. Loans on non-accrual status at March 31, 2003
totaled $77,000 and at December 31, 2002 totaled $44,000.

Non-interest Income. Non-interest income consists of revenues generated from a
broad range of financial services and activities including fee-based services
and increase in the cash surrender value of officer's life insurance. In
addition, any gains or losses realized from the sale of investment portfolio
securities available for sale are included in non-interest income. Total
non-interest income totaled $400,000 for the quarter ended March 31, 2003. This
included $23,000 from service charges on deposit accounts, insufficient fund
income of $147,000, other fees and commissions of $34,000, $22,000 from the
increase in the cash surrender value of officers' life insurance, mortgage loan
origination fees of $66,000, brokerage fees of $49,000 and $59,000 of other
non-interest income. There were no gains or losses on securities during the
quarter ended March 31, 2003.

Non-interest income totaled $358,000 for the quarter ended March 31, 2002. This
included $21,000 on service charge on deposit accounts, other fees and
commissions of $25,000, $24,000 from the increase in the cash surrender value of
the officers' life insurance, insufficient fund income of $140,000, mortgage
loan origination fees of $46,000, brokerage fees of $55,000, $22,000 of other
non-interest income and a $25,000 gain from the sale of mortgage company
subsidiaries. There were no gains or losses on securities during the quarter
ended March 31, 2002.

Non-interest Expenses. Non-interest expense for the quarter ended March 31, 2003
totaled $1,347,000. Salaries and employee benefits for the quarter ended March
31, 2003 totaled $712,000. Occupancy expense for the quarter ended March 31,
2003 totaled $86,000 while furniture and equipment expense totaled $87,000.
Advertising expenses totaled $25,000 and data processing expenses totaled
$94,000. All other non-interest expenses totaled $343,000 for the quarter ended
March 31, 2003. Other non-interest expenses include supplies and printing,
telephone, postage and legal and audit fees.

Non-interest expense for the quarter ended March 31, 2002 totaled $1,296,000.
Salaries and employee benefits for the quarter ended March 31, 2002 totaled
$675,000. Occupancy expenses for the quarter ended March 31, 2002 totaled
$79,000 while furniture and equipment expenses totaled $88,000. Advertising
expenses totaled $43,000 and data processing expenses totaled $94,000. Other
non-interest expenses totaled $317,000.

Income Taxes. For the quarter ended March 31, 2003 the Company incurred $99,000
of income tax expenses. For the quarter ended March 31, 2001 the Company
incurred income tax expenses of $101,000. The effective tax rates were 35.4% and
36.5% for the quarters ended March 31, 2003 and 2002, respectively.

RETURN ON EQUITY AND ASSETS

Return on assets (net income divided by average total assets) for the quarter
ended March 31, 2003 was 0.49%. Return on equity (net income divided by average
equity) for the quarter ended March 31, 2003 was 7.03%. Equity to assets
(average equity divided by average total assets) for the quarter ended March 31,
2003 was 6.98%. There were no dividends paid during the quarter ended March 31,
2003, so no dividend payout ratio is presented.


                                       10
<PAGE>


Return on assets for the quarter ended March 31, 2002 was 0.54%. Return on
equity for the quarter ended March 31, 2002 7.54%. Equity to assets for the
quarter ended March 31, 2002 was 7.09%. There were no dividends paid during the
quarter ended March 31, 2002 so no dividend payout ratio is presented.

EFFECTS OF INFLATION AND CHANGING PRICES

Inflation generally increases the cost of funds and operating overhead and to
the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. In addition, inflation affects
financial institutions' cost of goods and services purchased, the cost of
salaries and benefits, occupancy expense and similar items. Inflation and
related increases in interest rates generally decrease the market value of
investments and loans held and may adversely affect liquidity, earnings and
stockholders' equity. Mortgage originations and refinancings tend to slow as
interest rates increase and can reduce the Company's earnings from such
activities and the income from the sale of residential mortgage loans in the
secondary market.




                                       11
<PAGE>


AVERAGE BALANCE SHEET AND NET INTEREST INCOME


 The following table sets forth weighted yields earned by the Company on its
earning assets and the weighted average rates paid on its deposits and other
interest-bearing liabilities for the quarter ended March 31, 2003 and certain
other information:

<TABLE>
<CAPTION>
                                                                                Interest           Average
                                                            Average              Income/           Yields/
                                                            Balance              Expense            Rates
                                                           ---------           ---------           -------
                                                          (Fully taxable equivalent - dollars in thousands)
<S>                                                        <C>                 <C>                <C>
ASSETS:
Interest-earning assets:
Loans                                                      $ 102,070           $   1,811              7.20%
U.S. Treasury and other U.S. government agencies              28,927                 235              3.29%
States and municipalities                                       --                  --                 N/A
Federal funds sold                                             5,822                  17              1.16%
                                                           ---------           ---------           -------
Total interest-earning assets/interest income                136,819               2,063              6.12%
                                                           ---------           ---------           -------
Cash and due from banks                                        5,822
Other assets                                                   7,968
Allowance for possible loan losses                              (923)
                                                           ---------
Total assets                                               $ 149,686
                                                           =========


LIABILITIES AND SHAREHOLDERS' EQUITY:

Interest-bearing liabilities:
Demand deposits and savings accounts                       $  38,113                  72              0.77%
Certificates of deposit                                       78,924                 613              3.15%
Short-term borrowings                                          8,021                  39              1.98%
Advances from FHLB                                             6,000                  35              3.15%
Subordinated convertible capital debentures                    3,000                  48              6.50%
                                                           ---------           ---------           -------
Total interest-bearing liabilities/interest expense          128,058                 772              2.45%
                                                           ---------           ---------           -------
Non-interest-bearing demand deposits                           9,789
Other liabilities                                              1,398
Shareholders' equity                                          10,441
                                                           ---------
Total liabilities and shareholders' equity                 $ 149,686
                                                           =========
Net interest earnings                                                          $   1,291
                                                                               =========
Net interest income on interest-earning assets                                                        3.83%
                                                                                                   =======

 Taxable equivalent adjustment:   N/A
</TABLE>







                                       12
<PAGE>




 The following table sets forth weighted yields earned by the Company on its
earning assets and the weighted average rates paid on its deposits and other
interest-bearing liabilities for the quarter ended March 31, 2002 and certain
other information:

<TABLE>
<CAPTION>
                                                                                      Interest            Average
                                                                   Average             Income/            Yields/
                                                                   Balance             Expense             Rates
                                                                  ---------           ---------           -------
                                                                 (Fully taxable equivalent - dollars in thousands)
<S>                                                               <C>                 <C>                 <C>
ASSETS:
Interest-earning assets:
Loans                                                             $  97,507           $   1,905              7.92%
U.S. Treasury and other U.S. government agencies                     21,478                 185              3.49%
States and municipalities                                              --                  --                 N/A
Federal funds sold                                                    3,467                  15              1.75%
Interest bearing deposits with other financial institutions            --                  --                 N/A
                                                                  ---------           ---------           -------
Total interest-earning assets/interest income                       122,452               2,105              6.97%
                                                                  ---------           ---------           -------
Cash and due from banks                                               3,174
Other assets                                                          8,800
Allowance for possible loan losses                                   (1,012)
                                                                  ---------
Total assets                                                      $ 133,414
                                                                  =========

LIABILITIES AND SHAREHOLDERS' EQUITY:

Interest-bearing liabilities:
Demand deposits and savings accounts                              $  32,422                 127              1.59%
Certificates of deposit                                              72,838                 690              3.84%
Short-term borrowings                                                 1,899                   5              1.07%
Advances from FHLB                                                    4,000                  20              2.03%
Subordinated convertible capital debentures                           3,000                  48              6.49%
                                                                  ---------           ---------           -------
Total interest-bearing liabilities/interest expense                 114,159                 890              3.16%
                                                                  ---------           ---------           -------
Non-interest-bearing demand deposits                                  8,790
Other liabilities                                                     1,000
Shareholders' equity                                                  9,465
                                                                  ---------
Total liabilities and shareholders' equity                        $ 133,414
                                                                  =========
Net interest earnings                                                                 $   1,215
                                                                                      =========
Net interest income on interest-earning assets                                                               4.02%
                                                                                                          =======

Taxable equivalent adjustment:      N/A
</TABLE>



                                       13
<PAGE>



The following table presents changes in the Company's various categories of
interest income and interest expense based upon the change in the average rate
and the change in the average volume from the quarter ended March 31, 2003 to
the quarter ended March 31, 2002 (in thousands).

<TABLE>
<CAPTION>
                                                                                              Increase
                                                               Increase      Increase        (Decrease)
                                                              (Decrease)    (Decrease)         Due to
                                               Increase         Due to        Due to          Rate and
                                              (Decrease)        Volume         Rate            Volume
                                              ----------      ----------    ----------        --------

                                                        ASSETS

<S>                                             <C>             <C>            <C>             <C>
Federal funds sold                              $   2           $  10          $  (5)          $  (3)
Investment securities:
Available for sale                                 50              66            (11)             (5)
Held to maturity                                 --              --             --              --
                                                -----           -----          -----           -----
   Investment securities                           50              66            (11)             (5)
                                                -----           -----          -----           -----
Loans                                             (94)             91           (174)            (11)
                                                -----           -----          -----           -----
    Total interest earning assets                 (42)            167           (190)            (19)
                                                -----           -----          -----           -----

                                                      LIABILITIES

Demand deposits and savings accounts              (55)             23            (66)            (12)
Certificates of deposits                          (77)             59           (127)             (9)
                                                -----           -----          -----           -----
    Total interest bearing deposits              (132)             82           (193)            (21)
                                                -----           -----          -----           -----
Short-term borrowings                              (1)             --             (2)              1
Long-term debt                                     15              10              4               1
                                                -----           -----          -----           -----

    Total interest bearing liabilities           (118)             92           (191)             14
                                                -----           -----          -----           -----

  Total                                         $  76           $  75          $   1           $  --
                                                =====           =====          =====           =====
</TABLE>

Amounts are adjusted to a fully taxable basis, based on the statutory Federal
income tax rates, adjusted for applicable state income taxes net of the related
Federal tax benefit. The effect of volume change is computed by multiplying the
change in volume by the prior year rate. The effect of rate change is computed
by multiplying the change in rate by the prior year volume. Rate/volume change
is computed by multiplying the change in volume by the change in rate.

ASSETS

The management of the Company considers many criteria in managing assets,
including creditworthiness, diversification and structural characteristics,
maturity and interest rate sensitivity. The following table sets forth the
Company's interest-earning assets by category at March 31, 2003 and December 31,
2002 (in thousands):

<TABLE>
<CAPTION>
                                           March 31, 2003   December 31, 2002
                                           --------------   -----------------

<S>                                           <C>               <C>
Interest-bearing deposits with banks          $   --            $   --
Investment securities                           28,774            31,905
Federal funds sold                               4,618             5,322
Loans:
Real estate                                     83,306            77,875
Commercial and other                            23,959            23,974
                                              --------          --------
Total loans                                    107,265           101,849
                                              --------          --------
Interest-earning assets                       $140,657          $139,076
                                              ========          ========
</TABLE>



                                       14
<PAGE>




INVESTMENT PORTFOLIO

The Company has classified all investment securities as either available for
sale or held to maturity depending upon whether the Company has the intent and
ability to hold the investment securities to maturity. The classification of
certain investment securities as available for sale is consistent with the
Company's investment philosophy of maintaining flexibility to manage the
portfolio. At March 31, 2003, approximately $28,774,000 of investment securities
was classified as available for sale and at December 31, 2002, approximately
$31,905,000 of investment securities was classified as available for sale.
Approximately $160,000 of unrealized loss and $216,000 of unrealized gain was
included in shareholders' equity related to the available for sale investment
securities as of March 31, 2003 and December 31, 2002, respectively. There were
no of securities at March 31, 2003 and December 31, 2002 classified as held to
maturity, respectively.

At March 31, 2003, obligations of the United States Government or its agencies
represented approximately 100% of the total investment debt portfolio. The
following table presents the carrying amounts of the Company's investment
portfolio at March 31, 2003 (in thousands):

<TABLE>
<CAPTION>
                                                 Amortized        Estimated
                                                   Cost           Fair Value
                                                 ---------        ----------
<S>                                               <C>              <C>
AVAILABLE FOR SALE:
U.S. Treasury                                     $ 1,001          $ 1,016
U.S. Government agencies                           26,839           26,989
States and political subdivisions                    --               --
Other securities                                     --               --
                                                  -------          -------
Total available for sale debt securities           27,840           28,005
Federal Reserve Bank stock                            351              351
Federal Home Loan Bank stock                          324              418
                                                  -------          -------
Total available for sale                           28,515           28,774
                                                  -------          -------


Total investment portfolio                        $28,515          $28,774
                                                  =======          =======

</TABLE>













                                       15
<PAGE>

At December 31, 2002, obligations of the United States Government or its
agencies represented approximately 100% of the total investment debt portfolio.
The following table presents the carrying amounts of the Company's investment
portfolio at December 31, 2002 (in thousands):

<TABLE>
<CAPTION>
                                                   Amortized        Estimated
                                                     Cost           Fair Value
                                                   ---------        ----------
<S>                                                 <C>              <C>
AVAILABLE FOR SALE:
U.S. Treasury                                       $ 1,001          $ 1,020
U.S. Government agencies                             29,792           30,120
States and political subdivisions                      --               --
Other securities                                       --               --
                                                    -------          -------
Total available for sale - debt securities           30,793           31,140
                                                    -------          -------
Federal Reserve Bank stock                              351              351
Federal Home Loan Bank Stock                            414              414
                                                    -------          -------
Total available for sale                             31,558           31,905
                                                    -------          -------



Total investment portfolio                          $31,558          $31,905
                                                    =======          =======
</TABLE>

The following table presents the maturity distribution of the carrying value and
estimated fair value of the Company's investment portfolio at March 31, 2003.
The weighted average yields on these instruments are presented based on final
maturity (dollars in thousands).

<TABLE>
<CAPTION>
                                                             Amortized        Estimated        Weighted
                                                               Cost          Fair Value      Average Yield
                                                             ---------       ----------      --------------
<S>                                                           <C>              <C>            <C>
AVAILABLE FOR SALE:
U.S. Treasuries:                                              $  --            $  --                N/A
Due after 1 year within 5 years                                 1,001            1,016             3.08%
U.S. Government agencies:
Due within 1 year                                              18,544           18,729             2.87%
Due after 1 year but within 5 years                             8,201            8,260             3.60%
Due after 5 years but within 10 years                            --               --                N/A
Due after 10 years                                               --               --                N/A
                                                              -------          -------          -------
Total                                                          27,746           28,005             3.01%
                                                              -------          -------          -------
States and political subdivisions                                --               --                N/A
Other                                                            --               --                N/A
                                                              -------          -------          -------
Total investments available for sale-debt securities           27,746           28,005             3.01%
                                                              -------          -------          -------

Total investment portfolio-debt securities                    $27,746          $28,005             3.01%
                                                              =======          =======          =======
</TABLE>




                                       16
<PAGE>


The following table presents the maturity distribution of the carrying value and
estimated fair value of the Company's investment portfolio at December 31, 2002.
The weighted average yields on these instruments are presented based on final
maturity (dollars in thousands).

<TABLE>
<CAPTION>
                                                             Amortized       Estimated          Weighted
                                                                Cost         Fair Value       Average Yield
                                                             ---------       ----------       -------------

<S>                                                           <C>              <C>             <C>
AVAILABLE FOR SALE:
U.S. Treasuries                                               $  --            $  --                N/A
Due after 1 year within 5 years                                 1,001            1,020             3.08%
U.S. Government agencies:
Due within 1 year                                              14,475           14,705             3.08%
Due after 1 year but within 5 years                            15,317           15,415             3.10%
Due after 5 years but within 10 years                            --               --                N/A
Due after 10 years                                               --               --                N/A
                                                              -------          -------          -------
Total                                                          30,793           31,140             3.09%
                                                              -------          -------          -------
States and political subdivisions                                --               --                N/A
Other                                                            --               --                N/A
                                                              -------          -------          -------
Total investments available for sale-debt securities           30,793           31,140             3.09%
                                                              =======          =======          =======


Total investment portfolio-debt securities                    $30,793          $31,140             3.09%
                                                              =======          =======          =======
</TABLE>

INVESTMENT POLICY

The objective of the Company's investment policy is to invest funds not
otherwise needed to meet the loan demand of the Bank's market area to earn the
maximum return for the Bank, yet still maintain sufficient liquidity to meet
fluctuations in the Bank's loan demand and deposit structure. In doing so, the
Company balances the market and credit risk against the potential investment
return, makes investments compatible with the pledge requirements of the Bank's
deposits of public funds, maintains compliance with regulatory investment
requirements, and assists the various public entities with their financing
needs. The Investment Committee is comprised of the president and three other
directors. The President is authorized to execute security transactions for the
investment portfolio and to make decisions on purchases and sales of securities.
All the investment transactions occurring since the previous board of directors'
meeting are reviewed by the board at its next monthly meeting. Limitations on
the Committee's investment authority include: (a) investment in any one
municipal security may not exceed 20% of equity capital; (b) the entire
investment portfolio may not increase or decrease by more than 10% in any one
month; (c) investments in obligations of the State of Tennessee may not exceed
30% of equity capital; and (d) investment in mortgage-backed securities may not
exceed more than 40% of equity capital. The investment policy allows portfolio
holdings to include short-term securities purchased to provide the Bank's needed
liquidity and longer-term securities purchased to generate stable income for the
Bank during periods of interest rate fluctuations.



                                       17
<PAGE>


LOAN PORTFOLIO

The following table sets forth the composition of the Company's loan portfolio
at March 31, 2003 (dollars in thousands).

<TABLE>
<CAPTION>
                                                              Percent of
                                             Balance          Total Loans
                                             -------          -----------
<S>                                        <C>                 <C>
Real estate loans:
Construction and land development           $   7,458               7.0%
Secured by residential properties              39,033              36.4%
Secured by commercial real estate              36,815              34.3%
                                            ---------           -------
Total real estate loans                        83,306              77.7%
                                            ---------           -------
Commercial and industrial loans                 5,977               5.5%
Other consumer loans                           17,982              16.8%
                                            ---------           -------
Total loans                                   107,265             100.0%
Unamortized premiums and
  net deferred loan costs                          82               N/A
Allowance for possible loan losses               (967)              N/A
                                            ---------           -------
Net loans                                   $ 106,380               N/A
                                            =========           =======
</TABLE>


The following table sets forth the composition of the Company's loan portfolio
at December 31, 2002 (dollars in thousands).

<TABLE>
<CAPTION>
                                                              Percent of
                                             Balance          Total Loans
                                             -------          -----------
<S>                                        <C>                 <C>
Real estate loans:
Construction and land development           $   8,930               8.8%
Secured by residential properties              37,956              37.3%
Secured by commercial real estate              30,989              30.4%
                                            ---------           -------
Total real estate loans                        77,875              76.5%
                                            ---------           -------
Commercial and industrial loans                 5,920               5.8%
Other consumer loans                           18,054              17.7%
                                            ---------           -------
Total loans                                   101,849             100.0%
Unamortized premiums and net
   deferred loan costs                             61               N/A
Allowance for possible loan losses               (918)              N/A
                                            ---------           -------
Net loans                                   $ 100,992               N/A
                                            =========           =======
</TABLE>

The following table sets forth the contractual maturities of the loan portfolio
and the sensitivity to interest rate changes of the Company's loan portfolio at
March 31, 2003 (in thousands).

<TABLE>
<CAPTION>
                                                                         Maturity Range
                                                --------------------------------------------------------------
                                                One Year         One Through         Over
                                                or Less          Five Years        Five Years          Total
                                                --------         -----------       ----------         --------
<S>                                             <C>               <C>               <C>               <C>
LOAN MATURITY:
Real estate construction loans                  $  5,725          $  1,733          $   --            $  7,458
Real estate mortgage loans                        12,109            52,102            11,637            75,848
Commercial and industrial loans                    2,258             3,431               288             5,977
All other loans                                    4,580            10,044             3,358            17,982
                                                --------          --------          --------          --------
Total loans                                     $ 24,672          $ 67,310          $ 15,283          $107,265
                                                ========          ========          ========          ========

LOAN INTEREST RATE SENSITIVITY:

Predetermined interest rates                    $  9,676          $ 20,878          $ 15,283          $ 45,837
Floating or adjustable interest rates             14,996            46,432              --              61,428
                                                --------          --------          --------          --------
Total                                           $ 24,672          $ 67,310          $ 15,283          $107,265
                                                ========          ========          ========          ========
</TABLE>



                                       18
<PAGE>


The following table sets forth the contractual maturities of the loan portfolio
and the sensitivity to interest rate changes of the Company's loan portfolio at
December 31, 2002 (in thousands).

<TABLE>
<CAPTION>

                                                                        Maturity Range
                                               --------------------------------------------------------------
                                               One Year         One Through         Over
                                               or Less          Five Years        Five Years          Total
                                               --------         -----------       ----------         --------
<S>                                            <C>               <C>               <C>               <C>
LOAN MATURITY:
Real estate construction loans                 $  5,287          $  3,643          $   --            $  8,930
Real estate mortgage loans                       10,074            47,342            11,529            68,945
Commercial and industrial loans                   4,016             1,784               120             5,920
All other loans                                   5,263             8,739             4,052            18,054
                                               --------          --------          --------          --------
Total loans                                    $ 24,640          $ 61,508          $ 15,701          $101,849
                                               ========          ========          ========          ========

LOAN INTEREST RATE SENSITIVITY:

Predetermined interest rates                   $  9,918          $ 18,380          $ 15,701          $ 43,999
Floating or adjustable interest rates            14,722            43,128              --              57,850
                                               --------          --------          --------          --------
Total                                          $ 24,640          $ 61,508          $ 15,701          $101,849
                                               ========          ========          ========          ========
</TABLE>

LOAN POLICY

All lending activities of the Bank are under the direct supervision and control
of the Bank's Board with secondary authority vested in the Executive Committee.
The Senior Loan Committee, which consists of the president, one other director
and two senior lending officers, enforces loan authorizations for each officer,
decides on loans exceeding such limits, services all requests for officer
credits to the extent allowable under current laws and regulations, administers
all problem credits, and determines the allocation of funds for each lending
division. The loan portfolio consists primarily of real estate, commercial,
small business, residential construction and consumer installment loans.
Maturity of term loans is normally limited to 15 years. Conventional real estate
loans may be made up to 80% of the appraised value or purchase cost of the real
estate for no more than a 30-year term. Installment loans are based on the
earning capacity and vocational stability of the borrower.

The Bank board at its regularly scheduled meetings reviews all new loans made
the preceding month and discusses and approves any loans that exceed a loan
officer's authority. Loans that are 30 days or more past due are reviewed
monthly.

The Loan Committee of the Bank periodically reviews the loan portfolio,
particularly nonaccrual and renegotiated loans. Each loan officer is responsible
for monitoring and collecting his or her own loan portfolio. Loan Committee
review may result in a determination that a loan should be placed on a
nonaccrual status for income recognition, subject to Bank Board approval. In
addition, to the extent that management identifies potential losses in the loan
portfolio and reduces the book value of such loans through charge-offs, to their
estimated collectible value, the Company's policy is to classify as nonaccrual
any loan on which payment of principal or interest is 90 days or more past due,
unless there is adequate collateral to cover principal and accrued interest and
the loan is in the process of collection. In addition, a loan will be classified
as nonaccrual if, in the opinion of the Loan Committee, based upon a review of
the borrower's or guarantor's financial condition, collateral value or other
factors, payment is questionable, even though payments are not 90 days or more
past due.

When a loan is classified as nonaccrual, any unpaid interest is reversed against
current income. Interest is included in income thereafter only to the extent
received in cash. The loan remains in a nonaccrual classification until such
time as the loan is brought current, when it may be returned to accrual
classification. When principal or interest on a nonaccrual loan is brought
current, if in management's opinion future payments are questionable, the loan
would remain classified as nonaccrual. After a nonaccrual or renegotiated loan
is charged off, any subsequent payments of either interest or principal are
applied first to any remaining balance outstanding, then to recoveries and
finally to income.


                                       19
<PAGE>



The large number of consumer installment loans and the relatively small dollar
amount of each make an individual review impracticable. It is the Company's
policy to charge off any consumer installment loan that is past due 90 days or
more and is not adequately collateralized.

In addition, mortgage loans secured by real estate are placed on nonaccrual
status when the mortgagor is in bankruptcy, or foreclosure proceedings are
instituted.

CREDIT RISK MANAGEMENT AND ALLOWANCE FOR POSSIBLE LOAN LOSSES

Credit risk and exposure to loss are inherent parts of the banking business.
Management seeks to manage and minimize these risks through its loan and
investment policies and loan review procedures. Management establishes and
continually reviews lending and investment criteria and approval procedures that
it believes reflect the risk sensitive nature of the Company. The loan review
procedures are set to monitor adherence to the established criteria and to
ensure that on a continuing basis such standards are enforced and maintained.

Management's objective in establishing lending and investment standards is to
manage the risk of loss and to provide for income generation through pricing
policies. To effectuate this policy, the Company makes commercial real estate
loans with a three-year or less fixed maturity, which may be amortized over a
maximum of 15 years.

The loan portfolio is regularly reviewed and management determines the amount of
loans to be charged-off. In addition, such factors as the Company's previous
loan loss experience, prevailing and anticipated economic conditions, industry
concentrations and the overall quality of the loan portfolio are considered.
While management uses available information to recognize losses on loans and
real estate owned, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the allowance
for possible losses on loans and real estate owned. Such agencies may require
the Company to recognize additions to the allowances based on their judgments
about information available at the time of their examinations. In addition, any
loan or portion thereof which is classified as a "loss" by regulatory examiners
is charged-off.

The allowance for possible loan losses is increased by provisions charged to
operating expense. The allowance for possible loan losses is reduced by charging
off loans or portions of loans at the time they are deemed by management to be
uncollectible and increased when loans previously charged off are recovered. The
resulting allowance for possible loan losses is viewed by management as a
single, unallocated reserve available for all loans and, in management's
opinion, is adequate to provide for reasonably foreseeable potential loan
losses. The risk associated with loans varies with the creditworthiness of the
borrower, the type of loan (consumer, commercial or real estate) and its
maturity. Cash flow adequate to support a repayment schedule is an element
considered for all types of loans. Real estate loans are impacted by market
conditions regarding the value of the underlying property used as collateral.
Commercial loans are also impacted by the management of the business as well as
economic conditions. Management believes the allowance for possible loan losses
is adequate to absorb such anticipated charge-offs.

Rules and formulas relative to the adequacy of the allowance for possible loan
losses, although useful as guidelines to management, are not rigidly applied.
The allowance for possible loan losses was $967,000 as of March 31, 2003 or 0.9%
of loans outstanding. The allowance for possible loan losses was $918,000 as of
December 31, 2002, or 0.9% of loans outstanding. The provision for possible loan
losses was charged against earnings during the first quarter of 2003 was
$64,000. The provision for possible loan losses charged against earnings during
the year ended December 31, 2002 was $47,000. Net charge-offs during 2002 were
$129,000 (consisting of charge-offs of $156,000 and recoveries of $27,000.) Net
charge-offs during the first quarter of 2003 was $15,000 (consisting of
charge-offs of $26,000 and recoveries of $11,000.)



                                       20
<PAGE>


No loans were past due 90 days or more and still accruing interest at March 31,
2003 or at December 31, 2002. There were $77,000 of loans classified as
non-accrual at March 31, 2003 and $44,000 of loans were classified as
non-accrual at December 31, 2002. Accrual of interest is discontinued when there
is reasonable doubt as to the full, timely collections of interest or principal.
When a loan becomes contractually past due ninety (90) days with respect to
interest or principal, it is reviewed and a determination is made as to whether
it should be placed on non-accrual status. When a loan is placed on non-accrual
status, all interest previously accrued but not collected is reversed against
current period interest income. Income on such loans is then recognized only to
the extent that cash is received and where the future collection of principal is
probable. Interest accruals are resumed on such loans only when they are brought
fully current with respect to principal and interest and when, in the judgment
of management, the loans are estimated to be fully collectible as to principal
and interest. Restructured loans are those loans on which concessions in terms
have been granted because of a borrower's financial difficulty. Interest is
generally accrued on such loans in accordance with the new terms. There was no
other real estate owned or foreclosed, any repossessed assets or impaired loans
at March 31, 2003 or at December 31, 2002.







                                       21
<PAGE>




DEPOSITS

The Company's primary sources of funds are interest-bearing deposits. The
following table sets forth the Company's deposit structure at March 31, 2003 and
December 31, 2002 (in thousands):

<TABLE>
<CAPTION>
                                                    March 31,     December 31,
                                                      2003            2002
                                                    ---------     ------------
<S>                                                 <C>             <C>
Non-interest-bearing deposits:
Individuals, partnerships and corporations          $ 10,823        $  8,764
Certified and official checks                            693             575
                                                    --------        --------
Total non-interest-bearing deposits                   11,516           9,339
                                                    --------        --------
Interest-bearing deposits:
Interest-bearing demand accounts                      37,661          36,547
Saving accounts                                        1,927           1,642
Certificates of deposit, less than $100,000           50,395          49,717
Certificates of deposit, $100,000 or greater          27,908          30,062
                                                    --------        --------
Total interest-bearing deposits                      117,891         117,968
                                                    --------        --------
Total deposits                                      $129,407        $127,307
                                                    ========        ========
</TABLE>


The following table presents a breakdown by category of the average amount of
deposits and the average rate paid on deposits for the quarter ended March 31,
2003 and the year ended December 31, 2002 (dollars in thousands):


<TABLE>
<CAPTION>
                                            Quarter Ended                 Year Ended
                                            March 31, 2003              December 31,2002
                                        -----------------------      -----------------------

<S>                                     <C>            <C>          <C>             <C>
Non-interest-bearing deposits           $  9,789        N/A          $  9,239        N/A
Interest-bearing demand deposits          36,404           0.78%       34,349           1.45%
Savings accounts                           1,709           0.44%        1,353           0.90%
Certificates of deposit                   78,924           3.15%       78,223           3.48%
                                        --------        -------      --------        -------
Total deposits                          $126,826           2.37%     $123,164           2.62%
                                        ========        =======      ========        =======
</TABLE>


At March 31, 2003, certificates of deposits greater than $100,000 aggregated
approximately $27,908,000. The following table indicates, as of March 31, 2003,
the dollar amount of $100,000 or more by the time remaining until maturity (in
thousands):

<TABLE>
<CAPTION>
                               3 Months       3 to 12        1 to 5          Over 5
                               or less        Months          Years          Years
                               --------       -------        ------          ------

<S>                            <C>            <C>            <C>            <C>
Certificates of deposit        $10,964        $10,393        $ 4,528        $ 2,023
                               =======        =======        =======        =======
</TABLE>

At December 31, 2002, certificates of deposits greater than $100,000 aggregated
approximately $30,062,000. The following table indicates, as of December 31,
2002, the dollar amount of $100,000 or more by the time remaining until maturity
(in thousands):

<TABLE>
<CAPTION>
                               3 Months       3 to 12         1 to 5         Over 5
                               or less        Months          Years          Years
                               --------       -------         ------         ------

<S>                            <C>            <C>            <C>            <C>
Certificates of deposit        $ 8,600        $17,429        $ 2,310        $ 1,723
                               =======        =======        =======        =======
</TABLE>



                                       22
<PAGE>



LIQUIDITY

Of primary importance to depositors, creditors and regulators is the ability to
have readily available funds sufficient to repay fully maturing liabilities. The
Company's liquidity, represented by cash and cash due from banks, is a result of
its operating, investing and financing activities. In order to insure funds are
available at all times, the Company devotes resources to projecting on a monthly
basis the amount of funds that will be required and maintains relationships with
a diversified funding base so funds are accessible. Liquidity requirements can
also be met through short-term borrowings or the disposition of short-term
assets, which are generally matched to correspond to the maturity of
liabilities.

The Company has a formal liquidity policy, and in the opinion of management, its
liquidity levels are considered adequate. Neither the Company nor the Bank is
subject to any specific regulation liquidity requirements imposed by regulatory
authorities. The Bank is subject to general FDIC guidelines, which do not
require a minimum level of liquidity. Management believes its liquidity ratios
meet or exceed these guidelines. Management does not know of any trends or
demands that are reasonably likely to result in liquidity increasing or
decreasing in any material manner. The ratio for average loans to average
deposits for 2002 was 86.3% and for the quarter ended March 31, 2003 was 80.5%.

CAPITAL ADEQUACY

Capital adequacy refers to the level of capital required to sustain asset growth
over time and to absorb losses. The objective of the Company's management is to
maintain a level of capitalization that is sufficient to take advantage of
profitable growth opportunities while meeting regulatory requirements. This is
achieved by improving profitability through effectively allocating resources to
more profitable businesses, improving asset quality, strengthening service
quality, and streamlining costs. The primary measures used by management to
monitor the results of these efforts are the ratios of average equity to average
assets, average tangible equity to average tangible assets, and average equity
to net loans. The Federal Reserve Board and FDIC have adopted capital guidelines
governing the activities of bank holding companies and banks. These guidelines
require the maintenance of an amount of capital based on risk-adjusted assets so
that categories of assets with potentially higher credit risk will require more
capital backing than assets with lower risk. In addition, banks and bank holding
companies are required to maintain capital to support, on a risk-adjusted basis,
certain off-balance sheet activities such as loan commitments.

The capital guidelines classify capital into two tiers, referred to as Tier I
and Tier II. Under risk-based capital requirements, total capital consists of
Tier I capital, which is generally common shareholders' equity less goodwill and
excess tax assets, and Tier II capital which is primarily the qualifying portion
of the allowance for possible loan losses and certain qualifying debt
instruments. In determining risk-based capital requirements, assets are assigned
risk-weights of 0% to 100%, depending primarily on the regulatory assigned
levels of credit risk associated with such assets. Off-balance sheet items are
considered in the calculation of risk-adjusted assets through conversion factors
established by the regulators. The framework for calculating risk-based capital
requires banks and bank holding companies to meet the regulatory minimums of 4%
Tier I and 8% total risk-based capital. In 1990 regulators added a leverage
computation to the capital requirements, comparing Tier I capital to total
average assets less goodwill and excess tax assets. In 1999, the ratio was
modified to reduce Tier 1 Capital by the amount of investments in unconsolidated
subsidiaries.




                                       23
<PAGE>


The following table gives the various capital ratios and balances at March 31,
2003 and December 31, 2002 (dollars in thousands) for the Company:


<TABLE>
<CAPTION>
                                              March 31, 2003   December 31, 2002
                                              --------------   -----------------
<S>                                              <C>                <C>
CAPITAL:
Tier I capital:
Shareholders' equity                             $ 10,346           $ 10,164
Less excess tax assets                                348                277
                                                 --------           --------
Total Tier I capital                                9,998           $  9,887
                                                 --------           --------

Tier II capital:
Qualifying debt                                     3,000              3,000
Qualifying allowance for loan losses                  967                918
                                                 --------           --------
Total Tier II capital                               3,967              3,918
                                                 --------           --------
Total capital                                    $ 13,965           $ 13,805
                                                 ========           ========
Risk-adjusted assets                             $114,610           $109,741
                                                 ========           ========
Quarterly average assets                         $149,686           $151,574
                                                 ========           ========

RATIOS:
Tier I capital to risk-adjusted assets                8.7%               9.0%
Tier II capital to risk-adjusted assets               3.5%               3.6%
Total capital to risk-adjusted assets                12.2%              12.6%
Leverage -- Tier I capital to quarterly
    average assets                                    6.7%               6.5%
</TABLE>




                                       24
<PAGE>



The following table gives the various capital ratios and balances at March 31,
2003 and at December 31, 2002 (dollars in thousands) for the Bank:


<TABLE>
<CAPTION>
                                              March 31, 2003   December 31, 2002
                                              --------------   -----------------
<S>                                              <C>                <C>
CAPITAL:
Tier I capital:
Shareholders' equity                             $ 13,059           $ 12,871
Less excess tax assets                                342                335
                                                 --------           --------
Total Tier I capital                               12,717             12,536
                                                 --------           --------

Tier II capital:
Qualifying debt                                      --                 --
Qualifying allowance for loan losses                  967                918
                                                 --------           --------
Total Tier II capital                                 967                918
                                                 --------           --------
Total capital                                    $ 13,684           $ 13,454
                                                 ========           ========
Risk-adjusted assets                             $116,336           $109,818
                                                 ========           ========
Quarterly average assets                         $149,686           $151,574
                                                 ========           ========


RATIOS:
Tier I capital to risk-adjusted assets               10.9%              11.4%
Tier II capital to risk-adjusted assets               0.9%               0.9%
Total capital to risk-adjusted assets                11.8%              12.3%
Leverage -- Tier I capital to quarterly
    average assets                                    8.5%               8.3%
</TABLE>

The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
established five capital categories for banks and bank holding companies. The
bank regulators adopted regulations defining these five capital categories in
September 1992. Under these new regulations each bank is classified into one of
the five categories based on its level of risk-based capital as measured by Tier
I capital, total risk-based capital, and Tier I leverage ratios and its
supervisory ratings. The following table lists the five categories of capital
and each of the minimum requirements for the three risk-based capital ratios.


<TABLE>
<CAPTION>
                                       Total Risk-Based      Tier I Risk-Based      Leverage
                                         Capital Ratio         Capital Ratio          Ratio
                                       ----------------      -----------------      --------
<S>                                     <C>                   <C>                <C>
Well-capitalized                          10% or above          6% or above        5% or above
Adequately capitalized                    8% or above           4% or above        4% or above
Undercapitalized                          Less than 8%          Less than 4%       Less than 4%
Significantly undercapitalized            Less than 6%          Less than 3%       Less than 3%
Critically undercapitalized                    --                    --             2% or less
</TABLE>

On March 31, 2003 and December 31, 2002, the Company exceeded the regulatory
minimums and qualified as a well-capitalized institution under the regulations.




                                       25
<PAGE>

SHORT-TERM BORROWINGS:

Short-term borrowings at March 31, 2003 and December 31, 2002 is comprised of
the following (tabular amounts are in thousands):

<TABLE>
<CAPTION>
                                                         March 31,   Dec. 31,
                                                           2003       2002
                                                         ---------   --------
<S>                                                      <C>         <C>
Securities sold under agreement to repurchase
(securities underlying the repurchase agreements -
obligations of U.S. Government agencies and
corporations with amortized cost of approximately
$2,967,000 and $2,958,000 at March 31, 2003 and
December 31, 2002, respectively, and estimated fair
values of $2,959,000 and $3,010,000
at March 31, 2003 and December 31, 2002, respectively)    $ 1,585    $ 1,900
                                                          =======    =======
</TABLE>

The Bank pays interest on these repurchase agreements at approximately 0.50%
below the federal funds rate. These repurchase agreements have maturities of one
day.

Securities sold under agreement to repurchase averaged approximately $1,899,000
during the quarter ended March 31, 2003 and $2,100,000 during the year ended
December 31, 2002 and the maximum amount outstanding at any month end during
these periods was approximately $1,910,000 and $2,475,000, respectively.

The securities underlying the repurchase agreements are held in safekeeping by a
separate third party bank.

PROPERTY ACQUISITIONS:

The Company has made no significant property acquisitions during the quarter
ending March 31, 2003 and does not anticipate any additional during the next
year.

PERSONNEL:

The Company employed sixty-one people at March 31, 2003 which was the same
number as of December 31, 2002. With the upcoming merger scheduled to occur in
the second quarter, no additional staff should be added.

RESEARCH AND DEVELOPMENT:

The Company does not engage in product research and development and does not
anticipate any such activities during the next twelve months.

FOREIGN TRANSACTIONS:

The Company and the Bank have not had any investment securities, loans or
deposits of foreign governments, corporations or other entities.

POTENTIAL SALE TRANSACTION:

On December 11, 2002, the Company and Bank entered into an "Agreement and Plan
of Merger" (Merger) with First South BanCorp, Inc. and FirstBank. As part of the
agreement, shareholders of the Company will receive $21.25 in cash for each
share of Company common stock. Outstanding stock options or subordinated
convertible capital debentures will be converted into common stock in accordance
with their applicable security terms as of the consummation date.

The merger is dependent on approval of various regulatory authorities and the
affirmative vote of the


                          26
<PAGE>



majority of the outstanding shares of common stock of the Company. On April 24,
2003, the shareholders of the Company approved the sale. As of the date of this
filing, all regulatory approvals had been received. The transaction is scheduled
on June 10, 2003.








                                       27
<PAGE>




PART II.  OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

None


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None


ITEM 3. DEFAULT ON SENIOR SECURITIES

None


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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Charter - incorporated by reference to Form 10SB filed April 30, 1998

By Laws - incorporated by reference to Form 10SB filed April 30, 1998

Instruments referring to Rights of Security Folders including Debentures -
incorporated by reference to Form 10SB filed April 30, 1998 and Form 8A filed
May 2, 2000

Material Contracts - incorporated by reference to Form 10SB filed April 30, 1998
and Form 10-KSB filed March 31, 1999

11. Statement re: Computation of per share earnings - Incorporated by reference
to note 1 of the consolidated financial statements as of December 31, 2002 in
Form 10-KSB filed March 31, 2003

99. Additional Exhibits

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.

On December 12, 2002, the Company filed a Current Report on Form 8-K to report
information for Item 1(b) and Item 7. The Company reported entering into the
Merger Agreement. The Merger Agreement, and a press release announcing the
execution of the Merger Agreement were filed as exhibits to the Form 8-K.






                                       28

<PAGE>




SIGNATURES



         In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.

                           Murfreesboro Bancorp, Inc.
--------------------------------------------------------------------------------
                                  (Registrant)


Date May 14, 2003
     ------------

By  /s/ William L. Webb
   ---------------------------------
    (Signature) *
    William L. Webb,
    Principal Accounting Officer and Chief Financial Officer

*   Print the name and title of each signing officer under his or her signature.









                                       30
<PAGE>





                                 CERTIFICATIONS


I,    William E. Rowland     , certify that:

1.        I have reviewed this quarterly report on Form 10-QSB of Murfreesboro
          Bancorp, Inc.;

2.        Based on my knowledge, this quarterly report does not contain any
          untrue statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this quarterly report;

3.        Based on my knowledge, the financial statements, and other financial
          information included in this quarterly report, fairly present in all
          material respects the financial condition, results of operations and
          cash flows of the registrant as of, and for, the periods presented in
          this quarterly report;

4.        The registrant's other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
          and have:

              a)   designed such disclosure controls and procedures to ensure
                   that material information relating to the registrant,
                   including its consolidated subsidiaries, is made known to us
                   by others within those entities, particularly during the
                   period in which this quarterly report is being prepared;

              b)   evaluated the effectiveness of the registrant's disclosure
                   controls and procedures as of a date within 90 days prior to
                   the filing of this quarterly report (the "Evaluation Date");
                   and

              c)   presented in this quarterly report our conclusions about the
                   effectiveness of the disclosure controls and procedures based
                   on our evaluation as of the Evaluation Date;

5.        The registrant's other certifying officer and I have disclosed, based
          on our most recent evaluation, to the registrant's auditors and the
          audit committee of registrant's board of directors (or persons
          performing the equivalent functions):

              a)   All significant deficiencies in the design or operation of
                   internal controls which could adversely affect the
                   registrant's ability to record, process, summarize and report
                   financial data and have identified for the registrant's
                   auditors any material weaknesses in internal controls; and

              b)   any fraud, whether or not material, that involves management
                   or other employees who have a significant role in the
                   registrant's internal controls; and

6.        The registrant's other certifying officer and I have indicated in this
          quarterly report whether or not there were significant changes in
          internal controls or in other factors that could significantly affect
          internal controls subsequent to the date of our most recent
          evaluation, including any corrective actions with regard to
          significant deficiencies and material weaknesses.

Date:  May 14, 2003                    /s/ William E. Rowland
      --------------                   ----------------------------------------

                                       William E. Rowland
                                       -----------------------------------------
                                       Chief Executive Officer



                                       31
<PAGE>



                                 CERTIFICATIONS


I,    William L. Webb           , certify that:

1.        I have reviewed this quarterly report on Form 10-QSB of Murfreesboro
          Bancorp, Inc.;

2.        Based on my knowledge, this quarterly report does not contain any
          untrue statement of a material fact or omit to state a material fact
          necessary to make the statements made, in light of the circumstances
          under which such statements were made, not misleading with respect to
          the period covered by this quarterly report;

3.        Based on my knowledge, the financial statements, and other financial
          information included in this quarterly report, fairly present in all
          material respects the financial condition, results of operations and
          cash flows of the registrant as of, and for, the periods presented in
          this quarterly report;

4.        The registrant's other certifying officer and I are responsible for
          establishing and maintaining disclosure controls and procedures (as
          defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
          and have:

              a)   designed such disclosure controls and procedures to ensure
                   that material information relating to the registrant,
                   including its consolidated subsidiaries, is made known to us
                   by others within those entities, particularly during the
                   period in which this quarterly report is being prepared;

              b)   evaluated the effectiveness of the registrant's disclosure
                   controls and procedures as of a date within 90 days prior to
                   the filing of this quarterly report (the "Evaluation Date");
                   and

              c)   presented in this quarterly report our conclusions about the
                   effectiveness of the disclosure controls and procedures based
                   on our evaluation as of the Evaluation Date;

5.        The registrant's other certifying officer and I have disclosed, based
          on our most recent evaluation, to the registrant's auditors and the
          audit committee of registrant's board of directors (or persons
          performing the equivalent functions):

              d)   All significant deficiencies in the design or operation of
                   internal controls which could adversely affect the
                   registrant's ability to record, process, summarize and report
                   financial data and have identified for the registrant's
                   auditors any material weaknesses in internal controls; and

              e)   any fraud, whether or not material, that involves management
                   or other employees who have a significant role in the
                   registrant's internal controls; and

6.        The registrant's other certifying officer and I have indicated in this
          quarterly report whether or not there were significant changes in
          internal controls or in other factors that could significantly affect
          internal controls subsequent to the date of our most recent
          evaluation, including any corrective actions with regard to
          significant deficiencies and material weaknesses.

Date:  May 14, 2003                          /s/ William L. Webb
      --------------                         -----------------------------------

                                             William L. Webb
                                             -----------------------------------
                                             Chief Financial Officer




                                       32