UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2012.

[ ] 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 0-10974

FIRST PULASKI NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

Tennessee                                            62-1110294

(State or other jurisdiction of                         (I.R.S Employer
      incorporation or organization)                       Identification No.)

206 South First Street, Pulaski, Tennessee             38478

(Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code: (931)-363-2585

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ]

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes [ ] No [ X ]

Indicate by checkmark 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ X ] No [ ]

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ X ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ ]

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [ X ]

The aggregate market value of shares of Common Stock, par value $1.00 per share, held by nonaffiliates of the Registrant as of June 30, 2012 was $59,283,399. The market value calculation assumes that all shares beneficially owned by members of the Board of Directors and executive officers of the Registrant are shares owned by "affiliates", a status which each of the directors and executive officers individually disclaims

. Given that there is no active trading market for the registrant's common stock, this calculation was made using $41 per share, the price at what the registrant's common stock was traded on June 22, 2012 the closest trade, of which the registrant has knowledge, to June 30, 2012.

Shares of Common Stock outstanding on February 28, 2013 were 1,523,765.

Documents Incorporated by Reference: None

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FIRST PULASKI NATIONAL CORPORATION

2012 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

Page

PART I

Item 1        Business
                            3

Item 1A        Risk Factors
                           12

Item 1B        Unresolved Staff Comments
                            18

Item 2        Properties
                            18

Item 3        Legal Proceedings
                           19

Item 4       Mine Safety Disclosures
                           19

PART II

Item 5

      Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

19

Item 6

      Selected Financial Data

20

Item 7

      Management's Discussion and Analysis of Financial Condition and Results of Operations

21

Item 7A

      Quantitative and Qualitative Disclosures About Market Risk

37

Item 8

      Financial Statements and Supplementary Data

39

Item 9

      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

79

Item 9A

      Controls and Procedures

79

Item 9B

      Other Information

79

PART III

Item 10

      Directors, Executive Officers and Corporate Governance

79

Item 11

      Executive Compensation

83

Item 12

      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

96

Item 13

      Certain Relationships and Related Transactions, and Director Independence

98

Item 14

      Principal Accounting Fees and Services

98

PART IV

Item 15

      Exhibits, Financial Statement Schedules

99

SIGNATURES

100

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PART I

ITEM 1. BUSINESS.

First Pulaski National Corporation, (the "Corporation" or the "registrant") is a financial corporation engaged in general commercial and retail banking business through its subsidiary bank, First National Bank of Pulaski ("First National" or the "Bank").

During the third quarter of 2001, First National's wholly-owned subsidiary, First Pulaski Reinsurance Company ("FPRC") received its insurance license. FPRC is engaged in the business of reinsuring credit insurance written by the Corporation's subsidiaries.

The Corporation was organized under the laws of the state of Tennessee in 1981 and its only significant asset is the common stock of First National, headquartered in Pulaski, Tennessee.

On November 8, 2012, the Company's shareholders approved a charter amendment authorizing Class A stock and to reclassify shareholders with 200 or fewer common shares to Class A shares on a 1 to 1 basis. The amendment to reclassify these shares of common stock was effective November 9, 2012. As a result of the reclassification transaction, there were fewer than 1,200 shareholders of record of the Company's common stock, which allowed the Company to terminate the registration of its common stock under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). On November 9, 2012, the Company filed a Form 15 with the SEC to provide notice of termination of registration of the Company's common stock under Section 12(g) of the Exchange Act.

The Corporation, through its subsidiaries, offers a diversified range of financial services to its customers. These include activities related to general banking business with complete services in the commercial, corporate and retail banking fields.

The Bank offers a wide range of banking services, including checking, savings, and money market deposit accounts, certificates of deposit and loans for consumer, commercial and real estate purposes. The Bank does not have a concentration of deposits obtained from a single person or entity or a small group of persons or entities, the loss of which would have a material adverse effect on the business of the Bank.

The Corporation owns all of the common stock of the Bank. At December 31, 2012, the Corporation and its subsidiaries had combined total assets of $681,611,592.

The Corporation derives its primary source of funds from deposits acquired through the Bank. The Bank is the largest financial institution in Giles County, Tennessee, measured by county deposits at June 30, 2012. It has two branches in Lincoln County, Tennessee, where it is also the largest financial institution, measured by county deposits. The Bank is the fifth largest financial institution in Marshall County, Tennessee, the fourth largest financial institution in Limestone County, Alabama, and the twenty-third largest financial institution in Madison County, Alabama, measured by county deposits.

At December 31, 2012, the Bank had long-term indebtedness of approximately $6.19 million in the form of advances payable to the Federal Home Loan Bank of Cincinnati. Note 9 to the Corporation's Consolidated Financial Statements includes a detailed analysis of this debt.

As of February 28, 2013, First National had 177 employees, 15 of whom were part-time

. The Corporation has no employees other than those employed by First National and its subsidiaries.

COMPETITION

First National operates principally in three counties in Tennessee, Giles County, Lincoln County, and Marshall County, and two counties in Alabama, Limestone County and Madison County. The following discussion of market areas contains the most recent information available from reports filed with the FDIC and the Office of Thrift Supervision.

Giles County, Tennessee
. First National competes in Giles County with five (5) commercial banking organizations. Four (4) of the five (5) commercial banking competitors are small community banking organizations. The other commercial banking competitor is owned by a large regional bank holding company. From June 30, 2010 to June 30, 2012, total deposits for all commercial banks in the Giles County market increased 5.7% from $595.8 million to $629.8 million. First National has five

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(5) offices in Giles County, and approximately 51% of its deposits are located there. As of June 30, 2012, First National had the largest market share of banks in Giles County with a 47.5% share of the bank deposits.

Giles County is located in southern Middle Tennessee, approximately 70 miles from Nashville, Tennessee. Pulaski is the largest city in Giles County. Giles County had an estimated population of 29,387 in 2011 and an estimated median household income of $39,916 in 2011, the latest available data.

Lincoln County, Tennessee.
First National competes in Lincoln County with six (6) commercial banking organizations. Two (2) of the commercial banking competitors are owned by regional or national multi-bank holding companies. The other four (4) commercial banking competitors are small community banking organizations. From June 30, 2010 to June 30, 2012, total deposits for all commercial banks in Lincoln County decreased 3.0% from $508.5 million to $493.1 million. First National has two (2) branch offices located in this market, and approximately 24% of its deposits are located there. As of June 30, 2012, First National had a 28.9% share of the Lincoln County bank deposit market, the largest market share in the county.

Lincoln County is also located in southern Middle Tennessee, approximately 80 miles from Nashville, Tennessee. The largest city in Lincoln County is Fayetteville. Lincoln County had an estimated population of 33,431 in 2011, and an estimated median household income of $39,246 in 2011, the latest available data.

Marshall County, Tennessee.
First National competes in Marshall County with five (5) commercial banking organizations. Four (4) of the five (5) commercial banking competitors are small community banking organizations. The other commercial banking competitor is owned by a national bank holding company. From June 30, 2010 to June 30, 2012, total deposits for all commercial banks in the Marshall County market decreased 0.5% from $427.1 million to $425.0 million. First National has two (2) offices in Marshall County and approximately 6% of its deposits are located there. As of June 30, 2012, First National had the fifth largest market share of banks in Marshall County with a 8.1% share of the bank deposits.

Marshall County is located in southern Middle Tennessee, approximately 50 miles from Nashville, Tennessee. Lewisburg is the largest city in Marshall County. Marshall County had an estimated population of 30,881 in 2011 and an estimated median household income of $40,214 in 2011, the latest available data.

Madison County, Alabama
. In January 2008, the Bank opened a branch in a leased facility in Huntsville, located in Madison County, Alabama. Madison County, Alabama is the first urban market in which the Bank opened a branch and the first branch located outside the state of Tennessee. Madison County had an estimated population of 340,111 in 2011 and an estimated median household income of $55,298 in 2011, the latest available data. First National has one (1) office in Madison County and competes with twenty-three (23) commercial banking organizations in the county. Approximately 2% of the Bank's deposits are located there. As of June 30, 2012, First National had the twenty-second largest market share of banks in Madison County with a 0.16% share of the bank deposits. Total deposits for all commercial banks in the Madison County market was $5.919 billion as of June 30, 2012.

Limestone County, Alabama
. In April 2008, the Bank opened a branch in Athens, located in Limestone County, Alabama. Limestone County had a population of 85,369 in 2011 and an estimated median household income of $46,760 in 2011, the latest available data. First National has one (1) office in Limestone County and competes with seven (7) commercial banking organizations in the county. Approximately 17% of the Bank's deposits are located there. As of June 30, 2012, First National had the third largest market share of banks in Limestone County with a 14.2% share of the bank deposits. Total deposits for all commercial banks in the Limestone County market was $687.8 million as of June 30, 2012.

The Bank has substantial competition in attracting and retaining deposits and in lending funds. The primary factors in competing for deposits are the range and quality of financial services offered, the ability to offer attractive rates and availability of convenient office locations as well as convenient on-line banking capabilities. Direct competition for deposits comes from other commercial banks (as well as from credit unions and savings institutions in neighboring counties). Additional significant competition for savings deposits may come from other investment alternatives, such as money market mutual funds and corporate and government securities. The primary factors in competing for loans are the range and quality of the lending services offered, interest rates and loan origination fees. Competition for the origination of loans normally comes from other savings and financial institutions, commercial banks, credit unions, insurance companies and other financial service companies. The Corporation believes that its strategy in relationship banking and local autonomy in the communities it serves allows flexibility in rates and products offered in response to local needs. The Corporation believes this is its most effective method of competing with both the larger regional bank holding companies and the smaller community banks.

The Corporation does not maintain an internet website. As such, the Corporation does not make available on a website free of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports. The Corporation will, however, provide paper copies of such filings free of charge upon request. To request any of

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these documents please write to First Pulaski National Corporation, Attention: Corporate Secretary, 206 South First Street, Pulaski, Tennessee 38478.

SUPERVISION AND REGULATION

Both the Corporation and First National are subject to extensive state and federal banking laws and regulations that impose restrictions on and provide for general regulatory oversight of the Corporation's and First National's operations. These laws and regulations are generally intended to protect depositors and borrowers, not shareholders. The following summary of applicable statutes and regulations does not purport to be complete and is qualified in its entirety by reference to such statutes and regulations.

The Dodd-Frank Wall Street Reform and Consumer Protection Act.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was signed into law, incorporating numerous financial institution regulatory reforms. Many of these reforms were implemented over the course of 2011 and 2012 through regulations adopted by various federal banking and securities regulatory agencies, while others are expected to be implemented during 2013 and beyond. The following discussion describes the material elements of the regulatory framework that currently apply. The Dodd-Frank Act implements far-reaching reforms of major elements of the financial landscape, particularly for larger financial institutions. Many of its most far-reaching provisions do not directly impact community-based institutions like the Corporation. For instance, provisions that regulate derivative transactions and limit derivatives trading activity of federally-insured institutions, enhance supervision of "systemically significant" institutions, impose new regulatory authority over hedge funds, limit proprietary trading by banks, and phase-out the eligibility of trust preferred securities for Tier 1 capital are among the provisions that do not directly impact the Corporation either because of exemptions for institutions below a certain asset size or because of the nature of the Corporation's operations. Other provisions that have either been adopted or are expected to be adopted have impacted and will continue to impact the Corporation include:

Changing the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital, eliminating the ceiling and increasing the size of the floor of the Deposit Insurance Fund, and offsetting the impact of the increase in the minimum floor on institutions with less than $10 billion in assets.

Making permanent the $250,000 limit for federal deposit insurance, increasing the cash limit of Securities Investor Protection Corporation protection to $250,000 and providing unlimited federal deposit insurance until December 31, 2012 for non-interest-bearing demand transaction accounts at all insured depository institutions.

Repealing the federal prohibition on payment of interest on demand deposits, thereby permitting depositing institutions to pay interest on business transaction and other accounts.

Centralizing responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau, responsible for implementing federal consumer protection laws, although banks below $10 billion in assets will continue to be examined and supervised for compliance with these laws by their federal bank regulator.

Restricting the preemption of state law by federal law and disallowing national bank subsidiaries from availing themselves of such preemption.

Imposing new requirements for mortgage lending, including new minimum underwriting standards, prohibitions on certain yield-spread compensation to mortgage originators, special consumer protections for mortgage loans that do not meet certain provision qualifications, prohibitions and limitations on certain mortgage terms and various new mandated disclosures to mortgage borrowers.

Applying the same leverage and risk based capital requirements that apply to insured depository institutions to holding companies.

Permitting national and state banks to establish de novo interstate branches at any location where a bank based in that state could establish a branch, and requiring that bank holding companies and banks be well-capitalized and well managed in order to acquire banks located outside their home state.

Imposing new limits on affiliated transactions and causing derivative transactions to be subject to lending limits.

Implementing certain corporate governance revisions that apply to all public companies.

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As described above, many aspects of the Dodd-Frank Act remain to be implemented and will take effect over several years, and their impact on the Corporation or the financial industry is difficult to predict before such regulations are adopted.

First Pulaski National Corporation

The Corporation is a bank holding company under the federal Bank Holding Company Act of 1956. As a result, it is subject to the supervision, examination and reporting requirements of the Bank Holding Company Act and the regulations of the Federal Reserve.

Acquisition of Banks.
The Bank Holding Company Act requires every bank holding company to obtain the Federal Reserve's prior approval before:

Acquiring direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control more than 5% of the bank's voting shares;

Acquiring all or substantially all of the assets of any bank; or

Merging or consolidating with any other bank holding company.

Additionally, the Bank Holding Company Act provides that the Federal Reserve may not approve any of these transactions if it would substantially lessen competition or otherwise function as a restraint of trade, or result in or tend to create a monopoly, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the communities to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned; the effectiveness of the company in combating money laundering; the convenience and needs of the communities to be served; and the extent to which the proposal would result in greater or more concentrated risk to the United States banking or financial system.

Under the Bank Holding Company Act, as amended by the Dodd-Frank Act, if well capitalized and well managed, the Corporation or any other bank holding company located in Tennessee may purchase a bank located outside of Tennessee. Conversely, a well capitalized and well managed bank holding company located outside of Tennessee may purchase a bank located inside Tennessee. In each case, however, state law restrictions may be placed on the acquisition of a bank that has only been in existence for a limited amount of time or will result in specified concentrations of deposits. For example, Tennessee law currently prohibits a bank holding company from acquiring control of a Tennessee-based financial institution until the target financial institution has been in operation for three years

Change in Bank Control.
Subject to various exceptions, the Bank Holding Company Act and the Federal Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring "control" of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control is rebuttably presumed to exist if a person or company acquires 10% or more, but less than 25%, of any class of voting securities and either:

The bank holding company has registered securities under Section 12 of the Securities Exchange Act of 1934; or
No other person owns a greater percentage of that class of voting securities immediately after the transaction.

The regulations provide a procedure for challenge of the rebuttable control presumption.

Permitted Activities
. Under the Bank Holding Company Act, a bank holding company, which has not qualified or elected to become a financial holding company, is generally prohibited from engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in nonbanking activities unless, prior to the enactment of the Gramm-Leach-Bliley Act, the Federal Reserve found those activities to be so closely related to banking as to be a proper incident to the business of banking. Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include: (i) factoring accounts receivable; (ii) acquiring or servicing loans; (iii) leasing personal property; (iv) conducting discount securities brokerage activities; (v) performing selected data processing services; (vi) acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and (vii) performing selected insurance underwriting activities.

Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank

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holding company's continued ownership, activity or control constitutes a serious risk to the financial safety, soundness, or stability of any of its bank subsidiaries.

Support of Subsidiary Institutions
. Under the Dodd-Frank Act, and previously under Federal Reserve policy, the Corporation is expected to act as a source of financial strength for First National and to commit resources to support First National. This support may be required at times when it would not be in the best interests of the Corporation's shareholders and creditors to provide it. If First National's capital levels were to fall below minimum regulatory guidelines under the FDIC's prompt corrective action regulations, First National would need to develop a capital plan to increase its capital levels and the Corporation would be required to guarantee First National's compliance with the capital plan in order for such plan to be accepted by the federal regulatory authority. In the unlikely event of the Corporation's bankruptcy, any commitment by it to a federal bank regulatory agency to maintain the capital of First National would be assumed by the bankruptcy trustee and entitled to a priority of payment.

First National

First National is a national bank chartered under the federal National Bank Act. As a result, it is subject to the supervision, examination and reporting requirements of the federal National Bank Act and the regulations of the Office of the Comptroller of the Currency (the "OCC"). The OCC regularly examines First National's operations and has the authority to approve or disapprove mergers, the establishment of branches and similar corporate actions. The OCC also has the power, in connection with its examinations, to identify matters necessary to improve a bank's operations in accordance with principles of safety and soundness. Any matters identified in such examinations are required to be appropriately addressed by the bank. Additionally, First National's deposits are insured by the FDIC to the maximum extent provided by law. First National also is subject to numerous state and federal statutes and regulations that will affect its business, activities and operations.

Branching.
While the OCC has authority to approve branch applications, national banks are required by the federal National Bank Act to adhere to branching laws applicable to state-chartered banks in the states in which they are located. With prior regulatory approval, Tennessee law permits banks based in the state to either establish new or acquire existing branch offices throughout Tennessee. As a result of the Dodd-Frank Act, First National and any other national or state-chartered bank generally may branch across state lines to the same extent as banks chartered in the state of the branch if allowed by the applicable states' laws. Tennessee law, with limited exceptions, currently permits branching across state lines either through interstate merger or branch acquisition. Tennessee, however, only permits an out-of-state bank, short of an interstate merger, to branch into Tennessee through branch acquisition if the state of the out-of-state bank permits Tennessee-based banks to acquire branches there.

FDIC Insurance.
The FDIC has adopted a risk-based assessment system for insured depository institutions that takes into account the risks attributable to different categories and concentrations of assets and liabilities. Under the Dodd-Frank Act, the FDIC has adopted regulations that base deposit insurance assessments on total assets less capital rather than deposit liabilities and include off-balance sheet liabilities of institutions and their affiliates in risk-based assessments.

The Dodd-Frank Act increased the basic limit on federal deposit insurance coverage to $250,000 per depositor. In addition, non-interest bearing deposit transaction accounts had unlimited FDIC insurance coverage until December 31, 2012. The Dodd-Frank Act also repealed the prohibition on paying interest on demand transaction accounts, but did not extend unlimited insurance protection for these accounts.

The FDIC may terminate its insurance of deposits if it finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

Capital Adequacy

The Corporation and First National are required to comply with the capital adequacy standards established by the Federal Reserve, in the Corporation's case, and the OCC, in the case of First National. The Federal Reserve has established a risk-based and a leverage measure of capital adequacy for bank holding companies. First National is also subject to risk-based and leverage capital requirements adopted by the OCC, which are substantially similar to those adopted by the Federal Reserve for bank holding companies. In addition, the OCC may require national banks to maintain capital at levels higher than those required by general regulatory requirements.

The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance-sheet exposure and to minimize disincentives for holding liquid assets. Assets and off-balance-sheet items, such as letters of credit and unfunded loan commitments, are

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assigned to broad risk categories, each with appropriate risk weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items.

Under Federal Reserve guidelines, the minimum ratio of total capital to risk-weighted assets is 8%. Total capital consists of two components, Tier 1 capital and Tier 2 capital. Tier 1 capital generally consists of common stock, minority interests in the equity accounts of consolidated subsidiaries, noncumulative perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock, less goodwill and other specified intangible assets. Under Federal Reserve guidelines, Tier 1 capital must equal at least 4% of risk-weighted assets. Tier 2 capital generally consists of subordinated debt, other preferred stock, and a limited amount of loan loss reserves. The total amount of Tier 2 capital is limited to 100% of Tier 1 capital. For a holding company to be considered "well-capitalized," it must maintain a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 6% and not be subject to a written agreement, order or directive to maintain a specific capital level.

In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide that a minimum ratio of Tier 1 capital to average assets, less goodwill and other specified intangible assets, of at least 4% should be maintained for most bank holding companies. The guidelines also provide that bank holding companies experiencing high internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels. Furthermore, the Federal Reserve has indicated that it will consider a bank holding company's Tier 1 capital leverage ratio, after deducting all intangibles, and other indicators of capital strength in evaluating proposals for expansion or new activities.

In late 2010, the Basel Committee on Banking Supervision issued "Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems" (Basel III), a new capital framework for banks and bank holding companies. Basel III will impose a stricter definition of capital, with more focus on common equity for those banks to which it is applicable. On June 6, 2012, the federal bank regulatory agencies, including the Federal Reserve and the OCC, issued a series of proposed rules that would revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel III Committee and certain provisions of the Dodd-Frank Act. The proposed rules would apply to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more, and top-tier savings and loan holding companies ("banking organizations"). Among other things, the proposed rules establish a new common equity tier 1 minimum capital requirement of 4.5% and a minimum tier 1 capital requirement of 6% (up from the currently required 4%) and assign higher risk weightings (150%) to exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property. The proposed rules also required unrealized gains and losses on certain securities holdings to be included for purposes of calculating regulatory capital requirements. In addition, the proposed rules would phase out trust preferred securities as tier 1 capital over a period of years. The proposed rules limit a banking organization's capital distributions and certain discretionary bonus payments as well as a banking organization's ability to repurchase its own shares if the banking organization does not hold a "capital conservation buffer" consisting of an additional 2.5% of common equity tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements. As a result, when fully phased in, the capital requirements would be a tier 1 leverage ratio of 4%, a tier 1 common risk-based equity capital ratio of 7%, a tier 1 equity risk-based capital ratio of 8.5% and a total risk-based capital ratio of 10.5%. The proposed rules indicated that the final rule would become effective on January 1, 2013, and the changes set forth in the final rules would be phased in from January 1, 2013 through January 1, 2019. However, the federal bank regulatory agencies indicated in December 2012 that, due to the substantial volume of public comments received, the final rule would not be in effect on January 1, 2013 and the agencies have not yet announced a new effective date for the rules. Accordingly, it is difficult at this time to predict when or how any new standards will ultimately be applied to the Corporation or the Bank.

The Federal Reserve has adopted regulations applicable to bank holding companies with assets over $50 billion that require such holding companies to develop and submit to the Federal Reserve annually capital plans demonstrating the company's ability to meet, under various stressed economic conditions and over a nine-quarter planning horizon, the above-described minimum leverage capital, Tier 1 risk based capital and total risk based capital requirements, as well as a minimum Tier 1 common capital ratio (Tier 1 risk based capital less preferred stock and trust preferred securities) of at least 5%.

The OCC has adopted regulations requiring national banks to meet minimum ratios for leverage capital to assets and total capital to risk-based assets. The minimum leverage capital ratio is generally 4% and the minimum total risk based capital ratio is 8%. The OCC can require individual banks to maintain higher minimum ratios.

Failure to meet statutorily mandated capital guidelines or more restrictive ratios separately established for a financial institution could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting or renewing brokered deposits, limitations on the rates of interest that the institution may pay on its deposits and other restrictions on its business. As described above,

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significant additional restrictions can be imposed on FDIC-insured depository institutions that fail to meet applicable capital requirements. For a more detailed discussion of capital requirements and the Corporation's and the Bank's capital levels see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources, Capital and Dividends" and Note 15 to the Notes to Consolidated Financial Statements.

Prompt Corrective Action

The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a system of prompt corrective action to resolve the problems of undercapitalized financial institutions. Under this system, the federal banking regulators have established five capital categories (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) into one of which all institutions are placed.

Under OCC regulations, a national bank is "well capitalized" if it has a leverage capital ratio of 5% or better, a Tier 1 risk-based capital ratio of 6% or better, a total risk based capital ratio of 10% or better, and is not subject to a regulatory agreement, order or directive to maintain a specific level for any capital measure. A national bank is considered "adequately capitalized" if it has a leverage ratio of at least 4%, a Tier 1 risk-based capital ratio of at least 4%, a total risk-based capital ratio of at least 8% and does not meet the definition of a well-capitalized bank. Lower levels of capital result in a bank being considered undercapitalized, significantly undercapitalized and critically undercapitalized.

National banks are required to be 'well capitalized" in order to take advantage of expedited procedures on certain applications, such as branches and mergers, and to accept and renew brokered deposits without further regulatory approval.

Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized. The federal banking agencies have specified by regulation the relevant capital level for each category.

An institution that is categorized as undercapitalized, significantly undercapitalized or critically undercapitalized is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. A bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to various limitations. The controlling holding company's obligation to fund a capital restoration plan is limited to the lesser of 5% of an undercapitalized subsidiary's assets or the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC approval. The regulations also establish procedures for downgrading an institution and a lower capital category based on supervisory factors other than capital. As of December 31, 2012, First National met the conditions necessary to be considered "well capitalized" by its primary regulator.

The Dodd-Frank Act contains a number of provisions dealing with capital adequacy of insured depository institutions and their holding companies, and for the most part will result in insured depository institutions and their holding companies being subject to more stringent capital requirements. Under the so-called Collins Amendment to the Dodd-Frank Act, federal regulators have established minimum leverage and risk-based capital requirements for, among other entities, banks and bank holding companies on a consolidated basis. These minimum requirements require that a bank holding company maintain a Tier 1 risk-based capital ratio of not less than 4% and a total risk-based capital ratio of not less than 8%. The Collins Amendment also excludes trust preferred securities issued after May 19, 2010 from being included in Tier 1 capital unless the issuing company is a bank holding company with less than $500 million in total assets. Trust preferred securities issued prior to that date will continue to count as Tier 1 capital for bank holding companies with less than $15 billion in total assets, and such securities will be phased out of Tier 1 capital treatment for bank holding companies with over $15 billion in total assets over a three-year period beginning in 2013. The proposed regulations that seek to implement Basel III would require that trust preferred securities no longer be allowed to count as capital, with the elimination being phased in over 10 years.

Payment of Dividends

The Corporation is a legal entity separate and distinct from First National. The principal sources of the Corporation's cash flow, including cash flow to pay dividends to its shareholders, are dividends that First National pays to it as its sole shareholder. Statutory and regulatory limitations apply to First National's payment of dividends to the Corporation as well as to the Corporation's payment of dividends to its shareholders.

Under Tennessee law, the Corporation is not permitted to pay dividends if, after giving effect to such payment, it would not be able to pay its debts as they become due in the usual course of business or its total assets would be less than the sum of its total

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liabilities plus any amounts needed to satisfy any preferential rights if the Corporation were dissolving. In addition, in deciding whether or not to declare a dividend of any particular size, the Corporation's board of directors must consider the Corporation's and First National's current and prospective capital, liquidity, and other needs.

Statutory and regulatory limitations also apply to First National's payment of dividends to the Corporation. First National is required by federal law to obtain the prior approval of the OCC for payments of dividends if the total of all dividends declared by its board of directors in any year will exceed (1) the total of First National's net profits for that year, plus (2) First National's retained net profits of the preceding two years, less any required transfers to surplus. During 2013, the Bank could, without seeking prior regulatory approval, declare dividends of approximately $9,376,000 plus any 2013 net profits retained to the date of the dividend declaration.

The payment of dividends by the Corporation and First National may also be affected by other factors, such as the requirement to maintain adequate capital above regulatory guidelines or more restrictive requirements imposed on the Corporation or First National by regulators or themselves. If, in the opinion of the OCC, First National was engaged in or about to engage in an unsafe or unsound practice, the OCC could require, after notice and a hearing, that First National stop or refrain from engaging in the practice. The federal banking agencies have indicated that paying dividends that deplete a depository institution's capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. See "Prompt Corrective Action" above.

Restrictions on Transactions with Affiliates

Both the Corporation and First National are subject to the provisions of Section 23A of the Federal Reserve Act. Section 23A places limits on the amount of:

A bank's loans or extensions of credit, including purchases of assets subject to an agreement to repurchase, to affiliates;

A bank's investment in affiliates;

Assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve;

The amount of loans or extensions of credit to third parties collateralized by the securities or obligations of affiliates;

Transactions involving the borrowing or lending of securities and any derivative transaction that results in credit exposure to an affiliate; and

A bank's guarantee, acceptance or letter of credit issued on behalf of an affiliate.

The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank's capital and surplus and, as to all affiliates combined, to 20% of a bank's capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements. First National must also comply with other provisions designed to avoid the taking of low-quality assets.

The Corporation and First National are also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibits an institution from engaging in the above transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

First National is also subject to restrictions on extensions of credit to its executive officers, directors, principal shareholders and their related interests. These extensions of credit (1) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, and (2) must not involve more than the normal risk of repayment or present other unfavorable features.

Community Reinvestment

The Community Reinvestment Act requires that, in connection with examinations of financial institutions within their respective jurisdictions, the Federal Reserve, the OCC or the FDIC shall evaluate the record of each financial institution in

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meeting the credit needs of its local community, including low- and moderate-income neighborhoods. These facts are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to adequately meet these criteria could impose additional requirements and limitations on First National. Additionally, banks are required to publicly disclose the terms of various Community Reinvestment Act-related agreements. First National has received a "satisfactory" CRA rating from the OCC on its most recent examination.

Privacy

Under the Gramm-Leach-Bliley Act, financial institutions are required to disclose their policies for collecting and protecting confidential information. Customers generally may prevent financial institutions from sharing personal financial information with nonaffiliated third parties except for third parties that market the institutions' own products and services. Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing through electronic mail to consumers. First National has established a privacy policy to ensure compliance with federal requirements.

Other Consumer Laws and Regulations

Interest and other charges collected or contracted for by First National are subject to state usury laws and federal laws concerning interest rates. For example, under the Soldiers' and Sailors' Civil Relief Act of 1940, a lender is generally prohibited from charging an annual interest rate in excess of 6% on any obligations for which the borrower is a person on active duty with the United States military. First National's loan operations are also subject to federal laws applicable to credit transactions, such as the:

Federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;

Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

Bank Secrecy Act, governing how banks and other firms report certain currency transactions and maintain appropriate safeguards against "money laundering" activities;

Soldiers' and Sailors' Civil Relief Act of 1940, governing the repayment terms of, and property rights underlying, secured obligations of persons in active military service; and

Rules and regulations of the various federal agencies charged with the responsibility of implementing the federal laws.

First National's deposit operations are subject to the:

Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and

Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities (including with respect to the permissibility of overdraft charges) arising from the use of automated teller machines and other electronic banking services.

Anti-Terrorism Legislation

On October 26, 2001, the President of the United States signed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001. Under the USA PATRIOT Act, financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as

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enhanced due diligence and "know your customer" standards in their dealings with foreign financial institutions and foreign customers.

In addition, the USA PATRIOT Act authorizes the U.S. Secretary of the Treasury to adopt rules increasing the cooperation and information sharing between financial institutions, regulators, and law enforcement authorities regarding individuals, entities and organizations engaged in, or reasonably suspected based on credible evidence of engaging in, terrorist acts or money laundering activities. Any financial institution complying with these rules will not be deemed to have violated the privacy provisions of the Gramm-Leach-Bliley Act, as discussed above. First National currently has policies and procedures in place designed to comply with the USA PATRIOT Act.

Recent and Proposed Legislation and Regulatory Action

New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive relationships of the nation's financial institutions. In 2010, the U.S. Congress passed the Dodd-Frank Act, which includes significant consumer protection provisions related, among other things, to residential mortgage loans that have increased the Corporation's regulatory compliance costs. The Corporation expects that the Dodd-Frank Act will continue to have a negative impact on its earnings through fee reductions, higher costs and new restrictions, as well as reductions to available capital. The ultimate impact of the Dodd-Frank Act on the Corporation's businesses and results of operations will depend on regulatory interpretation and rulemaking, as well as the success of any of the Corporation's actions to mitigate the negative earnings impact of certain provisions. The Corporation cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which its business may be affected by any new regulation or statute. With the enactment of the Dodd-Frank Act and the significant amount of regulations that are to come from the passage of that legislation, the nature and extent of the future legislative and regulatory changes affecting financial institutions and the resulting impact on those institutions is very unpredictable at this time. The Dodd-Frank Act, in particular, required that a significant number of new regulations be adopted by various financial regulatory agencies over 2011 and 2012.

Effect of Governmental Monetary Policies

The Corporation's earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve's monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through the Federal Reserve's statutory power to implement national monetary policy in order to, among other things, curb inflation or combat a recession. The Federal Reserve, through its monetary and fiscal policies, affects the levels of bank loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject. The Corporation cannot predict the nature or impact of future changes in monetary and fiscal policies.

ITEM 1A. RISK FACTORS.

Investing in our common stock involves various risks which are particular to our corporation, our industry and our market area. Several risk factors regarding investing in our common stock are discussed below. This listing should not be considered as all-inclusive. If any of the following risks were to occur, we may not be able to conduct our business as currently planned and our financial condition or operating results could be materially negatively impacted. These matters could cause the trading price of our common stock to decline in future periods.
Negative developments in the U.S. and local economy and in local real estate markets have adversely impacted the Corporation's results and may continue to adversely impact the Corporation's results in the future.

Economic conditions in the markets in which the Corporation operates deteriorated significantly between early 2008 and the middle of 2010. As a result, the Corporation has experienced a significant reduction in its earnings when compared to historical levels. These challenges result principally from provisions for loan losses related to declining collateral values in the Corporation's real estate construction and development loan portfolio and expenses associated with the maintenance, valuation and sales of other real estate owned. Although economic conditions began to stabilize in the Corporation's markets in the second half of 2010 and through 2011 and 2012, management of the Corporation believes that it will continue to experience a somewhat, albeit less, challenging economic environment in 2013. Accordingly, management expects that its results of operations may continue to be negatively impacted by economic conditions in 2013. There can be no assurance that the economic conditions that have adversely affected the financial services industry, and the capital, credit and real estate markets, generally, or the Corporation in particular, will improve materially, or at all, in the near future, or thereafter, in which case the Corporation could continue to experience reduced earnings and write-downs of assets, and could face capital and liquidity constraints or other business challenges.

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The Corporation could sustain losses if its asset quality declines.

The Corporation's earnings are significantly affected by its ability to properly originate, underwrite and service loans. The Corporation could sustain losses if it incorrectly assesses the creditworthiness of its borrowers or fails to detect or respond to deterioration in asset quality in a timely manner. Problems with asset quality could cause the Corporation's interest income and net interest margin to decrease and its provisions for loan losses to increase, which could adversely affect its results of operations and financial condition. Further increases to non-performing loans would reduce net interest income below levels that would exist if those loans were performing.

An inadequate allowance for loan losses would reduce the Corporation's earnings.

The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan. Management maintains an allowance for loan losses based upon, among other things, historical experience, internal loan classifications, trends in classifications, an evaluation of national and local economic conditions and volumes and trends in delinquencies, nonaccruals and charge-offs, loss experience of various loan categories and loan portfolio quality. Based upon such factors, management makes various assumptions and judgments about the ultimate collectability of the loan portfolio and provides an allowance for loan losses based upon a percentage of the outstanding balances and takes a charge against earnings with respect to specific loans when their ultimate collectability is considered questionable. If management's assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb losses, or if the bank regulatory authorities require First National to increase the allowance for loan losses as a part of their examination process, First National's and the Corporation's earnings and capital could be significantly and adversely affected. In addition, federal regulators periodically review First National's loan portfolio and may require it to increase its allowance for loan losses or recognize loan charge-offs. Their conclusions about the quality of a particular borrower or First National's entire loan portfolio may be different than the conclusions reached by First National. Any increase in First National's allowance for loan losses or loan charge-offs as required by these regulatory agencies could have a negative effect on the Corporation's operating results. Moreover, additions to the allowance may be necessary based on changes in economic and real estate market conditions, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of First National's management's control. These additions may require increased provision expense which would negatively impact the Corporation's results of operations.

Currently proposed changes to capital requirements for bank holding companies and depository institutions may negatively impact the Corporation's and the Bank's results of operations.

On June 7, 2012, the Federal Reserve, FDIC and OCC approved proposed rules that would substantially amend the regulatory risk-based capital rules applicable to the Corporation and the Bank. The proposed rules implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.

Various provisions of the Dodd-Frank Act increase the capital requirements of bank holding companies, such as the Corporation. The leverage and risk-based capital ratios of these entities may not be lower than the leverage and risk-based capital ratios for insured depository institutions. The proposed rules that seek to implement the Basel III regulatory capital reforms include new minimum risk-based capital and leverage ratios, which were initially expected to be phased in during 2013 and 2014. These rules if implemented would refine the definition of what constitutes "capital" for purposes of calculating those ratios. The proposed new minimum capital level requirements applicable to the Corporation and the Bank under the proposals would be: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 risk-based capital ratio of 6% (increased from 4%); (iii) a total risk-based capital ratio of 8% (unchanged from current rules); and (iv) a Tier 1 leverage ratio of 4% for all institutions. The proposed rules would also establish a "capital conservation buffer" of 2.5% above the new regulatory minimum capital ratios, and would result in the following minimum ratios: (i) a common equity Tier 1 risk-based capital ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%. As currently proposed, the capital conservation buffer requirement would be phased in beginning in January 2016 at 0.625% of risk-weighted assets and would increase each year until fully implemented in January 2019. An institution would be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital levels fall below the buffer amounts. These limitations would establish a maximum percentage of eligible retained income that could be utilized for such actions. While the proposed Basel III changes and other regulatory capital requirements will likely result in generally higher regulatory capital standards, it is difficult at this time to predict when or how any new standards will ultimately be applied to the Corporation or the Bank as the federal regulatory agencies that have proposed the rules have announced that they are indefinitely delaying the implementation of the rules.

The application of more stringent capital requirements for the Corporation and the Bank, like those proposed to implement the Basel III reforms, could, among other things, result in lower returns on invested capital, require the raising of additional capital,

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and result in regulatory actions if the Corporation or the Bank were to be unable to comply with such requirements. Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in the Corporation or the Bank having to lengthen the term of its funding, restructure its business models and/or increase its holdings of liquid assets. Implementation of changes to asset risk weightings for risk based capital calculations, items included or deducted in calculating regulatory capital and/or additional capital conservation buffers could result in management modifying its business strategy and could limit the Corporation's and the Bank's ability to make distributions, including paying dividends or buying back shares.

The December 31, 2012 expiration of the FDIC's Transaction Account Guarantee Program could negatively impact the Bank's liquidity and cost of funds.

Under the FDIC's Transaction Account Guarantee Program, certain non-interest bearing transaction accounts, including those of consumers and businesses, were insured by the FDIC even if their balances were over and above the customary $250,000 limit. This program expired on December 31, 2012, and deposits held in such non-interest bearing accounts are now aggregated with any interest bearing deposits the owner may hold in the same ownership category. The Bank currently has a significant amount of its deposits that exceed the customary $250,000 limit. Although the Bank has not experienced a large number of withdrawals with respect to these deposits, a withdrawal of these deposits could negatively impact the Bank's liquidity. Furthermore, the withdrawal of these deposits could negatively impact the Bank's cost of funds by potentially reducing its levels of core deposits and increasing its need to rely on more expensive funding sources.

Liquidity needs could adversely affect the Corporation's results of operations and financial condition.

The Corporation relies on dividends from First National as its primary source of funds. The primary sources of First National's funds are customer deposits and loan repayments. While scheduled loan repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans. The ability of borrowers to repay loans can be adversely affected by a number of factors, including changes in economic conditions, adverse trends or events affecting business industry groups, reductions in real estate values or markets, business closings or lay-offs, inclement weather, natural disasters and international instability. Additionally, deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions. Accordingly, the Corporation may be required from time to time to rely on secondary sources of liquidity, which in some cases may be more costly, to meet withdrawal demands or otherwise fund operations. Such sources include Federal Home Loan Bank advances, brokered certificates of deposit and federal funds lines of credit from correspondent banks. The availability of these noncore funding sources are subject to broad economic conditions and, as such, the pricing on these sources may fluctuate significantly and/or be restricted at any point in time, thus impacting the Corporation's net interest income, its immediate liquidity and/or its access to additional liquidity. While the Corporation believes that these sources are currently adequate, there can be no assurance they will be sufficient to meet future liquidity demands.

As the Corporation has expanded its operations into more urban areas in Alabama, it has significantly increased its real estate construction and development loans, which loans have a greater credit risk than residential mortgage loans.

The percentage of construction and land development loans in First National's portfolios to total loans was approximately 6.5% of total loans at December 31, 2012, down from 8.7% of total loans at December 31, 2011, 9.2% of total loans at December 31, 2010, 11.0% of total loans at December 31, 2009 and 13.9% at December 31, 2008, and slightly lower than the 6.8% at December 31, 2007. This type of lending is generally considered to have more complex credit risks than traditional single-family residential lending because the principal is concentrated in a limited number of loans with repayment dependent on the successful completion and operation of the related real estate project. These loans are generally less predictable and more difficult to evaluate and monitor and collateral may be difficult to dispose of in a market decline. A continued reduction in residential real estate market prices and demand could result in further price reductions in home and land values adversely affecting the value of collateral securing the construction and development loans that First National holds. These adverse economic and real estate market conditions may lead to further increases in non-performing loans and other real estate owned, increased losses and expenses from the management and disposition of non-performing assets, increases in provision for loan losses, and increases in operating expenses as a result of the allocation of management time and resources to the collection and work out of loans, all of which would negatively impact the Corporation's financial condition and results of operations.

The Corporation is geographically concentrated in Giles, Lincoln and Marshall Counties, Tennessee, and Limestone and Madison Counties, Alabama and changes in local economic conditions impact its profitability.

The Corporation operates primarily in Giles, Lincoln and Marshall Counties in Tennessee and Limestone and Madison Counties in Alabama, and substantially all of its loan customers and most of its deposit and other customers live or have operations in this same geographic area. Accordingly, the Corporation's success significantly depends upon the growth in

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population, income levels, deposits and housing starts in these areas, along with the continued attraction of business ventures to the areas, and its profitability is impacted by the changes in general economic conditions in these markets. Economic conditions in the Corporation's market areas remain challenging and continue to negatively affect the Corporation's operations, particularly the real estate construction and development segment of its loan portfolio. Additionally, unemployment levels continued at elevated levels in the Corporation's markets in 2011 and 2012. The Corporation cannot assure you that economic conditions in its markets will improve during 2013 or thereafter, and continued weak economic conditions in its markets could cause the Corporation to constrict the Corporation's growth, affect the ability of its customers to repay their loans and generally affect the Corporation's financial condition and results of operations. The Corporation is less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of diversified economies.

The Corporation has increased levels of other real estate owned, primarily as a result of foreclosures, and the Corporation anticipates higher levels of foreclosed real estate expense.

As the Corporation continues to resolve non-performing real estate loans, foreclosed properties, primarily those acquired from builders and from residential land developers, have remained at elevated levels. Foreclosed real estate expense consists of three types of charges: maintenance costs, valuation adjustments to appraisal values and gains or losses on disposition. As levels of other real estate owned increase and also as local real estate values decline, these charges will increase, negatively impacting the Corporation's results of operations.

The Corporation is dependent on its information technology and telecommunications systems and third-party servicers, and systems failures, interruptions or breaches of security could have an adverse effect on its financial condition and results of operations.

The Corporation's operations rely on the secure processing, storage and transmission of confidential and other information in its computer systems and networks. Although the Corporation takes protective measures and endeavors to modify these systems as circumstances warrant, the security of its computer systems, software and networks may be vulnerable to breaches, unauthorized access, misuse, computer viruses or other malicious code and other events that could have a security impact

. The Corporation outsources many of its major systems, such as data processing, loan servicing and deposit processing systems. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt the Corporation's operations. Because the Corporation's information technology and telecommunications systems interface with and depend on third-party systems, the Corporation could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If sustained or repeated, a system failure or service denial could result in a deterioration of the Corporation's ability to process new and renewal loans, gather deposits and provide customer service, compromise its ability to operate effectively, damage its reputation, result in a loss of customer business and/or subject it to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on the Corporation's financial condition and results of operations.

In addition, the Corporation provides its customers the ability to bank remotely, including online over the Internet. The secure transmission of confidential information is a critical element of remote banking. The Corporation's network could be vulnerable to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches. The Corporation may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. To the extent that the Corporation's activities or the activities of its customers involve the storage and transmission of confidential information, security breaches and viruses could expose the Corporation to claims, litigation and other possible liabilities. Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in the Corporation's systems and could adversely affect the Corporation's reputation, results of operations and ability to attract and maintain customers and businesses. In addition, a security breach could also subject the Corporation to additional regulatory scrutiny, expose it to civil litigation and possible financial liability and cause reputational damage.

Environmental liability associated with commercial lending could result in losses.

In the course of business, First National may acquire, through foreclosure, properties securing loans it has originated or purchased which are in default. Particularly in commercial real estate lending, there is a risk that hazardous substances could be discovered on these properties. In this event, the Corporation, or First National, might be required to remove these substances from the affected properties at the Corporation's or First National's cost and expense. The cost of this removal could substantially exceed the value of affected properties. The Corporation and First National may not have adequate remedies against the prior owner or other responsible parties and could find it difficult or impossible to sell the affected properties. These events could have a material adverse effect on the Corporation's business, results of operations and financial condition.

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Implementation of the various provisions of the Dodd-Frank Act has resulted in increases in the Corporation's operating costs and may continue to cause additional increases, and implementation of the provisions of the Dodd-Frank Act that are not yet implemented could have a material effect on the Corporation's business, financial condition or results of operations.

On July 21, 2010, President Obama signed the Dodd-Frank Act. This landmark legislation includes, among other things, (i) the creation of a Financial Services Oversight Counsel to identify emerging systemic risks and improve interagency cooperation; (ii) the elimination of the Office of Thrift Supervision and the transfer of oversight of federally chartered thrift institutions and their holding companies to the Office of the Comptroller of the Currency and the Federal Reserve; (iii) the creation of a Consumer Financial Protection Agency authorized to promulgate and enforce consumer protection regulations relating to financial products that would affect banks and non-bank finance companies; (iv) the establishment of new capital and prudential standards for banks and bank holding companies; (v) the termination of investments by the U.S. Treasury under the U.S. Treasury's Troubled Assets Relief Program; (vi) enhanced regulation of financial markets, including the derivatives, securitization and mortgage origination markets; (vii) the elimination of certain proprietary trading and private equity investment activities by banks; (viii) the elimination of barriers to de novo interstate branching by banks; (ix) a permanent increase of the previously implemented temporary increase of FDIC deposit insurance to $250,000; (x) the authorization of interest-bearing transaction accounts; and (xi) changes in how the FDIC deposit insurance assessments will be calculated and an increase in the minimum designated reserve ratio for the Deposit Insurance Fund.

Certain provisions of the legislation are not immediately effective or are subject to required studies and implementing regulations. Further, community banks with less than $10 billion in assets (like the Corporation) are exempt from certain provisions of the legislation. Although a number of regulations implementing portions of the Dodd-Frank Act have been promulgated, the Corporation is still unable to predict how portions of this significant new legislation may be interpreted and enforced or how implementing regulations and supervisory policies may affect the Corporation. There can be no assurance that these or future reforms will not significantly increase the Corporation's compliance or operating costs or otherwise have a significant impact on the Corporation's business, financial condition and results of operations.

If the federal funds rate remains at current extremely low levels, the Corporation's net interest margin, and consequently the Corporation's net earnings, may be negatively impacted.

Because of significant competitive pressures in the Corporation's markets and the negative impact of these pressures on its deposit and loan pricing, coupled with the fact that a significant portion of the Corporation's loan portfolio has variable rate pricing that moves in concert with changes to the Federal Reserve Board of Governors' federal funds rate (which is at an extremely low rate as a result of current economic conditions), the Corporation's net interest margin continues to be negatively impacted. Because of these competitive pressures, the Corporation has been unable to lower the rate that it pays on interest-bearing liabilities to the same extent and as quickly as the yields it charges on interest-earning assets. The Corporation expects loan pricing to remain competitive in 2013 and believes that economic factors affecting broader markets will likely result in reduced yields for its investment securities portfolio. Additionally, the amount of non-accrual loans and other real estate owned has been and may continue to be elevated. As a result, the Corporation's net interest margin, and consequently its profitability, may continue to be negatively impacted in 2013 and beyond.

Fluctuations in interest rates could reduce our profitability.

The absolute level of interest rates as well as changes in interest rates may affect the Corporation's level of interest income, the primary component of its gross revenue, as well as the level of its interest expense. Interest rate fluctuations are caused by many factors which, for the most part, are not under the Corporation's direct control. For example, national monetary policy plays a significant role in the determination of interest rates. Additionally, competitor pricing and the resulting negotiations that occur with the Corporation's customers also impact the rates the Corporation collects on loans and the rates it pays on deposits.

As interest rates change, the Corporation expects that it will periodically experience "gaps" in the interest rate sensitivities of its assets and liabilities, meaning that either its interest-bearing liabilities (usually deposits and borrowings) will be more sensitive to changes in market interest rates than its interest-earning assets (usually loans and investment securities), or vice versa. In either event, if market interest rates should move contrary to the Corporation's position, this "gap" may work against the Corporation, and its earnings may be negatively affected.

Changes in the level of interest rates also may negatively affect the Corporation's ability to originate real estate loans, the value of its assets and its ability to realize gains from the sale of its assets, all of which ultimately affect the Corporation's earnings. A decline in the market value of the Corporation's assets may limit the Corporation's ability to borrow additional funds. As a result, the Corporation could be required to sell some of its loans and investments under adverse market conditions, upon terms that are not favorable to the Corporation, in order to maintain its liquidity. If those sales are made at prices lower than the amortized costs of the investments, the Corporation will incur losses.

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National or state legislation or regulation may increase the Corporation's expenses and reduce earnings.

Federal bank regulators are increasing regulatory scrutiny, and additional restrictions, including those originating from the Dodd-Frank Act, on financial institutions have been proposed or adopted by regulators and by Congress. Changes in tax law, federal legislation, regulation or policies, such as bankruptcy laws, deposit insurance, consumer protection laws, and capital requirements, among others, can result in significant increases in the Corporation's expenses and/or charge-offs, which may adversely affect its earnings. Changes in state or federal tax laws or regulations can have a similar impact. Changes in state or federal tax laws or regulations can have a similar impact. Many state and municipal governments, including the State of Tennessee, are under financial stress due to the economy. As a result, these governments could seek to increase their tax revenues through increased tax levies which could have a meaningful impact on our results of operations. Furthermore, financial institution regulatory agencies continue to be very aggressive in responding to concerns and trends identified in examinations, including the continued issuance of additional formal or informal enforcement or supervisory actions. These actions, whether formal or informal, could result in the Corporation's or First National's agreeing to limitations or to take actions that limit its operational flexibility, restrict its growth or increase its capital or liquidity levels. Failure to comply with any formal or informal regulatory restrictions, including informal supervisory actions, could lead to further regulatory enforcement actions. Negative developments in the financial services industry and the impact of recently enacted or new legislation in response to those developments could negatively impact the Corporation's operations by restricting its business operations, including its ability to originate or sell loans, and adversely impact its financial performance. In addition, industry, legislative or regulatory developments may cause the Corporation to materially change its existing strategic direction, capital strategies, compensation or operating plans.

Competition from financial institutions and other financial service providers may adversely affect the Corporation's profitability.

The banking business is highly competitive, and the Corporation experiences competition in each of its markets from many other financial institutions. The Corporation competes with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other community banks and super-regional and national financial institutions that operate offices in the Corporations' primary market areas and elsewhere. Some of the Corporation's competitors (specifically those in the Huntsville, Alabama market) are well-established, larger financial institutions that have greater resources and lending limits and a lower cost of funds than the Corporation has.

Additionally, the Corporation faces competition from similarly sized community banks, including those with senior management who were previously affiliated with other local or regional banks or those controlled by investor groups with strong local business and community ties. These community banks may offer higher deposit rates or lower cost loans in an effort to attract the Corporation's customers and may attempt to hire the Corporation's management and employees.

The Corporation competes with these other financial institutions both in attracting deposits and in making loans. In addition, the Corporation has to attract its customer base from other existing financial institutions and from new residents. This competition has made it more difficult for the Corporation to make new loans and at times has forced the Corporation to offer higher deposit rates. Price competition for loans and deposits might result in the Corporation earning less interest on its loans and paying more interest on its deposits, which reduces the Corporation's net interest income. The Corporation's profitability depends upon its continued ability to successfully compete with an array of financial institutions in its market areas.

Loss of the Corporation's senior executive officers or other key employees could impair its relationship with its customers and adversely affect its business.

The Corporation has assembled a senior management team which has a substantial background and experience in banking and financial services in the Corporation's market areas. Loss of these key personnel could negatively impact the Corporation's earnings because of their skills, customer relationships and/or the potential difficulty of promptly replacing them.

The Corporation, as well as First National, operate in a highly regulated environment and are supervised and examined by various federal and state regulatory agencies which may adversely affect the Corporation's
ability to conduct business.

The Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve supervise and examine First National and the Corporation, respectively. Because First National's deposits are federally insured, the FDIC also regulates its activities. These and other regulatory agencies impose certain regulations and restrictions on the Corporation and First National, including:

page 17

explicit standards as to capital and financial condition;

limitations on the permissible types, amounts and extensions of credit and investments;

restrictions on permissible non-banking activities; and

restrictions on dividend payments.

Federal and state regulatory agencies have extensive discretion and power to prevent or remedy unsafe or unsound practices or violations of law by banks and bank holding companies. As a result, the Corporation and First National each must expend significant time and expense to assure that it is in compliance with regulatory requirements and agency practices.

New statutes and regulations, like the Dodd-Frank Act and the resulting regulations, are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive relationships of the nation's financial institutions. The Corporation cannot predict whether or in what form any proposed statute or regulation will be adopted or the extent to which the Corporation's business may be affected by any new statute or regulation.

The Corporation, as well as First National, also undergoes periodic examinations by one or more regulatory agencies. Following such examinations, the Corporation or First National may be required, among other things, to make additional provisions to its allowance for loan losses, maintain higher levels of capital than as required under general regulatory guidelines or to restrict its operations. These actions would result from the regulators' judgments based on information available to them at the time of their examination. First National's operations are also governed by a wide variety of state and federal consumer protection laws and regulations. These federal and state regulatory restrictions limit the manner in which the Corporation and First National may conduct business and obtain financing. These laws and regulations can and do change significantly from time to time, and any such change could adversely affect the Corporation's results of operations.

The Corporation's common stock and Class A stock are thinly traded, and recent prices may not reflect the prices at which the stock would trade in an active trading market.

The Corporation's common stock and Class A stock are not traded through an organized exchange, but rather are traded in individually-arranged transactions between buyers and sellers. Therefore, recent prices may not necessarily reflect the actual value of the Corporation's common stock or Class A stock. A shareholder's ability to sell the shares of common stock or Class A stock in the Corporation in a timely manner may be substantially limited by the lack of a trading market for the common stock or Class A stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable

ITEM 2. PROPERTIES.

The Corporation and the Bank are headquartered at 206 South First Street, Pulaski, Tennessee. The banking facility housing the headquarters was completed in 1966 and has undergone several major renovation and expansion projects over the years. The most recent expansion at this main office facility was completed in early 1995 and renovations to the facility were completed in 2009. An expansion and renovation of the Bank's Industrial Park Road office, which is owned by the Bank and is on the western edge of Pulaski, was completed in early 1996. The Minor Hill Road office, in the southern part of Pulaski, operates in a facility that is owned by the Bank and was completed in 1985. Other banking facilities operated by the Bank include owned offices at Ardmore in the southeastern corner of Giles County and in Fayetteville and Park City in adjacent Lincoln County, Tennessee. The Ardmore office, in existence since 1963, has also undergone several major expansions, with the most recent being completed in early 1993. In 2001, the Bank built a new facility in Fayetteville. Construction of the Park City branch was completed in 1997. A facility on Flower Street near the main office in Pulaski, already owned by the Corporation and previously used for storage, was renovated and completed in 1998 primarily for the purpose of housing the Bank's mortgage lending operations. During 2009, the Bank moved its mortgage lending operations to the main office and is currently using the facility on Flower Street to house certain of the loan operations of the Bank. The Belfast office, which is owned by the Bank, was acquired by the Bank during the merger with the Bank of Belfast in 2002 and was last renovated in 1980. The Bank also assumed a leased facility in Lewisburg, Tennessee during the Bank of Belfast merger. In 2005, the Bank purchased land in Lewisburg for the construction of a new banking office that would replace the leased facility in that town.

page 18

Construction was completed and the Bank moved into the new facility in Lewisburg in February, 2007. Also, in October 2005, the Bank opened an office in Lynnville, Tennessee in a renovated facility. In January 2008, the Bank opened its Huntsville Office in a leased facility. The Bank opened a temporary office in Athens, Alabama in April 2008 and constructed a new facility on the property adjacent to the temporary facility that was completed and opened April 2010. The Bank is currently in the process of building an office in downtown Athens that is expected to be completed in late March 2013.

ITEM 3. LEGAL PROCEEDINGS.

The Corporation and its subsidiary are involved, from time to time, in ordinary routine litigation incidental to the banking business. Neither the Corporation nor its subsidiary is currently involved in any material pending legal proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Common stock of First Pulaski National Corporation is not traded through an organized exchange but is traded between local individuals. As such, price quotations are not available on Nasdaq or any other quotation service. In November 2012, the Corporation reclassified common stock of shareholders owning 200 or fewer shares of common stock to Class A stock. As a result of the reclassification transaction, a total of 49,716 shares of common stock were converted to Class A stock. Class A stock was issued without registration under the Securities Act of 1933 in reliance on an exemption under Section 3(a)(9) of the Securities Act of 1933 for the exchange by a company of any security with its existing shareholders exclusively, where no commission or other remuneration is paid or given directly or indirectly for soliciting the exchange. The following trading prices for 2012 and 2011 represent trades of which the Corporation was aware and do not necessarily include all trading transactions for the period and may not necessarily reflect actual stock values.

		Trading Prices	Dividends Paid
Common Stock
	1st Quarter, 2012	$40.00 - 43.00	$0.25
	2nd Quarter, 2012	$38.00 - 41.00	$0.25
	3rd Quarter, 2012	$35.00 - 41.00	$0.25
	4th Quarter, 2012	$35.00 - 55.00	$0.80
	Total Annual Dividend, 2012		$1.55


	1st Quarter, 2011	$35.00 - 50.00	$0.25
	2nd Quarter, 2011	$40.00 - 47.00	$0.25
	3rd Quarter, 2011	$40.00 - 45.00	$0.25
	4th Quarter, 2011	$40.00 - 43.00	$0.50
	Total Annual Dividend, 2011		$1.25


Class A Stock
	4th Quarter, 2012	$39.50 - 40.00	$0.84
	Total Annual Dividend, 2012		$0.84

There were approximately 855 shareholders of record of the Corporation's common stock and 737 shareholders of record of the Corporation's Class A stock as of February 28, 2013.

page 19

The Corporation reviews its dividend policy at least annually. The amount of the dividend, while in the Corporation's sole discretion, depends in part upon the performance of First National. The Corporation's ability to pay dividends is restricted by federal laws and regulations applicable to bank holding companies and by Tennessee laws relating to the payment of dividends by Tennessee corporations. Because substantially all operations are conducted through its subsidiaries, the Corporation's ability to pay dividends also depends on the ability of the subsidiaries to pay dividends to the Corporation. The ability of First National to pay cash dividends to the Corporation is restricted by applicable regulations of the OCC and the FDIC. For a more detailed discussion of these limitations see "Item 1. Business - Supervision and Regulation - Payment of Dividends" and Note 15 to the Notes to Consolidated Financial Statements.

ITEM 6: SELECTED FINANCIAL DATA

The table below contains selected financial data for the Corporation for the last five years

. Note 18 to the Consolidated Financial Statements which follows shows figures for basic earnings per share and gives effect to dilutive stock options in determining diluted earnings per share. The reclassification of certain common shares to Class A shares in November 2012 is applied retroactively for all periods presented for earnings per share calculations. Total average equity and total average assets exclude unrealized gains or losses on investment securities.

	For Year Ended December 31,
	2012	2011	2010	2009	2008

	(dollars in thousands, except per share amounts)
Interest income	$27,863	$28,714	$29,424	$31,281	$33,687
Interest expense	4,415	5,268	7,601	10,328	14,856
Net interest income	23,448	23,446	21,823	20,953	18,831
Loan loss provision	500	1,455	4,750	5,328	2,033
Non-interest income	5,759	5,131	5,911	4,276	4,400
Non-interest expense	18,123	18,043	17,642	17,703	17,252
Income before income tax	10,584	9,079	5,341	2,199	3,946
Net income	7,078	6,249	4,028	2,232	3,471

Total assets	$681,612	$635,099	$601,140	$609,427	$592,303
Loans, net of unearned income	338,803	340,554	342,559	370,609	396,926
Securities	260,194	217,470	191,195	151,850	136,652
Deposits	602,124	559,231	533,324	542,977	530,497
Total long-term debt	6,190	7,326	7,545	7,779	3,392

Per Share Data:
Common Stock:
Net Income-Basic	$4.50	$3.98	$2.58	$1.43	$2.24
Net Income-Diluted	4.50	3.98	2.57	1.43	2.24
Class A Stock:
Net Income-Basic	4.54	3.99	2.58	1.43	2.24

Pro Forma (2)
Common Stock:
Net Income-Basic	$4.49	$3.98	$2.57	$1.43	$2.24
Net Income-Diluted	4.49	3.98	2.57	1.43	2.23
Class A Stock:
Net Income-Basic	4.56	4.03	2.61	1.50	2.32

Cash dividends paid:
Common Stock	1.55	1.25	1.00	1.60	1.80
Class A Stock	1.59	1.25	1.00	1.60	1.80

Pro Forma (2)
Common Stock	1.55	1.25	1.00	1.60	1.80
Class A Stock:	1.62	1.30	1.04	1.67	1.88

Total average equity (1)	$60,778	$55,477	$51,664	$50,536	$50,127
Total average assets (1)	654,668	619,574	609,032	597,754	559,115

Ratios
Avg equity to avg assets	9.28%	8.95%	8.48%	8.45%	8.97%
Return on average equity	11.65%	11.26%	7.80%	4.42%	6.92%
Return on average assets	1.08%	1.01%	0.66%	0.37%	0.62%
Dividend payout ratio	34.50%	31.40%	38.83%	111.63%	80.40%

page 20

(1) Total average equity and total average assets above excludes the unrealized gain or loss on investment securities.
(2) Earnings per share and dividends per share are presented as if Class A shares were issued as of the earliest period presented.

The basic earnings per share data and the diluted earnings per share data in the above table are based on the following weighted average number of shares outstanding:

For Year Ended December 31,

        2012

        2011

        2010

        2009

        2008

Common Stock:

    Basic

1,522,270

1,516,829

1,511,596

1,504,943

1,497,555

    Diluted

1,522,292

1,516,932

1,512,212

1,506,235

1,500,539

Class A Stock:

    Basic

49,716

49,716

49,716

49,716

49,716

ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

The Corporation is a one-bank holding company with its only direct subsidiary being First National in Pulaski, Tennessee. During the third quarter of 2001, First National's wholly-owned subsidiary, FPRC, received its insurance license. FPRC is engaged in the business of reinsuring credit insurance written by the Corporation's subsidiary.

The following analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report.

FORWARD-LOOKING STATEMENTS

Certain of the statements in this discussion may constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, (the "Exchange Act"), as amended. The words "expect," "anticipate," "intend," "should," "may," "could," "plan," "believe," "likely," "seek," "estimate" and similar expressions are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking. All forward-looking statements are subject to risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Corporation to differ materially from any results expressed or implied by such forward-looking statements. Such factors include those identified in "Item 1A. Risk Factors" above and, without limitation, (i) deterioration in the financial condition of borrowers resulting in significant increases in loan losses and provisions for those losses, (ii) continuation of the historically low short-term interest rate environment, (iii) increased competition with other financial institutions, (iv) deterioration or lack of sustained growth in the economy in the Corporation's market areas, (v) rapid fluctuations or unanticipated changes in interest rates, (vi) significant downturns in the businesses of one or more large customers, (vii) risks inherent in originating loans, including prepayment risks, (viii) the fluctuations in collateral values, the rate of loan charge-offs and the level of the provision for losses on loans, (ix) results of regulatory examinations, (x) the inability to comply with regulatory capital requirements, including those resulting from the currently proposed changes to capital calculation methodologies and required capital maintenance levels, (xi) any activity in the capital markets that would cause the Corporation to conclude that there was impairment of any asset including intangible assets, (xii) changes in state and Federal legislation, regulations or policies applicable to banks and other financial services providers, including regulatory or legislative developments arising out of current unsettled conditions in the economy, including implementation of the Dodd-Frank Act enacted by Congress in July 2010, (xiii) the ability to retain large, uninsured deposits with the expiration of the FDIC's transaction account guarantee program and (xiv) loss of key personnel. Many of such factors are beyond the Corporation's ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Corporation cautions investors that future financial and operating results may differ materially from those projected in forward-looking statements made by, or on behalf of, the Corporation. The Corporation disclaims any obligation to update or revise any forward-looking statements contained in this discussion, whether as a result of new information, future events or otherwise.

page 21

OVERVIEW

Total assets of the Corporation increased $46.5 million, or 7.3%, from December 31, 2011 to December 31, 2012. Loans net of unearned income remained relatively flat from year-end 2011 to year-end 2012, declining $1.8 million over that time. Loan demand in the Corporation's markets remained weak in 2012. Other real estate owned declined slightly in 2012, ending the year at $6.88 million as compared to $7.11 million at year-end 2011. Other real estate owned remained at an elevated level in 2012 when compared to years prior to 2009, as weak economic conditions continued. Concerted efforts are being made to dispose of other real estate owned while striving to ensure that fair market value is received for other real estate owned and excessive discounts are not taken.

Sales of other real estate owned in 2012 resulted in a net loss on sale of $129,000. Other real estate owned is likely to continue at elevated levels in 2013 when compared to years prior to 2009. The growth in assets in 2012 resulted primarily from a $42.9 million increase in deposits, which resulted from a $27.0 million increase in interest bearing deposits and a $15.9 million increase in noninterest bearing deposits from December 31, 2011 to December 31, 2012. This increase in deposits and relatively flat loan volume led to a $42.7 million increase in investment securities from year-end 2011 to year-end 2012. Cash and cash equivalents also increased $3.1 million and interest bearing balances from banks increased $2.4 million from year-end 2011 to year-end 2012. Total shareholders' equity increased $5.0 million during 2012 and regulatory Tier I capital increased $4.8 million bolstering the Corporation's capital position and regulatory capital ratios at December 31, 2012.

Net income in 2012 was $7.08 million, an increase of $829,000 compared to 2011. Net interest income was flat in 2012 as compared to 2011. The net interest margin declined to 3.97% in 2012 from 4.26% in 2011. Gains on the sale of securities of $1.05 million occurred in 2012 as compared to only $133,000 in 2011, leading to an increase in non-interest income in 2012 as compared to 2011. Other income declined in 2012 due to a $275,000 gain on the sale of certain real estate in 2011. The provision for loan losses totaled $500,000 in 2012, a decrease of $955,000 from the provision for loan losses in 2011. Other operating expenses declined in 2012 as compared to 2011 primarily due to amendments agreed to by most of the Corporation's current directors to the deferral of directors' fees. The amendments led to a one-time reduction in the amounts necessary to be accrued for the director and contributed to a $921,000 decline in directors' fees and expenses in 2012 as compared to 2011. Net charged-off loans decreased in 2012 as compared to 2011 and the overall condition of the loan portfolio improved somewhat in 2012, leading to the decline in the provision for loan losses in 2012 as compared to 2011. Although the overall condition of the loan portfolio improved in 2012, weak economic conditions continue to stress some of the Corporation's borrowers and the provision for loan losses may be at elevated levels in 2013 as compared to 2012. Foreclosed asset expense increased $260,000 in 2012 as compared to 2011 as losses on sales and direct write-downs increased in 2012 while operating expenses related to foreclosed assets declined in 2012. Net charged-off loans totaled $978,000 in 2012, resulting in a charge-off ratio (net loans charged-off divided by average loans) of 0.29% as compared to net charge-offs of $1.98 million in 2011, resulting in a charge-off ratio of 0.58%. Nonaccrual loans showed a small increase to $10.16 million at December 31, 2012 as compared to $9.59 million at December 31, 2011. Nonaccrual loans at December 31, 2012 consisted primarily of 1-4 family real estate loans and commercial real estate loans.

In November 2012, the Corporation reclassified common stock of shareholders owning 200 or fewer shares of common stock to Class A Stock. As a result of the reclassification transaction, a total of 49,716 shares of common stock were converted to Class A stock.

CRITICAL ACCOUNTING POLICIES

The accounting principles we follow and our methods of applying these principles conform to accounting principles generally accepted in the United States and with general practices within the banking industry. In connection with the application of those principles to the determination of our allowance for loan losses, we have made judgments and estimates which have significantly impacted our financial position and results of operations.

The allowance for loan losses is maintained at a level that is considered to be adequate to reflect estimated credit losses for specifically identified loans as well as estimated probable credit losses inherent in the remainder of the loan portfolio at the balance sheet date. The allowance is increased by the provision for loan losses, which is charged against current period operating results, and decreased by the amount of charge-offs, net of recoveries. A formal review of the allowance for loan losses is prepared quarterly to assess the risk in the portfolio and to determine the adequacy of the allowance for loan losses. Our methodology of assessing the appropriateness of the allowance consists of several elements, which include the historical allowance and specific allowances as described below.

The historical allowance is calculated by applying loss factors to outstanding loans. For purposes of the quarterly review, the loan portfolio is separated by loan type, and each type is treated as a homogeneous pool. Each loan is assigned a risk rating by loan officers using established credit policy guidelines. These risk ratings are periodically reviewed, and all risk ratings are

page 22

subject to review by an independent Credit Review Department. Each risk rating is assigned an allocation percentage which, when multiplied by the dollar value of loans in that risk category, results in the amount of the allowance for loan losses allocated to these loans. Allocation percentages are based on our historical loss experience and may be adjusted for significant factors that, in management's judgment, affect the collectability of the portfolio as of the evaluation date such as past loan loss experience, trends in net charge-offs, trends in delinquencies and nonaccrual loans, trends in unemployment, trends in classified and criticized loans, loan growth and composition of the loan portfolio, review of specific problem loans, results of regulatory examinations, results of updated appraisals, the relationship of the allowance for credit losses to outstanding loans and current economic conditions that may affect the borrower's ability to repay.

Specific allowances are established in cases where management has determined a loan is impaired. A loan is impaired when full payment under the loan terms is not probable. Every substandard or worse loan in excess of $250,000 and all "special mention" loans over $400,000 are reviewed quarterly by the Executive and Loan Committee of the Bank's Board of Directors. Impaired loans in excess of $250,000 are reviewed quarterly to determine any specific allowances that are necessary.

RESULTS OF OPERATIONS

OVERVIEW

Net income for 2012 was approximately $7.08 million, or $4.50 and $4.54 per diluted common share and Class A share, respectively, compared with approximately $6.25 million, or $3.98 and $3.99 per diluted common share and Class A share, respectively, in 2011 and approximately $4.03 million, or $2.57 and $2.58 per diluted common share and Class A share, respectively, in 2010. The reclassification of certain common shares to Class A shares in November 2012 was applied retroactively for each period for earnings per share calculations. Return on average assets was 1.08% in 2012, 1.01% in 2011 and 0.66% in 2010. The return on average equity was 11.65%, 11.26% and 7.80% for 2012, 2011 and 2010, respectively. Net income for 2012 was positively impacted by a sizeable reduction in the provision for loan losses and an increase in security gains in each case as compared to 2011. Net income for 2011 was positively impacted by an increase in net interest income, a sizeable reduction in the provision for loan losses and a reduction in net foreclosed assets expense as compared to 2010. Net income for 2010 was positively impacted by an increase in the net interest margin, a sizable gain on the sale of investment securities and a reduction in the provision for loan losses as compared to 2009 however, net income for 2010 continued to be impacted negatively by weak economic conditions.

NET INTEREST INCOME

Net interest income is the difference between interest and fees earned on loans, securities and other interest-earning assets (interest income) and interest paid on deposits, repurchase agreements, and borrowed funds (interest expense). In 2012, net interest income remained the same as 2011 at $23.4 million. Total assets of the Corporation increased approximately $46.5 million from December 31, 2011 to December 31, 2012. Loans net of unearned income decreased approximately $1.8 million over the same period. Deposits increased approximately $42.9 million over the same period. The decrease in loans and the increase in deposits contributed to an approximately $42.7 million increase in investments in 2012 as the Corporation invested excess funds from deposits in investment securities over the same period.

In 2011, net interest income increased by 7.4% to $23.4 million from $21.8 million in 2010. Total assets of the Corporation increased approximately $34.0 million from December 31, 2010 to December 31, 2011. Loans net of unearned income decreased approximately $2.0 million over the same period. Deposits increased approximately $25.9 million over the same period. The decrease in loans and the increase in deposits contributed to an approximately $26.3 million increase in investments as the Corporation invested excess funds from deposits in investment securities over the same period. Also, cash and due from banks increased approximately $16.8 million from December 31, 2010 to December 31, 2011, primarily due to an increase in excess interest-earning balances held at the Federal Reserve Bank.

Net interest income is a function of the average balances of interest-earning assets and interest-bearing liabilities and the yields earned and rates paid on those balances. Management strives to maintain an acceptable spread between the yields earned on interest-earning assets and rates paid on interest-bearing liabilities to maintain an adequate net interest margin.

Net interest income on a fully taxable equivalent basis decreased $104,000 from 2011 to 2012. This decrease resulted from a $580,000 decrease due to changes in interest rates and a $476,000 increase due to changes in volumes of the components comprising taxable-equivalent net interest income. The decrease in interest income in 2012 as compared to 2011 was primarily due to a decrease in the interest rates earned on loans as well as small decrease in average loan volumes. This decrease was partially offset by an increase in taxable-equivalent interest income earned on investment securities; however, a decrease in the interest rates earned on investment securities almost completely offset the increase resulting from increased volume of

page 23

investment securities in 2012 as compared to 2011. The decrease in interest expense in 2012 as compared to 2011 was primarily due to a decrease in interest rates paid on interest-bearing liabilities as well as a change in the mix of interest-bearing deposits as more costly time deposits decreased and less costly demand and savings deposits increased in 2012 as compared to 2011.

Net interest income on a fully taxable equivalent basis increased $1,539,000 from 2010 to 2011. This increase resulted from a $1,286,000 increase due to changes in interest rates and a $253,000 increase due to changes in volumes of the components comprising taxable-equivalent net interest income. The decrease in interest income in 2011 as compared to 2010 was primarily due to a decrease in average loan volumes that was partially offset by an increase in the interest rates earned on those loans. This decrease was partially offset by an increase in taxable-equivalent interest income earned on investment securities; however, a decrease in the interest rates earned on investment securities almost completely offset the increase resulting from increased volume of investment securities in 2011 as compared to 2010. The decrease in interest expense in 2011 as compared to 2010 was primarily due to a decrease in interest rates paid on interest-bearing liabilities as well as a change in the mix of interest-bearing deposits as more costly time deposits decreased and less costly demand and savings deposits increased in 2011 as compared to 2010.

The following tables summarize the changes in interest earned and interest paid for the given time periods and indicate the factors affecting these changes. The first table presents, by major categories of assets and liabilities, the average balances, the components of the taxable equivalent net interest earnings/spread, and the yield or rate for the years 2012, 2011 and 2010.

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS'
EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL

	December 31,
	2012			2011			2010
	Average		Yield/	Average		Yield/	Average		Yield/
	Balance	Interest	Rate	Balance	Interest	Rate	Balance	Interest	Rate

	(in thousands of dollars)
ASSETS

Interest-Earning Assets:
Loans	$340,083	$23,285	6.85%	$343,625	$24,269	7.06%	$357,377	$25,106	7.03%
Taxable investment securities	203,462	3,523	1.73%	159,710	3,215	2.01%	125,750	2,998	2.38%
Non-taxable investment
securities	34,222	1,458	4.26%	37,897	1,745	4.60%	39,517	1,905	4.82%
Federal funds sold and other	25,357	60	0.24%	22,878	57	0.25%	27,273	69	0.25%
Dividends	1,965	88	4.48%	1,953	85	4.35%	1,641	87	5.30%
Total Interest-Earning Assets	605,089	28,414	4.70%	566,063	29,371	5.19%	551,558	30,165	5.47%

Non-Interest Earning Assets:
Cash and due from banks	10,990			11,749			10,635
Premises and equipment, net	18,866			19,048			19,583
Other Assets	30,596			32,496			37,949
Less allowance for loan losses	(7,210)			(8,154)			(7,886)
Total Non-Interest-Earning Assets	53,242			55,139			60,281


TOTAL	$658,331			$621,202			$611,839
	======			======			======

LIABILITIES AND SHAREHOLDERS' EQUITY

Interest-Bearing Liabilities:
Demand deposits	$107,199	$219	0.20%	$97,739	$215	0.22%	$83,028	$301	0.36%
Savings deposits	109,910	435	0.40%	94,596	403	0.43%	79,870	404	0.51%
Time deposits	272,071	3,493	1.28%	275,974	4,343	1.57%	303,970	6,580	2.16%
Repurchase agreements	2,074	33	1.59%	2,132	34	1.59%	1,910	30	1.59%
Other borrowed money	6,659	235	3.53%	7,498	273	3.64%	7,670	286	3.73%
Total Interest-Bearing
Liabilities	497,913	4,415	0.89%	477,939	5,268	1.10%	476,448	7,601	1.60%

Non-Interest-Bearing Liabilities:
Demand deposits	90,597			80,390			76,069
Other liabilities	6,998			6,292			6,317
Total Non-Interest Bearing
Liabilities	97,595			86,682			82,386
Shareholders' Equity	62,823			56,581			53,005
TOTAL	$658,331			$621,202			$611,839
	======			======			======
Net interest earnings/margin,
on a taxable equivalent basis		23,999	3.97%		24,103	4.26%		22,564	4.09%
Taxable equivalent adjustments:
Loans		107			137			212
Investment securities		444			520			529
Total taxable equivalent adjustment		551			657			741


Net interest earnings		$23,448			$23,446			$21,823
		======			======			======

page 24

Note: The taxable equivalent adjustment has been computed based on a 34% federal income tax rate and has given effect to the disallowance of interest expense, for federal income tax purposes, related to certain tax-free assets. Loans include nonaccrual loans for all years presented. Interest on loans includes loan fees. Loan fees included above amounted to $1,061,000 for 2012, $999,000 for 2011 and $1,072,000 for 2010.

The following table shows the change from year to year for each component of the taxable equivalent net interest margin separated into the amount generated by volume changes and the amount generated by changes in the yields earned or rates paid.

	2012 Compared to 2011			2011 Compared to 2010
	Increase (Decrease) Due to			Increase (Decrease) Due to

	Volume	Rate	Net	Volume	Rate	Net

	(in thousands of dollars)			(in thousands of dollars)
Interest Earned on:
Loans	$(250)	$(734)	$(984)	$(966)	$129	$(837)
Taxable investment securities	881	(573)	308	810	(593)	217
Non-taxable investment securities	(169)	(118)	(287)	(78)	(82)	(160)
Federal funds sold	6	(3)	3	(11)	(1)	(12)
Dividends	1	2	3	17	(19)	(2)

Total Interest-Earning Assets	$469	$(1,426)	$(957)	$(228)	$(566)	$(794)
	========	=======	=======	========	=======	=======

Interest Paid on:
Demand deposits	$21	($17)	$4	$53	($139)	($86)
Savings deposits	65	(33)	32	74	(75)	(1)
Time deposits	(61)	(789)	(850)	(606)	(1,631)	(2,237)
Repurchase agreements	(1)	-	(1)	4	-	4
Other borrowed money	(31)	(7)	(38)	(6)	(7)	(13)

Total Interest-Bearing Liabilities	$(7)	$(846)	$(853)	$(481)	$(1,852)	$(2,333)
	========	=======	=======	========	=======	=======
Net Interest Earnings, on a taxable
equivalent basis	$476	$(580)	$(104)	$253	$1,286	$1,539
	========	=======	=======	========	=======	=======
Less: taxable equivalent adjustment			(106)			(84)

Net Interest Earnings			$2			$1,623
			=======			=======

The change in interest due to volume has been determined by applying the rate from the earlier year to the change in average balances outstanding from one year to the next. The change in interest due to rate has been determined by applying the change in rate from one year to the next to the average balances outstanding in the later year. The change in interest due to both volume and rate that cannot be segregated has been included in the change due to rate. The computation of the taxable equivalent adjustment has given effect to the disallowance of interest expense, for federal income tax purposes, related to certain tax-free assets.

The net interest margin declined in 2012 to 3.97% from 4.26% in 2011. This decrease in net interest margin was primarily due to decreased interest income on loans, primarily due to lower interest rates earned, as well as lower interest rates earned on investment securities in 2012 as compared to 2011. The average yield on loans decreased to 6.85% in 2012 from 7.06% in 2011. The overall interest rate environment continued to decline in 2012 as loan demand remained weak and competition for loans from qualified borrowers remained intense. Average loans decreased $3.5 million in 2012 as compared to 2011 reflecting this weakened loan demand. The average yield on investment securities also decreased from 2.51% in 2011 to 2.10% in 2012. Overall taxable-equivalent interest income on investment securities increased $21,000 as the average investment securities increased $40.1 million in 2012 as compared to 2011, offsetting the drop in the average yield of investment securities over the same period. These negative effects on the net interest margin were partially offset by a decrease in interest rates paid on liabilities. Overall interest expense declined $853,000 in 2012 as compared to 2011 as the average interest rate paid declined to 0.89% in 2012 from 1.10% in 2011. The net interest margin may decline in 2013 from the 2012 level as continued weak loan demand and increased competition for available loans may negatively impact the interest rate earned on loans in 2013. Continued weak loan demand in 2013 may also lead to increased volumes of investment securities which due to the lower yields on those assets than loans would negatively impact the net interest margin in 2013.

page 25

The net interest margin improved in 2011 to 4.26% from 4.09% in 2010. This increase in net interest margin was primarily due to decreased interest expense on deposits due to lower interest rates paid as well as a change in the mix of interest-bearing deposits as more costly time deposits decreased and less costly demand and savings deposits increased in 2011 as compared to 2010. The average interest rate paid on interest-bearing deposits was 1.06% in 2011 as compared to 1.56% in 2010. This lower interest expense was partially offset by lower earnings on interest-bearing assets, primarily due to a decline in average loan volumes in 2011 as compared to 2010. Average loans decreased $13.8 million in 2011 as compared to 2010 reflecting weakened loan demand. Also, the decrease in interest expense on deposits was partially offset to a lesser degree by a decrease in the average yield on investment securities (average volumes for which increased as loan demand remained weak) from 2.97% in 2010 to 2.51% in 2011. Overall taxable-equivalent interest income on investment securities increased $57,000 as the average investment securities increased $32.3 million in 2011 as compared to 2010, offsetting the drop in the average yield of investment securities over the same period. The net interest margin was negatively impacted by an elevated level of nonaccrual loans in 2011 as the average balance of nonaccrual loans increased to $12.0 million in 2011 as compared to $10.1 million in 2010.

NON-INTEREST INCOME

The Corporation's non-interest income is composed of several components, some of which vary significantly between quarterly periods. Service charges on deposit accounts and other non-interest income generally reflect the Corporation's growth, while fees for origination of mortgage loans and security gains fluctuate more widely from period to period.

Non-interest income totaled $5,759,000 in 2012, an increase of $636,000, or 12.4%, from 2011. Most of the increase is attributable to a $917,000 increase in net security gains in 2012 as compared to 2011 as the registrant restructured its investment portfolio in the first quarter of 2012. The investment portfolio restructuring primarily consisted of increasing the amount of mortgage-backed securities held in relation to other securities and is projected to increase interest income in flat and rising interest rate environments over the next few years as compared to the projected interest income that would have been generated before the restructuring. Mortgage banking income increased $205,000 in 2012 as compared to 2011 as mortgage-refinancing activity continued at an elevated level in 2012. Also, other service charges and fees increased $129,000 in 2012 as compared to 2011, primarily due to increased debit card usage and fees in 2012. These increases were partially offset by declines of $400,000 in other income and $163,000 in service charges on deposit accounts in 2012 as compared to 2011. The decline in other income was primarily due to a $275,000 gain on the sale of certain real estate held by the Corporation in 2011 as well as reduced rental income from other real estate properties in 2012 as compared to 2011. A loss on the disposal of certain property of the Bank in 2012 also contributed to the decline in other income as compared to 2012 and contributed to the overall negative other income for 2012. The decline in service charges on deposit accounts was primarily the result of reduced overdraft fees in 2012 as compared to 2011. Income on company-owned life insurance decreased by $47,000 over 2011 levels as crediting rates on these policies declined and commissions and fees decreased by $4,000 in 2012 as compared to 2011.

Non-interest income totaled $5,123,000 in 2011, a decrease of $788,000, or 13.3%, from 2010. Most of the decrease is attributable to a $940,000 decrease in net security gains in 2011 as compared to 2010. Smaller declines of $46,000 occurred in income on company-owned life insurance as crediting rates on these policies declined and $28,000 occurred in commissions and fees, primarily due to reduced commissions on sales of credit insurance in 2011 as compared to 2010. These decreases were partially offset by a $148,000 increase in other service charges in 2011 as compared to 2010 primarily due to increased debit card interchange fees. Service charges on deposit accounts also increased $60,000 in 2011 as compared to 2010 primarily due to increased overdraft fees in 2011. Other income increased $23,000 in 2011 as compared to 2010 primarily as a result of a $275,000 gain on the sale of certain real estate held by the Corporation that was partially offset by a $218,000 decrease in rental income from other real estate owned by the Bank in 2011 as compared to 2010 as a large portion of the other real estate owned on which rental income was received was sold in the first quarter of 2011.

NON-INTEREST EXPENSE

Non-interest expense in 2012 was $18,123,000, an increase of $87,000, or 0.5%, from 2011. Foreclosed asset expense increased $260,000 in 2012 as compared to 2011. Foreclosed asset expense is composed of three types of charges: maintenance costs, valuation adjustments (direct write-downs) based on new appraisal values and gains or losses on disposition. Note 4 of the Consolidated Financial Statements gives more information on foreclosed asset expense. Direct write-downs to the value of other real estate owned increased $122,000 and losses on sales of other real estate owned increased $367,000 in 2012 as compared to 2011. These increases in foreclosed asset expenses related to valuation adjustments and losses on sales were partially offset by a decrease of $229,000 in foreclosed asset operating expenses in 2012 as compared to 2011. Salaries and employee benefits also increased $171,000, or 1.7%, in 2012 as compared to 2011. Smaller increases of $47,000, $20,000 and $7,000 occurred in advertising and public relations, furniture and equipment expense and occupancy

page 26

expense in 2012 as compared to 2011. These increases were partially offset by a $269,000 decrease in other operating expenses in 2012 as compared to 2011. The decrease in other operating expenses was primarily due to a $921,000 decrease in directors' fees and expenses in 2012 as compared to 2011. Most of the current directors of the Corporation amended their individual deferred fee agreements in 2012, resulting in the decrease in director expenses in 2012. This decrease in other operating expenses was partially offset by a $434,000 increase in collection and professional fees in 2012 as compared to 2011. This increase in professional fees in 2012 was primarily due to expenses related to a branding initiative that took place in 2012. FDIC insurance expense also declined $149,000 in 2012 as compared to 2011 primarily due to an improvement in some of the Bank's performance ratios used by the FDIC to calculate the insurance premium in 2012.

Non-interest expense in 2011 was $18,035,000, an increase of $393,000, or 2.2%, from 2010. Salaries and employee benefits increased $895,000, or 9.6%, in 2011 as compared to 2010. Other operating expenses increased $434,000 primarily due to a $274,000 increase in directors' fees and expenses and an $80,000 increase in education expenses. The increase in directors' fees and expenses was primarily due to a reduction in the discount rate from 6% to 5% in the calculation of the Corporation's accrued liability for directors' deferred compensation due to the lower interest rate environment in 2011 as compared to 2010, leading to $393,000 in additional expense in 2011. Advertising and public relations expenses increased $124,000 and occupancy expenses increased $54,000 in 2011 as compared to 2010. Expenses related to foreclosed assets decreased $792,000 in 2011 as compared to 2010. Foreclosed asset expense is composed of three types of charges: maintenance costs, valuation adjustments based on new appraisal values and gains or losses on disposition. Note 4 of the Consolidated Financial Statements gives more information on foreclosed asset expense. FDIC insurance expense also decreased $288,000 in 2011 as compared to 2010 primarily due to a change in the assessment base for federal deposit insurance from the amount of insured deposits to consolidated assets less tangible capital beginning in the second quarter of 2011.

In November 2009, the FDIC issued a rule that required all insured depository institutions, with limited exceptions, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. The FDIC also adopted a uniform three-basis point increase in assessment rates effective on January 1, 2011. In December 2009, the Bank paid $3.39 million in prepaid risk-based assessments. As of December 31, 2012, $1.28 million of the prepaid FDIC insurance assessment remained to be expensed in future periods.

PROVISION FOR LOAN LOSSES

The provision for loan losses is the charge to earnings which management believes is necessary to maintain the allowance for loan losses at a level considered adequate to absorb probable incurred losses on loans. The adequacy of the allowance for loan losses is determined by a continuous evaluation of the loan portfolio. The Bank utilizes an independent loan review function which considers, among other factors, past loan experience, collateral value and possible effects of prevailing economic conditions. Findings are presented regularly to management, where other factors such as actual loan loss experience relative to the size and characteristics of the loan portfolio, deterioration in concentrations of credit, trends in portfolio volumes, delinquencies and non-performing loans and, when applicable, reports of the regulatory agencies are considered. Management performs calculations for the minimum allowance level needed and a final evaluation is made.

The provision for loan losses was $500,000 in 2012 compared to $1,455,000 in 2011. The decrease in provision for loan losses in 2012 was primarily due to a reduction in net charge-offs of $1,003,000 in 2012 as compared to 2011. While the provision for loan losses decreased in 2012, economic weakness continued in 2012 and is likely to continue into 2013, which may lead to elevated levels of provision for loan losses in 2013 when compared to 2012, negatively impacting the Corporation's net income. The provision for loan losses is based on past loan experience and other factors that, in management's judgment, deserve current recognition in estimating possible credit losses. Such factors include past loan loss experience, trends in net charge-offs, trends in delinquencies and nonaccrual loans, trends in unemployment, trends in classified and criticized loans, loan growth and composition of the loan portfolio, review of specific problem loans, results of regulatory examinations, results of updated appraisals, the relationship of the allowance for credit losses to outstanding loans and current economic conditions that may affect the borrower's ability to repay.

INCOME TAXES

Income tax expense includes federal and state taxes on taxable earnings. Income taxes were $3,505,000, $2,830,000 and $1,313,000 in 2012, 2011 and 2010, respectively. The effective tax rates were 33.1%, 31.2%, and 24.6% in 2012, 2011 and 2010, respectively. The increase in the effective tax rates for 2012 and 2011 was primarily a result of increased income before taxes while tax free income was proportionally lower for 2012 and 2011 as compared to 2010.

The Corporation had net deferred tax assets of $3,020,000 at December 31, 2012, as compared to a net deferred tax asset of $3,222,000 at December 31, 2011. The deferred tax asset resulting from the allowance for loan losses was the largest

page 27

component of the deferred tax asset in both periods. The Corporation has sufficient refundable taxes paid in available carryback years to fully realize its recorded deferred tax assets. Accordingly, no valuation has been recorded.

FINANCIAL CONDITION

LOANS

Although loan growth has been minimal in the last three years, management's historical focus has been to promote loan growth in the Corporation's target markets, emphasizing the expansion of business in the Corporation's trade areas. Efforts are taken to maintain a diversified portfolio without significant concentration of risk. In 2012, loans declined slightly, following a small decline in 2011. The Corporation's total loans shrank as loan demand showed continued weakness, and economic conditions, particularly in real estate construction and development, impaired potential borrower creditworthiness. Moreover, intense competition for qualified borrowers continued throughout 2012. Total loans net of unearned fees decreased $1.8 million from December 31, 2011 to December 31, 2012. The major categories of loans showing the largest decrease during 2012 included construction and land development loans with a decrease of $5.4 million, agricultural real estate loans with a decrease of $4.3 million and home equity line of credit loans with a decrease of $1.7 million. These decreases were partially offset by increases in commercial loans of $5.7 million, 1-4 family closed-end real estate loans of $4.9 million and commercial real estate loans of $1.8 million.

Over the last three years, average total loans decreased by $3.5 million, or 1.0%, in 2012, by $13.8 million, or 3.8%, in 2011 and by $33.2 million, or 8.5%, in 2010, in each case over the prior year. The decrease in average loans outstanding as well as increases in average deposits in 2012, 2011 and 2010 as compared to the previous year led to an increase of$40.3 million, $32.3 million and $22.2 million in average investment securities in 2012, 2011 and 2010, respectively, over the previous year as the funds previously used for loan fundings were placed in the investment portfolio.

LOAN QUALITY

Credit risk represents the maximum accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted and any collateral or security proved to be of no value. Concentrations of credit risk or types of collateral arising from financial instruments exist in relation to certain groups of customers. A group concentration arises when a number of counterparties have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Corporation does not have a significant concentration to any individual customer or counterparty. The major concentrations of credit risk for the Corporation arise by collateral type in relation to loans and credit commitments. The most significant concentration that exists is in loans secured by real estate, primarily commercial real estate loans (38% of the total loans) and 1-4 family residential loans (25% of total loans). Commercial loans, both those secured by real estate and those not secured by real estate, are further classified by their appropriate North American Industry Classification System ("NAICS") code. Of those loans classified by NAICS code, the Corporation has concentrations of credit, defined as 25% or more of total risk-based capital, of loans to lessors of nonresidential buildings, excluding mini-warehouses (44% of total risk-based capital), loans to lessors of residential buildings and dwellings (34% of total risk-based capital) and loans secured by hotel and motel properties (27% of total risk-based capital). Although the Corporation has a loan portfolio diversified by type of risk, the ability of its customers to honor their contracts is to some extent dependent upon economic conditions in the regions where our customers operate, particularly conditions impacting residential and commercial real estate, which continued to experience weakness throughout 2012. A geographic concentration arises because the Corporation grants commercial, real estate and consumer loans primarily to customers in Giles, Marshall and Lincoln Counties, Tennessee and Limestone and Madison Counties, Alabama. In order to mitigate the impact of credit risk, management strives to identify loans experiencing difficulty early enough to correct the problems and to maintain an allowance for loan losses at a level management believes is adequate to absorb probable incurred losses in the loan portfolio.

The amounts of loans outstanding, excluding deferred loan fees, at the indicated dates are shown in the following table according to type of loan. Loans held for sale are included in the following table.

page 28

LOAN PORTFOLIO
	December 31,
	2012	2011	2010	2009	2008
	(in thousands of dollars)
Construction and land development	$21,857	$27,256	$31,742	$40,912	$55,484
Commercial and industrial	35,210	29,519	34,561	38,853	34,120
Agricultural	4,631	5,006	5,099	5,940	7,642
Real estate - farmland	32,522	36,826	34,228	35,243	35,923
Real estate - residential	87,466	84,313	86,234	90,797	91,757
Real estate - nonresidential, nonfarm	129,223	127,470	122,549	127,496	137,749
Installment - individuals	25,005	26,195	22,679	24,757	26,668
Other loans(1)	5,565	6,331	7,007	8,086	9,672
	$341,479	$342,916	$344,099	$372,084	$399,015
	=========	=========	=========	=========	=========

(1) Includes non-taxable loans, overdrafts and all other loans not included in any of the designated categories.

The following table presents the maturity distribution of selected loan categories at December 31, 2012 (excluding residential mortgage, home equity and installment-individual loans).

	Due in one year or less	Due after one year but in or before five years	Due after five years	Total
	(in thousands of dollars)
Construction and land development	$15,089	$6,470	$298	$21,857
Commercial and industrial	14,966	19,163	1,081	35,210
Agricultural	3,798	833	-	4,631
Real estate-farmland	10,370	19,084	3,068	32,522
Real estate-nonresidential, nonfarm	39,703	75,341	14,179	129,223
Total selected loans	$83,926	$120,891	$18,626	$223,443
	============	============	===========	===========

The table below summarizes the percentages of the loans selected for use in the preceding table falling into each of the indicated maturity ranges and the sensitivity of such loans to interest rate changes for those with maturities greater than one year, all as of December 31, 2012.

	Due in one year or less	Due after one year but in or before five years	Due after five years	Total
Percent of total selected loans	37.56%	54.10%	8.34%	100.00%
Cumulative percent of total	37.56%	91.66%	100.00%

Sensitivity of loans to changes in interest rates-loans due after one year
Fixed rate loans		$113,457	$11,288	$124,745
Variable rate loans		7,434	7,338	14,772
Total		$120,891	$18,626	$139,517
		===========	==========	==========

SUMMARY OF LOAN LOSS EXPERIENCE

The following table summarizes loan balances at the end of each period and average loans outstanding, changes in the allowance for loan losses arising from loans charged off and recoveries on loans previously charged off, and provisions for loan losses which have been charged to expense.

page 29

	For year ended December 31,
	2012	2011	2010	2009	2008

	(in thousands of dollars)

Loans, net of unearned income	$338,803	$340,554	$342,559	$370,609	$396,926
	=========	=========	=========	=========	=========

Daily average amount of loans	$340,083	$343,625	$357,377	$390,555	$357,053
	=========	=========	=========	=========	=========

Balance of allowance for
possible loan losses at
beginning of period	$7,470	$7,997	$7,085	$5,220	$3,467
Less charge-offs:
Construction and land
development	81	528	1,572	1,974	-
Commercial and industrial	171	337	161	164	85
Agricultural	30	17	7	-	-
Real estate-farmland	83	1	257	60	-
Real estate-residential	259	832	492	1,098	97
Real estate-nonresidential,
nonfarm	248	192	1,123	87	120
Installment-Individuals	324	307	332	223	173
Other loans	-	-	-	-	-
	1,196	2,214	3,944	3,606	475
Add recoveries:
Construction and land
development	-	90	-	-	-
Commercial and Industrial	18	6	17	21	11
Agricultural	2	3	6	8	11
Real estate-farmland	-	-	-	-	-
Real estate-residential	9	74	6	7	49
Real estate-nonresidential,
nonfarm	109	13	6	-	7
Installment-Individuals	80	46	70	104	115
Other loans	-	-	1	3	2
	218	232	106	143	195

Net loans charged off	978	1,982	3,838	3,463	280

Provision charged to expense	500	1,455	4,750	5,328	2,033
Balance at end of period	$6,992	$7,470	$7,997	$7,085	$5,220
	=========	=========	=========	=========	=========

Net charge-offs as percentage of
average loans outstanding:	0.29%	0.58%	1.07%	0.89%	0.08%

Net charge-offs as percentage of:
Provision for loan losses	195.6%	136.2%	80.8%	65.0%	13.8%
Allowance for loan losses	14.0%	26.5%	48.0%	48.9%	5.4%

Allowance at end of period to
loans, net of unearned income	2.06%	2.19%	2.33%	1.91%	1.32%

As seen in the above table, net loans charged-off decreased in 2012 to $978,000 from $1,982,000 and $3,838,000 in 2011 and 2010, respectively. Net charged-off loans declined significantly in 2012 as compared to 2011 and 2010. Net loans charged-off in 2012 consisted of net losses on real estate loans of $472,000, net losses on loans to individuals of $244,000, net losses on commercial and industrial loans of $153,000, net losses on construction and land development loans of $81,000 and net losses on agricultural loans of $28,000. This compared to net loans charged-off in 2011 which consisted of net losses on construction and land development loans of $438,000, net losses on real estate loans of $938,000, net losses on commercial and industrial loans of $331,000, net losses on loans to individuals of $261,000 and net losses on agricultural loans of $14,000. The allowance for loan losses at the end of 2012 was $6,992,000, or 2.06% of outstanding loans, net of unearned income, as compared to $7,470,000, or 2.19% of outstanding loans, net of unearned income, and $7,997,000, or 2.33% of outstanding loans, net of unearned income in 2011and 2010, respectively. Net loans charged-off amounted to 0.29% of average total loans outstanding in 2012, 0.58% in 2011 and 1.07% in 2010.

page 30

The allowance for loan losses was 0.7 times the balance of nonaccrual loans at the end of 2012 compared to 0.8 times in 2011 and 0.6 times in 2010.

Nonaccrual loans increased $570,000 to $10,161,000 at December 31, 2012 from $9,591,000 at December 31, 2011. Nonaccrual loans decreased $3,662,000 to $9,591,000 at December 31, 2011 from $13,253,000 at December 31, 2010 primarily due to a decrease in construction and land development loans and 1 to 4 family residential loans classified as nonaccrual. The decrease in nonaccrual loans in 2011 was primarily due to foreclosure upon the collateral securing several loans, thus moving the underlying collateral to other real estate owned. Management believes that the allowance for loan losses as of December 31, 2012 is adequate, but if economic conditions deteriorate beyond management's expectations and additional charge-offs are incurred, the allowance for loan losses may require an increase through significant additional provision for loan losses. If economic conditions remain sluggish, net charge-offs may return to more elevated levels in 2013 resulting in elevated provision for loan losses in 2013 as compared to 2012.

The following table sets out respectively the allocation of the Allowance for Loan Losses and the percentage of loans by category to total loans outstanding at the end of each of the years indicated.

	December 31,
	2012	2011	2010	2009	2008

	(amounts in thousands of dollars)
Allowance applicable to:
Construction and land development	$892	$1,199	$1,475	$1,296	$1,009
Commercial and industrial loans	877	678	1,035	1,130	712
Agricultural loans	38	33	42	81	74
Real estate-farmland	570	766	724	541	367
Real estate-residential	1,219	1,327	1,274	1,308	844
Real estate-nonresidential
nonfarm	2,953	3,058	3,023	1,998	1,383
Installment-individual	419	390	384	628	755
Other loans	24	19	40	103	76
	$6,992	$7,470	$7,997	$7,085	$5,220
	========	========	========	========	========

Percentages of loans by
category to total loans:
Construction and land development	6.40%	7.95%	9.22%	11.00%	13.91%
Commercial and industrial loans	10.31%	8.61%	10.04%	10.44%	8.55%
Agricultural loans	1.36%	1.46%	1.48%	1.60%	1.92%
Real estate-farmland	9.52%	10.74%	9.95%	9.47%	9.00%
Real estate-residential	25.61%	24.59%	25.06%	24.40%	23.00%
Real estate-nonresidential
nonfarm	37.85%	37.17%	35.62%	34.27%	34.52%
Installment-individual	7.32%	7.64%	6.59%	6.65%	6.68%
Other loans	1.63%	1.84%	2.04%	2.17%	2.42%
	100.00%	100.00%	100.00%	100.00%	100.00%
	========	========	========	========	========

The Corporation monitors changes in the credit quality, terms and loan concentrations in its loan portfolio. Construction and land development loans decreased $5.4 million, or 19.8% at year-end 2012, $4.5 million, or 14.1%, at year-end 2011, $9.2 million, or 22.4%, at year-end 2010, $14.6 million, or 26.3%, at year-end 2009, in each case as compared to the previous year-end. However, these decreases followed a significant increase of $33.7 million, or 154.2%, at year-end 2008 as compared to year-end 2007, primarily due to increases in loans secured by subdivision land, reflecting the Corporation's expansion into more growth-oriented urban areas in Alabama. Overall loan volume declined slightly at year-end 2012 as compared to year-end 2011. The Corporation evaluates its exposure level to loan concentrations periodically to determine any amount of additional allowance allocations that is necessary based on any concentrations.

page 31

NON-PERFORMING ASSETS

Non-performing assets include nonaccrual loans, loans restructured because of a debtor's financial difficulties, other real estate owned and loans past due ninety days or more as to interest or principal payment.

Nonaccrual loans are those loans for which management has discontinued accrual of interest because there exists significant uncertainty as to the full and timely collection of either principal or interest or such loans have become contractually past due 90 days or more with respect to principal or interest, unless such loans are well secured and in the process of collection

From December 31, 2011 to December 31, 2012, nonaccrual loans increased to $10,161,000 from $9,591,000 following a decrease from $13,253,000 at year-end 2010. The elevated levels on nonaccrual loans in each year were primarily a result of weak economic conditions negatively impacting many loan customers, particularly construction and land development loans, 1-4 family real estate loans and commercial real estate loans.

There were $3,745,000 in restructured loans as of December 31, 2012, which included primarily commercial real estate loans and 1-4 family real estate loans. The Company has allocated specific reserves in the amount of $58,575 to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2012. There were $1,059,000 in restructured loans as of December 31, 2011, which included commercial real estate loans and construction and land development loans. No specific reserves were allocated to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2011. Other real estate owned, consisting of properties acquired through foreclosures or deeds in lieu thereof, totaled $6,878,000 at December 31, 2012, a decrease of $233,000 from $7,111,000 at December 31, 2011. The continued weak economic conditions led to continued elevated levels of other real estate owned in 2012 and 2011 as compared to periods prior to 2009. Other real estate owned is likely to remain at elevated levels throughout 2013 as are the related foreclosure/repossession expenses as compared to periods prior to 2009. All major credit lines and troubled loans are reviewed regularly by a committee of the Board of Directors. Management believes that the Bank's non-performing loans have been accounted for in the methodology for calculating the allowance for loan losses.

The following table summarizes the Corporation's nonaccrual loans, loans past due 90 days or more but accruing interest, restructured loans and other real estate owned. Troubled debt restructurings in the following table includes only those troubled debt restructurings that are accruing interest.

	December 31,
	2012	2011	2010	2009	2008

	(in thousands of dollars)
Nonaccrual loans	$10,161	$9,591	$13,253	$7,555	$3,029
Troubled debt restructurings	209	268	2,742	7,307	0
Other real estate owned	6,878	7,111	12,704	12,550	247
Loans past due ninety days or
more as to interest or principal
payment but still accruing	0	24	0	8	2

The amount of interest income actually recognized on nonaccrual loans during 2012, 2011 and 2010 was $395,000, $258,000 and $121,000, respectively. The additional amount of interest income that would have been recorded during 2012, 2011 and 2010, if the above nonaccrual loans had been current in accordance with their original terms, was $705,000, $973,000 and $818,000, respectively. No interest was foregone on troubled debt restructurings in 2012, 2011 and 2010.

Loans that are classified as "substandard" by the Bank represent loans to which management has doubts about the borrowers' ability to comply with the present loan repayment terms. At December 31, 2012, there were approximately $7,411,000 in loans that were classified as "substandard" and accruing interest. This compares to approximately $7,622,000 in loans that were classified as "substandard" and accruing interest at December 31, 2011. At December 31, 2012, management was not aware of any specifically identified loans, other than those classified as "substandard" that represent significant potential problems or that management has doubts as to the borrower's ability to comply with the present repayment terms. The Corporation believes that it and the Bank have appropriate internal controls and although the Corporation and the Bank conduct regular and thorough loan reviews, the risk inherent in the lending business results in periodic charge-offs of loans. The Corporation maintains an allowance for loan losses that it believes to be adequate to absorb probable incurred losses in the loan portfolio. Management evaluates, on a quarterly basis, the risk in the portfolio to determine an adequate allowance for loan losses. The evaluation includes analyses of historical performance, the level of nonperforming and rated loans, specific analyses of problem loans, loan activity since the previous quarter, loan review reports, consideration of current economic conditions and other pertinent information. The evaluation is reviewed by the Audit Committee of the Board of Directors of the Bank. Also, as a matter of policy, internal classifications of loans are performed on a routine and continuing basis. See "Critical Accounting Policies" for more information pertaining to the Corporation's allowance for loan losses.

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SECURITIES

The securities portfolio consists primarily of U.S. government agency securities, U.S. government-sponsored entities securities and marketable bonds of states, counties and municipalities. Management uses investment securities to assist in maintaining proper interest rate sensitivity in the balance sheet, to provide securities to pledge as collateral for certain public funds and repurchase agreements and to provide an alternative investment for available funds.

The following table sets forth the carrying amount of investment and other securities at the dates indicated:

		December 31,
		2012	2011	2010

		(in thousands of dollars)
Available-for-sale
	U.S. treasury securities	$-	$100	$101
	U.S. government-sponsored
	entities	143,611	116,408	104,655
	Mortgage-backed securities - residential	78,208	62,884	43,835
	Obligations of states and
	political subdivisions	38,375	38,078	42,559
	Other securities	-	-	45
Total securities		$260,194	$217,470	$191,195
		=========	=========	=========

The following table sets forth the maturities of securities at December 31, 2012 and the average yields of such securities. Actual maturities may differ from contractual maturities of mortgage-backed securities because the mortgages underlying the securities may be called or prepaid with or without penalty. Therefore, these securities are not included in the maturity categories noted below as of December 31, 2012.

	U.S. Treasuries,
	Government Agencies	State and
	and Government-	Political	Other Debt
	Sponsored Enterprises	Subdivisions	Securities	Total

	(in thousands of dollars)
Available-for-sale
Due in one year or less:
Amount	$3,965	$3,182	-	$7,147
Yield	1.21%	4.33%	-	2.60%

Due after one year through
five years:
Amount	$63,265	$13,901	-	$77,166
Yield	1.32%	4.60%	-	1.91%

Due after five years through
ten years:
Amount	$74,959	$16,730	-	$91,689
Yield	1.48%	3.29%	-	1.81%

Due after ten years:
Amount	$1,422	$4,562	-	$5,984
Yield	0.96%	3.05%	-	25.14%

The above table shows yields on the tax-exempt obligations to be computed on a taxable equivalent basis.

Total average securities increased by $40.1 million, or 20.3%, to $237.7 million during 2012 as compared to $197.6 million for 2011. Average non-taxable securities decreased by $3.7 million, or 9.7%, in 2012 while average taxable securities increased by $43.8 million, or 27.4%, to account for the overall increase in average investments. The increase in total average securities

page 33

during 2012 was primarily a result of deposit growth and lower average loan balances in 2012 as compared to 2011 that led to excess funds being placed in the investment portfolio. Total average securities increased by $32.3 million, or 19.6%, to $197.6 million during 2011 as compared to $165.3 million for 2010. Average non-taxable securities decreased by $1.6 million, or 4.1%, in 2011 while average taxable securities increased by $34.0 million, or 27.0%, to account for the overall increase in average investments. The increase in total average securities during 2011 was primarily a result of lower average loan balances in 2011 that led to excess funds being placed in the investment portfolio.

The Corporation saw an increase in the fair value of its investment securities portfolio at December 31, 2012 as compared to December 31, 2011. There was an unrealized gain on securities, net of tax, of $2,445,000 at December 31, 2012 as compared to an unrealized gain on securities, net of tax, of $2,238,000 at December 31, 2011. The primary cause for unrealized gains within the portfolio at each year-end is the impact movements in market rates have had in comparison to the underlying yields on these securities. Market interest rates moved lower in 2012, causing the investments held by the Corporation to increase in market value at December 31, 2012 as compared to December 31, 2011. If interest rates continue to move lower in 2013, the Corporation's investments securities would likely see an acceleration of prepayments, which would negatively impact the net interest margin as re-investment would occur in a lower interest rate environment.

DEPOSITS

The Corporation's primary source of funds is customer deposits, including certificates of deposits in excess of $100,000. Average deposits increased by $31.1 million, or 5.7%, to $579.8 million in 2012, by $5.8 million, or 1.1%, to $548.7 million in 2011, and by $8.6 million, or 1.6%, to $542.9 million in 2010.

The average amount of deposits for the periods indicated is summarized in the following table:

	For the years ended December 31,
	2012		2011		2010
	Average	Average	Average	Average	Average	Average
	Balance	Rate	Balance	Rate	Balance	Rate

	(in thousands of dollars, except percents)
Noninterest bearing
demand deposits	$90,597	0.00%	$80,390	0.00%	$76,069	0.00%

Interest bearing
demand deposits	107,199	0.20%	97,739	0.22%	83,028	0.36%
Savings deposits	109,910	0.40%	94,596	0.43%	79,870	0.51%
Time deposits of
$100,000 or more	139,380	1.38%	139,140	1.67%	159,531	2.27%
Other time deposits	132,691	1.19%	136,834	1.48%	144,439	2.05%
Total interest bearing
deposits	489,180	0.85%	468,309	1.06%	466,868	1.56%

Total deposits	$579,777		$548,699		$542,937

=========== =========== ===========

Remaining maturities of time certificates of deposits of $100,000 or more outstanding at December 31, 2012 are summarized as follows (in thousands of dollars):

3 months or less		$22,673
Over 3 months through 6 months		24,414
Over 6 months through 12 months		37,894
Over 1 year		56,793
Total		$141,774
		=========

Other funds were invested in other earning assets such as federal funds at minimum levels necessary for operating needs and to maintain adequate liquidity. A significant amount of the Corporation's deposits are time deposits greater than $100,000. A significant percentage of these time deposits mature within one year. If the Corporation is unable to retain these deposits at their maturity it may be required to find alternate sources of funds to fund any future loan growth, which may be more costly than these deposits and may as such negatively affect the Corporation's net interest margin

. The Corporation does not currently expect that a material amount of these deposits will be withdrawn at maturity.

page 34

The Corporation began using reciprocal brokered deposits in 2009, however it did not have any such deposits at December 31, 2012. The Corporation had $0.8 million of reciprocal brokered deposits at December 31, 2011. These are customer deposits which the Bank has swapped for deposits of other banks so that the entire customer deposit with the Bank is spread among other banks and the Bank's customer is able to acquire FDIC insurance coverage for the full amount of his/her deposit. The Corporation has not traditionally used brokered deposits as a funding source and had no brokered deposits at year-end 2012 and 2011 other than the reciprocal brokered deposits described above.

OFF BALANCE SHEET ARRANGEMENTS

Neither the Corporation nor the Bank have historically incurred off-balance sheet obligations through the use of, or investment in, off-balance sheet derivative financial instruments of structured finance or special purpose entities organized as corporations, partnerships or limited liability companies or trusts. However, the Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The following table summarizes the Bank's involvement in financial instruments with off-balance-sheet risk as of December 31:

	Amount
	2012	2011	2010

	(in thousands of dollars)
Commitments to extend credit and
unused lines of credit	$59,692	$49,502	$56,724
Standby letters of credit	2,033	2,265	2,586
Mortgage loans sold with repurchase
requirements outstanding	9,615	10,305	9,348

LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT

The primary functions of asset/liability management are to assure adequate liquidity and maintain an appropriate balance between interest sensitive earning assets and interest bearing liabilities. Liquidity management involves the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Interest rate sensitivity management seeks to avoid fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates.

Marketable securities, particularly those of shorter maturities, are the principal source of asset liquidity. Securities maturing in one year or less amounted to $7.1 million at December 31, 2012, representing 2.7% of the investment securities portfolio as compared to $8.1 million at December 31, 2011, representing 3.7% of the investment securities portfolio. Monthly principal paydowns received on mortgage-backed securities also provide additional liquidity. Management believes that the investment securities portfolio, along with additional sources of liquidity, including cash and cash equivalents, federal funds sold and maturing loans, provides the Corporation with adequate liquidity to meet its funding needs.

The Bank also has federal funds lines with some of its correspondent banks. These lines may be drawn upon if the Bank has short-term liquidity needs. As of December 31, 2012, the Bank had $25.0 million available under these lines. At December 31, 2012, the Bank had no federal funds purchased from these lines. The average daily federal funds purchased for 2012 equaled $5,000 at an average interest rate of 1.21%. For 2011 the average daily federal funds purchased equaled $74,000 at an average interest rate of 1.08%. For 2010 the average daily federal funds purchased equaled $16,000 at an average interest rate of 1.22%.

In addition to the federal funds lines, the Bank also has the capacity to borrow additional funds from the Federal Home Loan Bank of Cincinnati that may be drawn upon for short-term or longer-term liquidity needs. At December 31, 2012, the Bank had total borrowings of $6,190,000 and had approximately $22,514,000 of available additional borrowing capacity from the Federal Home Loan Bank of Cincinnati.

Interest rate sensitivity varies with different types of interest earning assets and interest bearing liabilities. Overnight federal funds, on which rates change daily, and loans which are tied to the prime rate differ considerably from long term securities and fixed rate loans. Similarly, time deposits, especially those $100,000 and over, are much more interest-sensitive than are savings accounts. At December 31, 2012, the Corporation had a total of $85.0 million in certificates of deposit of $100,000 or more which would mature in one year or less. In addition, consumer certificates of deposits of smaller amounts mature generally in two years or less, while money market deposit accounts mature on demand.

page 35

The Corporation has certain contractual obligations at December 31, 2012 as summarized in the table below.

	Payments due by period
	Less than			More than
Contractual Obligations	1 year	1-3 years	3-5 years	5 years	Total

	(Dollars in thousands)
Certificates of deposit	$178,618	$63,892	$30,979	$-	$273,489
Repurchase agreements	2,315	-	-	-	2,315
Borrowings	1,082	5,074	31	3	6,190
Standby letters of credit	1,422	611	-	-	2,033
Operating leases	110	227	239	-	576
Total	$183,547	$69,804	$31,249	$3	$284,603
	==========	==========	==========	==========	==========

Commitments to extend credit	$2,495	$-	$-	$-	$2,495
	==========	==========	==========	==========	==========

CAPITAL RESOURCES, CAPITAL AND DIVIDENDS

Regulatory requirements place certain constraints on the Corporation's capital. In order to maintain appropriate ratios of equity to total assets, a corresponding level of capital growth must be achieved. Growth in total average assets was 6.0% in 2012 and 1.5% in 2011. Average shareholder's equity increased 11.0% in 2012 and 6.7% in 2011. The Corporation's equity capital was $64,741,000 at December 31, 2012 as compared to $59,767,000 at December 31, 2011. The Corporation's equity capital was positively impacted at year-end 2012 by an unrealized gain on available-for-sale securities, net of tax, of $2,445,000 as compared to an unrealized gain on available-for-sale securities, net of tax, of $2,238,000 at year-end 2011. These unrealized gains are excluded from capital in the Bank's and Corporation's calculation of regulatory capital. The Corporation's Tier I capital increased 8.3% from year-end 2011 to year-end 2012.

The Corporation's average equity-to-average asset ratio (excluding unrealized gain/loss on investment securities) was 9.3% and 9.0% in 2012 and 2011, respectively. The Corporation expects to maintain a capital to asset ratio that reflects financial strength and conforms to current regulatory guidelines. Federal Reserve Board guidelines generally state that dividends should be reduced if they exceed net income for the prior four quarters, of if prospective earnings retention is not adequate for a holding company's capital needs or overall current financial condition. The ratio of dividends to net income was 34.5% in 2012, 31.4% in 2011 and 38.8% in 2010.

As of December 31, 2012, the authorized number of common shares was 9 million shares, with 1,523,765 shares issued and outstanding and the authorized number of Class A shares was 1 million shares, with 49,716 shares outstanding.

The Federal Reserve, the OCC and the FDIC have adopted risk-based capital guidelines for U.S. banking organizations. These guidelines provide a uniform capital framework that is sensitive to differences in risk profiles among banking companies. Under these guidelines, total capital consists of Tier I capital (core capital, primarily shareholders' equity) and Tier II capital (supplementary capital, including certain qualifying debt instruments and the loan loss reserve). Assets are assigned risk weights ranging from 0% to 100% depending on the level of credit risk normally associated with such assets. Off-balance sheet items (such as commitments to make loans) are also included in assets through the use of conversion factors established by the regulators and are assigned risk weights in the same manner as on-balance sheet items. Banking institutions are expected to achieve a Tier I capital to risk-weighted assets ratio of at least 4.00%, a total capital (Tier I plus Tier II) to risk-weighted assets ratio of at least 8.00%, and a Tier I capital to total assets ratio (leverage ratio) of at least 4.00%. Under the Federal Reserve's regulations, for a bank holding company, like the Corporation, to be considered "well capitalized" it must maintain a Total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 6% and not be subject to a written agreement, order or directive to maintain a specific capital level. In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide that a minimum ratio of Tier 1 capital to average assets, less goodwill and other specified intangible assets, of at least 4% should be maintained by most bank holding companies.

As described elsewhere in this Annual Report on Form 10-K federal banking regulators have proposed regulations that seek to implement the requirements of Basel III, which if adopted and applicable to the Corporation and the Bank would require the Corporation and the Bank to maintain additional levels of capital than are currently required.

page 36

As of December 31, 2012, the Corporation and the Bank, had ratios exceeding the regulatory requirements to be classified as "well capitalized," the highest regulatory capital rating. The Corporation's and the Bank's ratios are illustrated below.


					Required			To Be Well Capitalized
					For Capital			Under Applicable
			Actual		Adequacy Purposes			Regulations
			Amount	Ratio	Amount		Ratio	Amount		Ratio

			(Dollars in thousands)
As of December 31, 2012
	Total Capital to risk weighted assets
		Corporation	$67,581	16.05%	$33,682	>	8.00%	$42,103	>	10.00%
		Bank	67,224	15.97	33,678	>	8.00	42,098	>	10.00
	Tier I (Core) Capital to risk weighted assets
		Corporation	62,297	14.80	16,841	>	4.00	25,262	>	6.00
		Bank	61,939	14.71	16,839	>	4.00	25,259	>	6.00
	Tier I (Core) Capital to average quarterly assets
		Corporation	62,297	9.33	26,715	>	4.00
		Bank	61,939	9.27	26,713	>	4.00	33,391	>	5.00

As of December 31, 2011
	Total Capital to risk weighted assets
		Corporation	$62,769	15.06%	$33,354	>	8.00%	$41,692	>	10.00%
		Bank	62,188	14.92	33,349	>	8.00	41,686	>	10.00
	Tier I (Core) Capital to risk weighted assets
		Corporation	57,529	13.80	16,677	>	4.00	25,015	>	6.00
		Bank	56,948	13.66	16,674	>	4.00	25,012	>	6.00
	Tier I (Core) Capital to average quarterly assets
		Corporation	57,529	9.15	25,137	>	4.00
		Bank	56,948	9.06	25,133	>	4.00	31,417	>	5.00

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Adoption of New Accounting Standards:

In May 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of this amendment did not have a material impact on the Corporation's consolidated financial statements.

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholders' equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance are effective as of the beginning of a fiscal reporting year, and interim periods within that year, that begins after December 15, 2011. The adoption of this amendment changed the presentation of the components of comprehensive income for the Corporation as part of the consolidated statement of shareholders' equity which is now reported in the statement of income and comprehensive income.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Corporation's primary place of exposure to market risk is interest rate volatility of its loan portfolio, investment portfolio and interest-bearing deposit liabilities. Fluctuations in interest rates ultimately impact both the level of income and expense recorded on a large portion of the Corporation's assets and liabilities, and the market value of interest-earning assets and interest-bearing liabilities, other than those which possess a short term to maturity.

page 37

Simulation modeling is used to evaluate both the level of interest rate sensitivity as well as potential balance sheet strategies. Important elements in this modeling process include the mix of floating rate versus fixed rate assets and liabilities, the repricing/maturing volumes and rates of the existing balance sheet, and assumptions regarding future volumes, maturity patterns and pricing under varying interest rate scenarios. The Bank's Asset/Liability policy strives to limit the decrease in net interest income over a +/-200 basis point rate shock to no more than 9.0 percent over the next twelve months as compared to the base scenario of no changes in interest rates and to limit the decrease in the current present value of the Bank's equity to no more than 18 percent over the same +/-200 basis point rate shock. As of December 31, 2012, the -200 basis point rate shock was estimated to increase the current present value of the Bank's equity by 9.1% and a +200 basis point rate shock was estimated to decrease the current present value of the Bank's equity by 10.7%, both well within the policy guidelines. A -200 basis point rate shock was estimated to decrease net interest income approximately $3,206,000, or 16.0 percent, over the next twelve months, as compared to the base scenario. A +200 basis point rate shock was projected to decrease net interest income approximately $437,000, or 2.2 percent, over the next twelve months as compared to the base scenario. The decrease in net interest income in the next twelve months in the -200 basis point rate shock is outside the Bank's limit of -9.0%; however, the longer-term interest rate risk seems to be mitigated as shown by the positive change in the current present value of the Bank's equity in the -200 basis point rate shock scenario as compared to rates remaining stable. Although interest rates are currently very low, the Bank believes a -200 basis point rate shock is an effective and realistic test since interest rates on many of the Bank's loans still have the ability to decline 200 basis points. For those loans that have floors above the -200 basis point rate shock, the interest rate would be the floor rate. All deposit account rates would likely fall to their floors under the -200 basis point rate shock as well. This simulation analysis assumes that NOW and savings accounts have a lower correlation to changes in market interest rates than do loans, investment securities and time deposits. The simulation analysis takes into account the call features of certain investment securities based upon the rate shock, as well as estimated prepayments on loans. The simulation analysis assumes no change in the Bank's asset/liability composition due to the inherent uncertainties of specific conditions and corresponding actions of management. Actual results would vary due to changing market conditions and management's response to those conditions.

More about market risk is included in "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Interest Rate Sensitivity Management." All market risk sensitive instruments described within that section have been entered into by the Corporation for purposes other than trading. The Corporation does not hold market risk sensitive instruments for trading purposes. The Corporation is not subject to any foreign currency exchange or commodity price risk.

The following table provides information about the Corporation's financial instruments that are sensitive to changes in interest rates as of December 31, 2012. Non-maturity deposits such as NOW accounts, money market accounts and savings accounts are not included in the following table.

page 38

		Expected Maturity Date for year ending December 31, 2012
		2013	2014	2015	2016	2017	Thereafter	Total	Fair Value

		(in thousands of dollars)
Interest-sensitive assets:
	Loans and leases:
	Variable rate	$5,749	$4,188	$2,087	$2,907	$6,694	$13,854	$35,479	$35,065
	Average interest rate	5.02%	4.00%	4.53%	4.79%	4.56%	4.52%	4.57%

	Fixed rate	112,544	63,093	66,522	12,356	34,712	16,614	305,841	306,270
	Average interest rate	6.83%	6.89%	6.32%	6.34%	5.61%	5.05%	6.48%

	Securities	45,798	45,775	16,751	9,996	19,315	122,559	260,194	260,194
	Average interest rate	1.51%	1.91%	2.96%	2.40%	1.64%	2.12%	2.00%

	Federal funds sold and other	25,130	248	496	-	496	743	27,113	27,098
	Average interest rate	0.24%	0.60%	1.02%		1.15%	1.90%	0.32%

Interest-sensitive liabilities:
	Interest-bearing deposits:
	Variable rate	4,073	1,476	-	-	-	-	5,549	5,549
	Average interest rate	1.09%	0.99%					1.06%

	Fixed rate	174,545	49,130	13,286	11,177	19,802	-	267,940	270,111
	Average interest rate	0.93%	1.57%	2.29%	2.13%	2.09%	0.00%	1.25%

	Securities sold under
	repurchase agreement	2,315	-	-	-	-	-	2,315	2,315
	Average interest rate	1.59%						1.59%

	Long-term borrowings	1,046	5,000	-	78	-	66	6,190	6,429
	Average interest rate	5.09%	2.94%	0.00%	6.50%	0.00%	4.87%	3.37%

U.S. Government agency and U.S. government-sponsored entity securities in the above table with call features are shown as maturing on the call date if they are likely to be called in the current interest rate environment

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Consolidated financial statements appear on the following pages for First Pulaski National Corporation and its subsidiary.

page 39

Report of Management on the Company's
Internal Control over Financial Reporting

March 15, 2013

Management of First Pulaski National Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are made only in accordance with authorizations of management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of change in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management of First Pulaski National Corporation, including the Chief Executive Officer and the Chief Financial Officer, has assessed the Company's internal control over financial reporting as of December 31, 2012, based on criteria for effective internal control over financial reporting described in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2012, based on the specified criteria.

Crowe Horwath LLP, an independent registered public accounting firm, has audited the effectiveness of the Company's internal controls over financial reporting as stated in their report which is included herein.

/s/Mark A. Hayes                                                                                                                         /s/Tracy Porterfield
Mark A. Hayes                                                                                                                              Tracy Porterfield
Chairman of the Board & Chief Executive Officer                                                                    Chief Financial Officer

page 40

Report of Independent Registered Public Accounting Firm

Audit Committee
First Pulaski National Corporation
Pulaski, Tennessee

We have audited the accompanying consolidated balance sheets of First Pulaski National Corporation and subsidiary ("Company") as of December 31, 2012 and 2011, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2012. We also have audited the Company's internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on the Company's Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the company's internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

page 41

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Pulaski National Corporation and subsidiary as of December 31, 2012 and 2011 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/Crowe Horwath LLP
Crowe Horwath LLP

Brentwood, Tennessee
March 15, 2013

page 42

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

December 31, 2012 and 2011

ASSETS

2012

2011

Cash and due from banks

$33,731,413

$32,182,394

Federal funds sold

3,215,000

1,640,000

Total cash and cash equivalents

36,946,413

33,822,394

Interest bearing balances with banks

2,924,452

543,832

Securities available for sale

260,194,215

217,469,728

Loans held for sale

2,516,997

2,168,816

Loans

Loans net of unearned income

338,802,668

340,553,701

Allowance for loan losses

(6,991,781)

(7,470,322)

Total net loans

331,810,887

333,083,379

Bank premises and equipment

18,952,092

18,760,960

Accrued interest receivable

3,048,659

3,351,127

Other real estate owned

6,877,706

7,110,969

Federal Home Loan Bank stock

1,526,500

1,526,500

Company-owned life insurance

11,093,603

10,789,213

Prepaid FDIC insurance

1,282,147

1,731,418

Deferred tax assets, net

3,020,014

3,221,632

Prepayments and other assets

1,417,907

1,518,844

TOTAL ASSETS

$681,611,592

$635,098,812

=========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Deposits:

Noninterest bearing

$103,945,471

$88,005,413

Interest bearing

498,179,003

471,225,835

Total deposits

602,124,474

559,231,248

Securities sold under repurchase agreements

2,315,213

1,850,824

Other borrowed funds

6,190,463

7,326,366

Accrued interest payable

799,895

863,878

Other liabilities

5,440,207

6,059,192

TOTAL LIABILITIES

616,870,252

575,331,508

SHAREHOLDERS' EQUITY

Common stock, $1 par value; authorized - 9,000,000 shares;

1,523,765 and 1,570,428 shares issued and outstanding, respectively

1,523,765

1,570,428

Class A stock, $1 par value; authorized - 1,000,000 shares;

49,716 and 0 shares issued and outstanding, respectively

49,716

-

Capital surplus

1,729,504

1,601,845

Retained earnings

58,993,544

54,357,140

Accumulated other comprehensive income, net

2,444,811

2,237,891

TOTAL SHAREHOLDERS' EQUITY

64,741,340

59,767,304

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$681,611,592

$635,098,812

=========== ==========

The accompanying notes are an integral part of these financial statements.

page 43

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Years Ended December 31, 2012, 2011 and 2010

2012

2011

2010

INTEREST INCOME

Loans, including fees

$23,177,639

$24,131,721

$24,894,110

Securities:

Taxable

3,523,195

3,215,452

2,998,180

Non-taxable

1,013,721

1,225,583

1,375,528

Federal funds sold and other

60,527

56,627

69,215

Dividends

87,811

84,875

86,778

Total Interest Income

27,862,893

28,714,258

29,423,811

INTEREST EXPENSE

Interest on deposits:

Transaction accounts

219,186

215,022

301,014

Money market deposit accounts

327,964

306,886

299,088

Other savings deposits

106,625

95,846

104,450

Time certificates of deposit of $100,000 or more

1,919,704

2,318,208

3,614,261

All other time deposits

1,574,115

2,025,023

2,966,009

Securities sold under repurchase agreements

33,072

33,892

30,360

Other borrowed funds

234,539

273,293

285,778

Total Interest Expense

4,415,205

5,268,170

7,600,960

NET INTEREST INCOME

23,447,688

23,446,088

21,822,851

Provision for loan losses

500,000

1,455,000

4,750,000

NET INTEREST INCOME AFTER PROVISION

FOR LOAN LOSSES

22,947,688

21,991,088

17,072,851

NON-INTEREST INCOME

Service charges on deposit accounts

2,035,387

2,198,672

2,139,031

Commissions and fees

296,505

300,902

328,815

Other service charges and fees

1,131,452

1,002,589

855,032

Income on company-owned life insurance

304,390

351,024

397,401

Security gains, net

1,049,353

132,760

1,072,441

Mortgage banking income

977,206

772,638

776,493

Other income

(35,588)

364,597

341,478

Total Non-interest Income

5,758,705

5,123,182

5,910,691

NON-INTEREST EXPENSES

Salaries and employee benefits

10,419,718

10,248,952

9,354,188

Occupancy expense, net

1,902,421

1,895,054

1,840,610

Furniture and equipment expense

749,169

729,064

724,327

Advertising and public relations

618,859

571,388

447,328

Impairment on available for sale securities and other

equity investments

-

-

39,200

Foreclosed assets, net

459,685

199,922

992,247

FDIC insurance expense

487,442

636,492

924,048

Other operating expenses

3,485,312

3,754,585

3,320,495

Total Non-interest Expenses

18,122,606

18,035,457

17,642,443

Income before income taxes

10,583,787

9,078,813

5,341,099

Applicable income tax expense

3,505,496

2,829,824

1,312,723

NET INCOME

$7,078,291

$6,248,989

$4,028,376

========== ========== ==========

Earnings per common share:

Basic

$4.50

$3.98

$2.58

========== ========== ==========

Diluted

$4.50

$3.98

$2.57

========== ========== ==========

Basic earnings per Class A share:

$4.54

$3.99

$2.58

========== ========== ==========

Comprehensive income:

Net income

$7,078,291

$6,248,989

$4,028,376

Reclassification adjustment for gains included

in net income, net of taxes

(647,556)

(81,926)

(661,803)

Change in unrealized gains (losses) on available

for sale securities, net of taxes

854,476

2,613,035

(1,365,494)

Other comprehensive income

206,920

2,531,109

(2,027,297)

Comprehensive income

$7,285,211

$8,780,098

$2,001,079

========== ========== ==========

The accompanying notes are an integral part of these financial statements.

page 44

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2012, 2011 and 2010

2012

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income

$7,078,291

$6,248,989

$4,028,376

Adjustments to reconcile net income to net cash

provided by operating activities-

Provision for loan losses

500,000

1,455,000

4,750,000

Depreciation

1,047,997

1,012,753

1,045,302

Amortization and accretion of investment securities, net

2,102,402

1,404,322

1,041,035

Deferred income tax expense (benefit)

74,136

647,015

(1,080,836)

(Gain) loss on sale or write-downs of other assets

342,725

(510,674)

301,418

Security gains, net

(1,049,353)

(132,760)

(1,072,441)

Stock-based compensation expense

105,989

134,750

134,750

Loans originated for sale

(37,371,080)

(28,552,444)

(27,514,025)

Proceeds from sale of loans

38,000,105

28,467,231

28,116,751

Mortgage banking income

(977,206)

(772,638)

(776,493)

Impairment of available for sale securities and other equity investments

-

-

39,200

Increase in cash surrender value of company-owned life insurance

(304,390)

(351,024)

(397,401)

Decrease (increase) in interest receivable

302,468

(34,891)

813,141

Decrease in prepayments and other assets

550,206

457,311

1,021,383

Decrease in accrued interest payable

(63,983)

(456,843)

(311,006)

(Decrease) increase in accrued taxes

(162,016)

(39,733)

135,456

(Decrease) increase in other liabilities

(456,969)

1,615,789

1,217,768

Cash Provided by Operating Activities, net

9,719,322

10,592,153

11,492,378

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of securities available for sale

(155,829,991)

(123,596,278)

(179,788,066)

Proceeds from sales of securities available for sale

42,611,113

6,760,940

35,666,787

Proceeds from maturities of securities available for sale

69,775,746

93,391,203

101,484,084

Increase in interest bearing balances with banks

(2,380,620)

(2,774)

(3,258)

Purchase of company-owned life insurance

-

-

-

Net (increase) decrease in loans

(236,307)

(3,723,280)

18,070,978

Capital expenditures

(1,330,007)

(417,191)

(1,527,269)

Proceeds from sale of other assets

990,215

9,849,958

5,688,085

Cash Used by Investing Activities, net

(46,399,851)

(17,737,422)

(20,408,659)

CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings repaid

(1,135,903)

(218,985)

(233,678)

Net increase (decrease) in securities sold under repurchase agreements

464,389

47,801

(156,121)

Net increase (decrease) in deposits

42,893,226

25,907,722

(9,653,489)

Cash dividends paid

(2,441,887)

(1,962,157)

(1,564,111)

Proceeds from exercise of stock options, including tax benefit

-

-

21,020

Proceeds from issuance of common stock

24,723

150,150

121,220

Cash (Used) Provided by Financing Activities, net

39,804,548

23,924,531

(11,465,159)

INCREASE (DECREASE) IN CASH, net

3,124,019

16,779,262

(20,381,440)

CASH AND CASH EQUIVALENTS, beginning of year

33,822,394

17,043,132

37,424,572

CASH AND CASH EQUIVALENTS, end of year

$36,946,413

$33,822,394

$17,043,132

==========

==========

==========

Supplemental cash flow information

Interest paid

$4,479,188

$5,725,013

$7,911,966

Income taxes paid

3,821,000

2,323,000

2,193,796

Supplemental noncash disclosures

Transfers from loans to other real estate owned

1,015,381

3,751,635

6,167,790

The accompanying notes are an integral part of these financial statements.

page 45

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Years Ended December 31, 2012, 2011 and 2010

Accumulated

Other

Common Stock

Class A Stock

Capital

Retained

Comprehensive

Shares

Amount

Shares

Amount

Surplus

Earnings

Income, net

Total

Balance at January 1, 2010

1,559,016

$1,559,016

-

$-

$1,051,367

$47,606,043

$1,734,079

$51,950,505

Net income

-

-

-

-

-

4,028,376

-

4,028,376

Other comprehensive loss

-

-

-

-

-

-

(2,027,297)

(2,027,297)

Cash dividends paid $1.00

per share

-

-

-

-

-

(1,564,111)

-

(1,564,111)

Compensation expense for

restricted stock

-

-

-

-

134,750

-

-

134,750

Tax benefit arising from exercise

of director stock options

-

-

-

-

4,020

-

-

4,020

Exercise of stock options

500

500

-

-

16,500

-

-

17,000

Issuance of new common stock

2,450

2,450

-

-

(2,450)

-

-

-

Issuance of common stock through

dividend reinvestment plan

2,384

2,384

-

-

118,836

-

-

121,220

Balance at December 31, 2010

1,564,350

1,564,350

-

-

1,323,023

50,070,308

(293,218)

52,664,463

Net income

-

-

-

-

-

6,248,989

-

6,248,989

Other comprehensive income

-

-

-

-

-

-

2,531,109

2,531,109

Cash dividends paid $1.25

per share

-

-

-

-

-

(1,962,157)

-

(1,962,157)

Compensation expense for

restricted stock

-

-

-

-

134,750

-

-

134,750

Issuance of new common stock

2,450

2,450

-

-

(2,450)

-

-

-

Issuance of common stock through

dividend reinvestment plan

3,628

3,628

-

-

146,522

-

-

150,150

Balance at December 31, 2011

1,570,428

1,570,428

-

-

1,601,845

54,357,140

2,237,891

59,767,304

Net income

-

-

-

-

-

7,078,291

-

7,078,291

Other comprehensive income

-

-

-

-

-

-

206,920

206,920

Cash dividends paid $1.55

per common share

-

-

-

-

-

(2,400,125)

-

(2,400,125)

Cash dividends paid $0.84

per Class A share

-

-

-

-

-

(41,762)

-

(41,762)

Compensation expense for

restricted stock

-

-

-

-

105,989

-

-

105,989

Conversion of common stock

to Class A stock

(49,716)

(49,716)

49,716

49,716

-

-

-

-

Issuance of new common stock

2,450

2,450

-

-

(2,450)

-

-

-

Issuance of common stock through

dividend reinvestment plan

603

603

-

-

24,120

-

-

24,723

Balance at December 31, 2012

1,523,765

$1,523,765

49,716

$49,716

$1,729,504

$58,993,544

$2,444,811

$64,741,340

========

========

========

========

=========

=========

============

==========

The accompanying notes are an integral part of these financial statements.

page 46

Note 1 - Summary of Significant Accounting Policies

Nature of Operations and Principles of Consolidation

: The consolidated financial statements include First Pulaski National Corporation (the "Corporation") and its wholly owned subsidiary, First National Bank of Pulaski (the "Bank"), as well as the Bank's wholly owned subsidiary First Pulaski Reinsurance Company ("FPRC"), all of which are together referred to as the "Company." Intercompany transactions and balances are eliminated in consolidation.

The Company provides financial services through its offices in Giles, Lincoln and Marshall Counties in Tennessee and Limestone and Madison Counties in Alabama. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are residential mortgage, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flows from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, the customers' ability to repay their loans is dependent on the real estate and general economic conditions in the area.

Use of Estimates

: To prepare financial statements in conformity with U.S. generally accepted accounting principles management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses and fair values of financial instruments are particularly subject to change.

Cash Flows

: Cash and cash equivalents includes cash, deposits with other financial institutions with maturities under 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, and federal funds purchased and repurchase agreements.

Interest-Bearing Deposits in Other Financial Institutions:

Interest-bearing deposits in other financial institutions are carried at cost.

Securities

: Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method. Prepayments are anticipated in the amortization of premiums and discounts for mortgage backed securities. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment ("OTTI") at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

page 47

Note 1 - Summary of Significant Accounting Policies - (Continued)

Loans

: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using a method to approximate the level-yield method.

Interest income on loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans that are not performing. A loan is moved to non-accrual status in accordance with the Company's policy, typically after 90 days of non-payment.

All interest accrued but not received for loans placed on nonaccrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Concentration of Credit Risk:

Most of the Company's business activity is with customers located within Giles, Lincoln and Marshall Counties in Tennessee and Limestone and Madison Counties in Alabama. Therefore, the Company's exposure to credit risk is significantly affected by changes in the economy in these areas.

Mortgage Banking:

The Company originates first-lien mortgage loans for the purpose of selling them in the secondary market. Mortgage loans held for sale are recorded at the lower of cost or fair value. Gains and losses realized from the sale of these assets are included in mortgage banking income. Servicing rights related to the mortgages sold are not retained.

Allowance for Loan Losses

: The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers non-classified loans and is based on historical loss experience adjusted for current factors.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

page 48

Note 1 - Summary of Significant Accounting Policies - (Continued)

Loans over $250,000 are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Troubled debt restructurings are measured at the present value of estimated future cash flows using the loan's effective rate at inception. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent 3 years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; and effects of changes in credit concentrations. The following portfolio segments have been identified:

Commercial loans include loans for commercial or industrial purposes to business enterprises that are not secured by real estate. Commercial loans are typically made on the basis of the borrower's ability to repay from the cash flow of the borrower's business. Commercial loans are generally secured by accounts receivable, inventory and equipment. The collateral securing loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. The Company seeks to minimize these risks through its underwriting standards.

Commercial and Agricultural Real Estate loans include loans secured by non-residential real estate, including farmland and improvements thereon. Often these loans are made to single borrowers or groups of related borrowers, and the repayment of these loans largely depends on the results of operations and management of these properties. Adverse economic and weather conditions may affect the repayment ability of these loans.

Construction and Land Development loans include loans to finance the process of improving land preparatory to erecting new structures or the on-site construction of industrial, commercial, residential or farm buildings. Construction and land development loans also include loans secured by vacant land, except land known to be used or usable for agricultural purposes. Construction loans generally are made for relatively short terms. They generally are more vulnerable to changes in economic conditions. Further, the nature of these loans is such that they are more difficult to evaluate and monitor. The risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value upon completion of the project and the estimated cost (including interest) of the project. Periodic site inspections are made on construction loans.

Residential Real Estate loans include loans secured by residential real estate, including single-family and multi-family dwellings. Mortgage title insurance and hazard insurance are normally

page 49

Note 1 - Summary of Significant Accounting Policies - (Continued)

required. Adverse economic conditions in the Company's market area may reduce borrowers' ability to repay these loans and may reduce the collateral securing these loans.

Consumer loans include loans to individuals for household, family and other personal expenditures that are not secured by real estate. Consumer loans are generally secured by vehicles and other household goods. The collateral securing consumer loans may depreciate over time. The Company seeks to minimize these risks through its underwriting standards.

Other loans include loans to finance agricultural production and other loans to farmers that are not secured by real estate. Other loans also include loans to states and political subdivisions in the U.S. Loans to farmers are subject to the inherent risks in farming, such as unpredictable weather and market prices for goods produced from farming operations. Loans to states and political subdivisions are generally subject to the risk that the borrowing municipality or political subdivision may lose a significant portion of its tax base or that the project for which the loan was made may produce inadequate revenue.

Transfers of Financial Assets

: Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Other Real Estate Owned

: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.

Premises and Equipment

: Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line and accelerated methods with useful lives ranging from 5 to 39 years. Furniture, fixtures and equipment are depreciated using the straight-line and accelerated method with useful lives ranging from 3 to 7 years.

Federal Home Loan Bank (FHLB) Stock:

The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income.

Company Owned Life Insurance

: The Company has purchased life insurance policies on certain directors and key executives. Company owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Long-Term Assets

: Premises and equipment, and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.

Loan Commitments and Related Financial Instruments

: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

page 50

Note 1 - Summary of Significant Accounting Policies - (Continued)

Stock-Based Compensation

: Compensation cost is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Corporation's common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Income Taxes

: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

Retirement Plans

: Employee profit sharing plan expense is the amount contributed by the Company. Deferred compensation and supplemental retirement plan expense allocates the benefits over years of service. The present value of future benefits to be paid is being accrued over the period from the effective date of the agreements until the full eligibility date.

Earnings Per Common Share and Class A Share

: Basic earnings per common share and basic earnings per Class A share is the sum of distributed and undistributed earnings divided by the weighted average number of common shares and Class A shares outstanding during the period. The calculation is computed as if the restructuring involving the issuance of Class A shares in exchange for common shares, described later in these notes, had occurred as of January 1, of the earliest period presented. The computation only includes the 4% dividend premium on Class A shares to the extent it was paid. All outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation. Diluted earnings per common share includes the dilutive effect of additional potential common shares issuable under stock options.

Comprehensive Income

: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale which are also recognized as separate components of equity.

Loss Contingencies

: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Restrictions on Cash

: Cash on hand or on deposit with the Federal Reserve Bank was required to meet regulatory reserve and clearing requirements.

Dividend Restriction

: Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Corporation or by the Corporation to its shareholders.

Fair Value of Financial Instruments

: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 5. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and

page 51

Note 1 - Summary of Significant Accounting Policies - (Continued)

other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Operating Segments

: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassifications

: Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders' equity.

Adoption of New Accounting Standards:

In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholders' equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The amendments in this guidance became effective as of the beginning of a fiscal reporting year, and interim periods within that year, beginning after December 15, 2011. The adoption of this amendment changed the presentation of the components of comprehensive income for the Corporation as part of the consolidated statement of shareholders' equity which is now reported in the statement of income and comprehensive income.

Note 2 - Securities

The amortized cost and fair value of the available for sale securities portfolio at December 31, 2012 and 2011 and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

2012

Cost

Gains

Losses

Value

U.S. government sponsored entities

$141,947,132

$1,791,295

$127,308

$143,611,119

Obligations of states and

political subdivisions

37,465,402

1,025,489

115,727

38,375,164

Mortgage-backed securities: residential

76,820,832

1,389,995

2,895

78,207,932

Total

$256,233,366

$4,206,779

$245,930

$260,194,215

==========

==========

==========

==========

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

2011

Cost

Gains

Losses

Value

U.S. treasury securities

$100,107

$26

$-

$100,133

U.S. government sponsored entities

114,896,330

1,522,270

11,008

116,407,592

Obligations of states and

political subdivisions

36,668,186

1,437,841

27,737

38,078,290

Mortgage-backed securities: residential

62,178,656

767,916

62,859

62,883,713

Total

$213,843,279

$3,728,053

$101,604

$217,469,728

==========

==========

==========

==========

page 52

Note 2 - Securities (continued)

Sales of available for sale securities were as follows for the years ended December 31, 2012, 2011 and 2010:

2012

2011

2010

Proceeds

$42,611,113

$6,760,940

$35,666,787

Gross gains

1,059,448

132,760

1,103,228

Gross losses

10,095

-

30,787

The tax provision related to these net realized gains and losses was $(401,797), $(50,834) and $(410,638), respectively.

The amortized cost and fair value of debt securities at year end 2012 are shown below by contractual maturity. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

Available for Sale

Amortized Cost

Fair Value

Maturity

Due in one year or less

$7,091,195

$7,147,664

Due after one year through five years

75,778,165

77,165,420

Due after five years through ten years

90,527,342

91,688,761

Due after ten years

6,015,832

5,984,438

Mortgage-backed - residential

76,820,832

78,207,932

TOTAL

$256,233,366

$260,194,215

===========

===========

Securities pledged at year-end 2012 and 2011 had a carrying amount of $96,653,927 and $96,653,044, respectively, and were pledged to secure public deposits and securities sold under repurchase agreements.

At year-end 2012 and 2011, there were no holdings of securities of any one issuer, other than U.S. government agencies and U.S. government-sponsored entities, in an amount greater than 10% of shareholders' equity. All mortgage-backed securities held were issued by U.S. government agencies or U.S. government-sponsored entities.

page 53

Note 2 - Securities (Continued)

The following table summarizes the investment securities with unrealized losses at December 31, 2012 and December 31, 2011 aggregated by major security type and length of time in a continuous unrealized loss position:

2012

Less Than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Description of Securities

Value

Loss

Value

Loss

Value

Loss

U.S. government

    sponsored entities

$24,593,791

$127,308

$-

$-

$24,593,791

$127,308

Obligations of states and

    political subdivisions

7,881,003

112,417

236,946

3,310

8,117,949

115,727

Mortgage-backed securities

    - residential

6,194,258

2,895

-

-

6,194,258

2,895

Total temporarily impaired

    Securities

$38,669,052

$242,620

$236,946

$3,310

$38,905,998

$245,930

==========

=========

=========

=========

==========

=========

2011

Less Than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Description of Securities

Value

Loss

Value

Loss

Value

Loss

U.S. government

    sponsored entities

$8,505,750

$11,008

$-

$-

$8,505,750

$11,008

Obligations of states and

    political subdivisions

1,125,358

17,763

254,050

9,974

1,379,408

27,737

Mortgage-backed securities

    - residential

15,573,390

62,859

-

-

15,573,390

62,859

Total temporarily impaired

    Securities

$25,204,498

$91,630

$254,050

$9,974

$25,458,548

$101,604

==========

=========

=========

=========

==========

=========

In determining OTTI for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary impairment exists involves a high degree of subjectivity and judgment and is based on the information available to management at the point in time when the assessment is being made.

When OTTI occurs the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss. If an entity intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current-period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment's amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current-period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

page 54

Note 2 - Securities (Continued)

As of December 31, 2012, the Company's security portfolio consisted of 314 securities, 43 of which were in an unrealized loss position. The majority of unrealized losses are related to the Company's obligations of U.S. government-sponsored entities and obligations of states and political subdivisions. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other-than-temporarily impaired at December 31, 2012.

Note 3 - Loans

Loans at year end were as follows:

2012

2011

Commercial

$35,210,320

$29,518,794

Commercial and agricultural real estate:

Commercial real estate

129,223,393

127,470,394

Agricultural real estate

32,521,867

36,825,448

Residential real estate

Home equity line of credit

15,858,281

17,573,194

1-4 family closed-end first lien

66,696,592

60,979,977

1-4 family closed-end junior lien

1,756,066

2,593,391

Multi-family

638,165

997,839

Construction and land development

21,856,980

27,255,729

Consumer

25,005,334

26,194,891

Other

10,195,069

11,337,367

Subtotal

338,962,067

340,747,024

Less:

Net deferred loan fees

(159,399)

(193,323)

Allowance for loan losses

(6,991,781)

(7,470,322)

Loans, net

$331,810,887

$333,083,379

===========

==========

The following table presents the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2012 and 2011:

Commercial

Construction

and Agricultural

and Land

Residential

December 31, 2012

Commercial

Real Estate

Development

Real Estate

Consumer

Other

Total

Allowance for loan losses:

Beginning balance

$677,655

$3,825,067

$1,198,728

$1,327,170

$389,576

$52,126

$7,470,322

Provision for loan losses

352,386

(80,044)

(225,805)

142,606

273,417

37,440

500,000

Loans charged-off

(171,523)

(330,296)

(80,905)

(259,858)

(323,850)

(29,462)

(1,195,894)

Recoveries

18,175

108,225

333

9,173

79,403

2,044

217,353

Ending allowance balance

$876,693

$3,522,952

$892,351

$1,219,091

$418,546

$62,148

$6,991,781

=========

===========

=========

=========

=========

=========

=========

Commercial

Construction

and Agricultural

and Land

Residential

December 31, 2011

Commercial

Real Estate

Development

Real Estate

Consumer

Other

Total

Allowance for loan losses:

Beginning balance

$1,035,511

$3,747,046

$1,474,970

$1,274,380

$383,644

$81,410

$7,996,961

Provision for loan losses

(27,456)

257,810

161,679

810,414

267,371

(14,818)

1,455,000

Loans charged-off

(336,842)

(192,970)

(528,111)

(831,718)

(307,441)

(17,052)

(2,214,134)

Recoveries

6,442

13,181

90,190

74,094

46,002

2,586

232,495

Ending allowance balance

$677,655

$3,825,067

$1,198,728

$1,327,170

$389,576

$52,126

$7,470,322

=========

===========

=========

=========

=========

=========

=========

page 55

Note 3 - Loans (Continued)

Activity in the allowance for loan losses for 2010 was as follows:

Beginning balance	$7,085,316
Provision for loan losses	4,750,000
Loans charged-off	(3,943,873)
Recoveries	105,518
Ending balance	$7,996,961
	=========

The loan balances in the following tables related to credit quality do not include accrued interest receivable and deferred loan fees as of December 31, 2012 and 2011 due to immateriality.

The following table presents the balance in the allowance for loan losses and loans by portfolio segment and based on impairment method as of December 31, 2012 and 2011:

Commercial

Construction

and Agricultural

and Land

Residential

December 31, 2012

Commercial

Real Estate

Development

Real Estate

Consumer

Other

Total

Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment

$-

$276,420

$142,640

$-

$-

$-

$419,060

Collectively evaluated for impairment

876,693

3,246,532

749,711

1,219,091

418,546

62,148

6,572,721

Total ending allowance balance

$876,693

$3,522,952

$892,351

$1,219,091

$418,546

$62,148

$6,991,781

=========

==========

=========

=========

=========

=========

=========

Loans:

Loans individually evaluated for impairment

$46,474

$4,974,942

$632,571

$2,525,865

$-

$-

$8,179,852

Loans collectively evaluated for impairment

35,163,846

156,770,318

21,224,409

82,423,239

25,005,334

10,195,069

330,782,215

Total ending loans balance

$35,210,320

$161,745,260

$21,856,980

$84,949,104

$25,005,334

$10,195,069

$338,962,067

=========

==========

=========

=========

=========

=========

=========

Commercial

Construction

and Agricultural

and Land

Residential

December 31, 2011

Commercial

Real Estate

Development

Real Estate

Consumer

Other

Total

Allowance for loan losses:

Ending allowance balance attributable to loans:

Individually evaluated for impairment

$-

$146,311

$106,227

$-

$-

$-

$252,538

Collectively evaluated for impairment

677,655

3,678,756

1,092,501

1,327,170

389,576

52,126

7,217,784

Total ending allowance balance

$677,655

$3,825,067

$1,198,728

$1,327,170

$389,576

$52,126

$7,470,322

=========

==========

=========

=========

=========

=========

=========

Loans:

Loans individually evaluated for impairment

$48,405

$3,195,817

$1,643,830

$2,736,506

$-

$-

$7,624,558

Loans collectively evaluated for impairment

29,470,389

161,100,025

25,611,899

79,407,895

26,194,891

11,337,367

333,122,466

Total ending loans balance

$29,518,794

$164,295,842

$27,255,729

$82,144,401

$26,194,891

$11,337,367

$340,747,024

=========

==========

=========

=========

=========

=========

=========

page 56

Note 3 - Loans (Continued)

The following table presents information related to impaired loans by class of loans as of and for the year ended December 31, 2012.

Unpaid

Allowance for

Average

Interest

Cash Basis

Principal

Loan

Loan Losses

Loan

Income

Interest

Balance

Balance

Allocated

Balance

Recognized

Recognized

With no related allowance recorded:

Commercial

$145,475

$46,474

$-

$47,121

$-

$-

Commercial and agricultural real estate:

Commercial real estate

2,629,365

1,841,936

-

1,948,490

220,038

220,038

Agricultural real estate

613,100

530,507

-

580,983

-

-

Residential real estate:

Home equity line of credit

-

-

-

-

-

-

1-4 family closed-end

2,798,460

2,525,865

-

2,618,442

28,446

26,888

Multi-family

-

-

-

-

-

-

Construction and land development

1,548,286

426,380

-

448,565

-

-

With an allowance recorded:

Commercial

-

-

-

-

$216

$216

Commercial and agricultural real estate:

Commercial real estate

2,605,844

2,602,499

276,420

2,659,019

32,985

32,985

Agricultural real estate

-

-

-

-

-

-

Residential real estate:

Home equity line of credit

-

-

-

-

-

-

1-4 family closed-end

-

-

-

-

-

-

Multi-family

-

-

-

-

-

-

Construction and land development

206,191

206,191

142,640

472,525

-

-

$10,546,721

$8,179,852

$419,060

$8,775,145

$281,685

$280,127

=========

=========

=========

=========

=========

=========

The following table presents information related to impaired loans by class of loans as of and for the year ended December 31, 2011.

Unpaid

Allowance for

Average

Interest

Cash Basis

Principal

Loan

Loan Losses

Loan

Income

Interest

Balance

Balance

Allocated

Balance

Recognized

Recognized

With no related allowance recorded:

Commercial

$48,405

$48,405

$-

$57,439

$2,861

$2,861

Commercial and agricultural real estate:

Commercial real estate

3,272,228

2,597,072

-

2,688,848

33,623

33,623

Residential real estate:

1-4 family closed-end

3,009,101

2,736,506

-

3,069,752

116,021

116,021

Construction and land development

1,831,510

723,352

-

1,976,132

-

-

With an allowance recorded:

Commercial

-

-

-

-

-

-

Commercial and agricultural real estate:

Commercial real estate

598,745

598,745

146,311

622,258

-

-

Residential real estate:

1-4 family closed-end

-

-

-

-

-

-

Construction and land development

920,478

920,478

106,227

1,216,617

-

-

$9,680,467

$7,624,558

$252,538

$9,631,046

$152,505

$152,505

=========

=========

=========

=========

=========

=========

page 57

Note 3 - Loans (Continued)

The following table presents information for impaired loans as of December 31, 2010:

Average of individually impaired loans during the year

$12,907,114

Interest income recognized during impairment

326,397

Cash-basis interest income recognized

120,617

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans that are not performing.

The following table presents nonaccrual and loans past due 90 days still on accrual by class of loans as of December 31, 2012 and 2011:

Loans Past Due Over

Nonaccrual

90 Days Still Accruing

2012

2011

2012

2011

Commercial

$113,870

$59,028

$-

$-

Commercial and agricultural real estate:

Commercial real estate

4,553,409

3,504,851

-

-

Agricultural real estate

871,588

378,527

-

-

Residential real estate:

Home equity line of credit

-

-

-

-

1-4 family closed-end first lien

3,734,063

3,983,744

-

-

1-4 family closed-end junior lien

215,576

6,250

-

-

Multi-family

-

-

-

-

Construction and land development

632,571

1,539,053

-

-

Consumer

39,661

92,786

-

23,684

Other

-

26,507

298

-

$10,160,738

$9,590,746

$298

$23,684

==========

==========

==========

==========

The following table presents the aging of past due loans as of December 31, 2012 by class of loans:

			90 days
		30-89 Days	or more	Total	Loans Not
December 31, 2012		Past Due	Past Due	Past Due	Past Due	Total
Commercial		$312,830	$46,474	$359,304	$34,851,016	$35,210,320
Commercial and agricultural real estate :
	Commercial real estate	166,480	3,280,948	3,447,428	125,775,965	129,223,393
	Agricultural real estate	628,788	399,038	1,027,826	31,494,041	32,521,867
Residential real estate:
	Home equity line of credit	25,024	-	25,024	15,833,257	15,858,281
	1-4 family closed-end first lien	1,590,809	708,913	2,299,722	64,396,870	66,696,592
	1-4 family closed-end junior lien	437,816	-	437,816	1,318,250	1,756,066
	Multi-family	-	-	-	638,165	638,165
Construction and land development		114,868	632,571	747,439	21,109,541	21,856,980
Consumer		511,918	37,909	549,827	24,455,507	25,005,334
Other		61,106	298	61,404	10,133,665	10,195,069
		$3,849,639	$5,106,151	$8,955,790	$330,006,277	$338,962,067
		=========	=========	=========	=========	=========

The above table of past due loans includes nonaccrual loans of $3,789,253 in the loans not past due category, $1,265,632 in the 30-89 days past due category and $5,105,853 in the 90 days and greater past due category.

page 58

Note 3 - Loans (Continued)

The following table presents the aging of past due loans as of December 31, 2011 by class of loans:

90 days

30-89 Days

or more

Total

Loans Not

December 31, 2011

Past Due

Past Due

Past Due

Past Due

Total

Commercial

$333,697

$10,623

$344,320

$29,174,474

$29,518,794

Commercial and agricultural real estate :

Commercial real estate

1,810,872

2,003,558

3,814,430

123,655,964

127,470,394

Agricultural real estate

137,201

249,228

386,429

36,439,019

36,825,448

Residential real estate:

Home equity line of credit

82,698

-

82,698

17,490,496

17,573,194

1-4 family closed-end first lien

2,000,183

894,097

2,894,280

58,085,697

60,979,977

1-4 family closed-end junior lien

113,240

-

113,240

2,480,151

2,593,391

Multi-family

-

-

-

997,839

997,839

Construction and land development

1,375,760

457,065

1,832,825

25,422,904

27,255,729

Consumer

527,327

60,439

587,766

25,607,125

26,194,891

Other

69,375

27,066

96,441

11,240,926

11,337,367

$6,450,353

$3,702,076

$10,152,429

$330,594,595

$340,747,024

=========

=========

=========

=========

=========

The above table of past due loans includes nonaccrual loans of $3,016,993 in the loans not past due category, $2,895,361 in the 30-89 days past due category and $3,678,392 in the 90 days and greater past due category.

Troubled Debt Restructurings

During the year ended December 31, 2012, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

The Company has allocated $58,575 and $0 in specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2012 and 2011, respectively. The Company has not committed to lend any additional amounts as of December 31, 2012 and 2011 to customers with outstanding loans that are classified as troubled debt restructurings. The modifications in the table below are all related to modifying the monthly payments to require interest only rather than principal and interest and extending the maturity date for periods ranging from 6 months to 12 months.

The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31, 2012:

Pre-Modification

Post-Modification

Number

Unpaid Principal

Unpaid Principal

of Loans

Balance

Balance

Commercial real estate

4

$1,073,952

$1,073,952

1-4 family closed-end

2

208,781

208,781

6

$1,282,733

$1,282,733

======= =========== ===========

The troubled debt restructurings described above increased the allowance for loan losses by $8,849 and resulted in $185,879 in charge offs during the year ended December 31, 2012.

page 59

Note 3 - Loans (Continued)

The following table presents loans by class modified as troubled debt restructurings that occurred during the year ended December 31, 2011:

Pre-Modification

Post-Modification

Number

Unpaid Principal

Unpaid Principal

of Loans

Balance

Balance

Commercial real estate

1

$791,257

$791,257

Construction and land development

2

267,922

267,922

3

$1,059,179

$1,059,179

=======

===========

============

The troubled debt restructurings described above did not increase the allowance for loan losses and did not result in charge offs during the year ended December 31, 2011.

There were no loans modified as troubled debt restructurings for which there was a payment default within twelve months following the modification during the years ended December 31, 2012 and 2011.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company's internal underwriting policy.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. The Company uses the following definitions for risk ratings, which are updated annually:

Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution's credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. Loans listed as not rated are typically overdrafts and loans in process. As of December 31, 2012 and 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

page 60

Note 3 - Loans (Continued)

Special

December 31, 2012

Pass

Mention

Substandard

Doubtful

Not Rated

Commercial

$33,228,374

$1,563,736

$418,210

$-

$-

Commercial and agricultural real estate :

Commercial real estate

117,684,550

1,541,235

9,997,608

-

-

Agricultural real estate

30,582,687

1,058,687

880,493

-

-

Residential real estate:

Home equity line of credit

15,621,203

177,799

59,279

-

-

1-4 family closed-end first lien

61,438,010

768,094

4,469,679

20,809

-

1-4 family closed-end junior lien

1,485,555

54,935

215,576

-

-

Multi-family

638,165

-

-

-

-

Construction and land development

20,585,787

319,737

951,456

-

Consumer

24,535,838

153,524

315,972

-

-

Other

9,909,342

63,685

4,338

-

217,704

Total

$315,709,511

$5,701,432

$17,312,611

$20,809

$217,704

=========

=========

=========

=========

=========

Special

December 31, 2011

Pass

Mention

Substandard

Doubtful

Not Rated

Commercial

$29,009,547

$125,766

$383,481

$-

$-

Commercial and agricultural real estate :

Commercial real estate

115,705,423

3,656,544

8,108,427

-

-

Agricultural real estate

35,611,655

819,682

394,111

-

-

Residential real estate:

Home equity line of credit

17,244,456

33,020

295,718

-

-

1-4 family closed-end first lien

55,194,491

1,177,666

4,607,820

-

-

1-4 family closed-end junior lien

2,194,417

101,553

297,421

-

-

Multi-family

997,839

-

-

-

-

Construction and land development

25,051,579

14,472

2,189,678

-

Consumer

25,625,547

170,075

399,269

-

-

Other

10,672,388

19,337

26,506

-

619,136

Total

$317,307,342

$6,118,115

$16,702,431

$-

$619,136

=========

=========

=========

=========

=========

Note 4 - Real Estate Owned

Expenses related to foreclosed assets include:

2012

2011

2010

Net loss (gain) on sales

$128,861

$(238,492)

$(170,039)

Direct write-downs

129,568

7,755

496,461

Operating expenses

201,256

430,659

665,825

Total expenses

$459,685

$199,922

$992,247

==========

==========

==========

The Company did not have a valuation allowance for other real estate owned in 2012, 2011 or 2010.

page 61

Note 5 - Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate the fair value of each type of financial instrument:

Investment securities

: The fair values of securities available for sale are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs).

Impaired Loans

: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower's financial statements, or aging reports, adjusted or discounted based on management's historical knowledge, changes in market conditions from the time of the valuation, and management's expertise and knowledge of the client and the client's business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted as needed.

Other Real Estate Owned

: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals which are updated no less frequently than annually. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Real estate owned properties are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by independent appraisers whose qualifications have been reviewed and verified by the Corporation. Once received, a member of the Bank's Appraisal Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value.

page 62

Note 5 - Fair Value (Continued)

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

Fair Value Measurements at

Fair Value Measurements at

December 31, 2012 using

December 31, 2011 using

Quoted Prices

Quoted Prices

in Active

Significant

in Active

Significant

Markets for

Other

Markets for

Other

Identical

Observable

Identical

Observable

Carrying

Assets

Inputs

Carrying

Assets

Inputs

Value

(Level 1)

(Level 2)

Value

(Level 1)

(Level 2)

Assets:

Available for sale securities:

U.S. treasuries

$-

$-

$100,133

$100,133

Obligations of U.S. government

     sponsored entities

143,611,119

143,611,119

116,407,592

116,407,592

Obligations of states and

     political subdivisions

38,375,164

38,375,164

38,078,290

38,078,290

Mortgage-backed securities

     - residential

78,207,932

78,207,932

62,883,713

62,883,713

     Total

$260,194,215

$-

$260,194,215

$217,469,728

$-

$217,469,728

===========

===========

===========

===========

===========

===========

All mortgage-backed securities held were issued by U.S. government agencies or U.S. government-sponsored entities.

There were no transfers between Level 1 and Level 2 during 2012.

Assets and Liabilities Measured on a Non-Recurring Basis

Assets measured at fair value on a non-recurring basis are summarized below:

Fair Value Measurements at

December 31, 2012 Using

Significant

Other

Significant

Observable

Unobservable

Carrying

Inputs

Inputs

Value

(Level 2)

(Level 3)

Assets:

Impaired loans

Commercial and agricultural real estate:

     Commercial real estate

$3,093,506

$3,093,506

     Agricultural real estate

273,849

273,849

Residential real estate:

     1-4 family closed-end

1,721,995

1,721,995

Construction & land development

426,380

426,380

Total impaired loans

$5,515,730

$5,515,730

============

============

Other real estate owned

Commercial and agricultural real estate:

     Agricultural real estate

$48,880

$48,880

Residential real estate:

     Multi-family

576,690

576,690

Construction land development

3,262,660

3,262,660

Total other real estate owned

$3,888,230

$3,888,230

============

============

page 63

Note 5 - Fair Value (Continued)

Fair Value Measurements at

December 31, 2011 Using

Significant

Other

Significant

Observable

Unobservable

Carrying

Inputs

Inputs

Value

(Level 2)

(Level 3)

Assets:

Impaired loans

Commercial and agricultural real estate:

     Commercial real estate

$1,805,814

$1,805,814

Residential real estate:

     1-4 family closed-end

1,908,083

1,908,083

Construction & land development

455,430

455,430

Total impaired loans

$4,169,327

$4,169,327

============

============

Other real estate owned

Residential real estate:

     Multi-family

$576,690

$576,690

Construction & land development

3,511,370

3,511,370

Total other real estate owned

$4,088,060

$4,088,060

============

============

There were $5,515,730 in impaired loans measured for impairment using the fair value of the collateral at December 31, 2012, resulting in an additional provision for loan losses of $379,915 for the year ended December 31, 2012. There were $4,169,327 in impaired loans measured for impairment using the fair value of the collateral at December 31, 2011, resulting in an additional provision for loan losses of $741,989 for the year ended December 31, 2011.

Other real estate owned had a net carrying amount of $6,877,706 for the year ended December 31, 2012. Included in this amount were properties that were written down to fair value totaling $3,888,230 resulting in additional foreclosed asset expense of $129,568 for the year ended December 31, 2012. Other real estate owned had a net carrying amount of $7,110,969 for the year ended December 31, 2011. Included in this amount were properties that were written down to fair value totaling $4,088,060 resulting in additional foreclosed asset expense of $7,755 for the year ended December 31, 2011.

The following table presents qualitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31, 2012. The range is equal to the weighted average in the following table.

page 64

Note 5 - Fair Value (Continued)

Valuation

Discount

Fair Value

Technique(s)

Unobservable Input(s)

on Appraisal

Impaired loans -

Commercial

    real estate

$3,093,506

Cost approach

Adjustment for differences

29.5%

    in estimated costs

Sales comparison

Adjustment for differences

    approach

    between comparable

    sales

Agricultural

Sales comparison

Adjustment for differences

29.5%

    real estate

273,849

    approach

    between comparable

    sales

Residential

Sales comparison

Adjustment for differences

29.5%

    real estate

1,721,995

    approach

    between comparable

    sales

Construction and

Sales comparison

Adjustment for differences

29.5%

    land development

426,380

    approach

    between comparable

    sales

Other real estate owned -

Agricultural

Sales comparison

Adjustment for differences

6%

    real estate

48,880

    approach

    between comparable

    sales

Residential

Sales comparison

Adjustment for differences

6%

    real estate

576,690

    approach

    between comparable

    sales

Construction and

Sales comparison

Adjustment for differences

6%

    land development

3,262,660

    approach

    between comparable

    sales

Carrying amount and estimated fair values of financial instruments at December 31, 2012 were as follows:

Fair Value Measurements at

December 31, 2012

Carrying Value

Level 1

Level 2

Level 3

Total

(Dollars in thousands)

Financial assets:

Cash and cash equivalents

$36,946

$36,946

$-

$-

$36,946

Interest bearing balances with banks

2,924

-

2,909

-

2,909

Securities

260,194

-

260,194

-

260,194

Loans held for sale

2,517

-

2,517

-

2,517

Loans, net

331,811

-

-

331,826

331,826

Federal Home Loan Bank stock

1,527

N/A

N/A

N/A

N/A

Accrued interest receivable

3,049

-

1,085

1,964

3,049

Financial liabilities:

Deposits

602,124

328,635

275,660

-

604,295

Securities sold under repurchase agreements

2,315

2,315

-

-

2,315

Other borrowed funds

6,190

-

6,429

-

6,429

Accrued interest payable

800

7

793

-

800

page 65

Note 5 - Fair Value (Continued)

Carrying amount and estimated fair values of financial instruments at December 31, 2011 were as follows:

2011

(In thousands)

Carrying Amount

Fair Value

Financial assets:

Cash and cash equivalents

$33,822

$33,822

Interest bearing balances with banks

544

544

Securities

217,470

217,470

Loans held for sale

2,169

2,169

Loans, net

333,083

332,387

Federal Home Loan Bank stock

1,527

N/A

Accrued interest receivable

3,351

3,351

Financial liabilities:

Deposits

559,231

560,864

		Page
	PART I
Item 1	Business	3
Item 1A	Risk Factors	12
Item 1B	Unresolved Staff Comments	18
Item 2	Properties	18
Item 3	Legal Proceedings	19
Item 4	Mine Safety Disclosures	19


PART II
Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
Item 6	Selected Financial Data	20
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	37
Item 8	Financial Statements and Supplementary Data	39
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	79
Item 9A	Controls and Procedures	79
Item 9B	Other Information	79

PART III
Item 10	Directors, Executive Officers and Corporate Governance	79
Item 11	Executive Compensation	83
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	96
Item 13	Certain Relationships and Related Transactions, and Director Independence	98
Item 14	Principal Accounting Fees and Services	98

PART IV
Item 15	Exhibits, Financial Statement Schedules	99

	For Year Ended December 31,
	2012	2011	2010	2009	2008
Common Stock:
Basic	1,522,270	1,516,829	1,511,596	1,504,943	1,497,555
Diluted	1,522,292	1,516,932	1,512,212	1,506,235	1,500,539
Class A Stock:
Basic	49,716	49,716	49,716	49,716	49,716

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS

December 31, 2012 and 2011

ASSETS
				2012	2011
	Cash and due from banks			$33,731,413	$32,182,394
	Federal funds sold			3,215,000	1,640,000
			Total cash and cash equivalents	36,946,413	33,822,394

	Interest bearing balances with banks			2,924,452	543,832
	Securities available for sale			260,194,215	217,469,728

	Loans held for sale			2,516,997	2,168,816

	Loans
		Loans net of unearned income		338,802,668	340,553,701
		Allowance for loan losses		(6,991,781)	(7,470,322)
		Total net loans		331,810,887	333,083,379


	Bank premises and equipment			18,952,092	18,760,960
	Accrued interest receivable			3,048,659	3,351,127
	Other real estate owned			6,877,706	7,110,969
	Federal Home Loan Bank stock			1,526,500	1,526,500
	Company-owned life insurance			11,093,603	10,789,213
	Prepaid FDIC insurance			1,282,147	1,731,418
	Deferred tax assets, net			3,020,014	3,221,632
	Prepayments and other assets			1,417,907	1,518,844
			TOTAL ASSETS	$681,611,592	$635,098,812
				===========	==========

	LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
	Deposits:
		Noninterest bearing		$103,945,471	$88,005,413
		Interest bearing		498,179,003	471,225,835
			Total deposits	602,124,474	559,231,248

	Securities sold under repurchase agreements			2,315,213	1,850,824
	Other borrowed funds			6,190,463	7,326,366
	Accrued interest payable			799,895	863,878
	Other liabilities			5,440,207	6,059,192
			TOTAL LIABILITIES	616,870,252	575,331,508

SHAREHOLDERS' EQUITY
	Common stock, $1 par value; authorized - 9,000,000 shares;
		1,523,765 and 1,570,428 shares issued and outstanding, respectively		1,523,765	1,570,428
	Class A stock, $1 par value; authorized - 1,000,000 shares;
	49,716 and 0 shares issued and outstanding, respectively			49,716	-
	Capital surplus			1,729,504	1,601,845
	Retained earnings			58,993,544	54,357,140
	Accumulated other comprehensive income, net			2,444,811	2,237,891
			TOTAL SHAREHOLDERS' EQUITY	64,741,340	59,767,304
			TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$681,611,592	$635,098,812
				===========	==========
The accompanying notes are an integral part of these financial statements.

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Years Ended December 31, 2012, 2011 and 2010

				2012	2011	2010
INTEREST INCOME
	Loans, including fees			$23,177,639	$24,131,721	$24,894,110
	Securities:
		Taxable		3,523,195	3,215,452	2,998,180
		Non-taxable		1,013,721	1,225,583	1,375,528
	Federal funds sold and other			60,527	56,627	69,215
	Dividends			87,811	84,875	86,778
			Total Interest Income	27,862,893	28,714,258	29,423,811

INTEREST EXPENSE
	Interest on deposits:
		Transaction accounts		219,186	215,022	301,014
		Money market deposit accounts		327,964	306,886	299,088
		Other savings deposits		106,625	95,846	104,450
		Time certificates of deposit of $100,000 or more		1,919,704	2,318,208	3,614,261
		All other time deposits		1,574,115	2,025,023	2,966,009
	Securities sold under repurchase agreements			33,072	33,892	30,360
	Other borrowed funds			234,539	273,293	285,778
			Total Interest Expense	4,415,205	5,268,170	7,600,960

			NET INTEREST INCOME	23,447,688	23,446,088	21,822,851

			Provision for loan losses	500,000	1,455,000	4,750,000

			NET INTEREST INCOME AFTER PROVISION
			FOR LOAN LOSSES	22,947,688	21,991,088	17,072,851

NON-INTEREST INCOME
	Service charges on deposit accounts			2,035,387	2,198,672	2,139,031
	Commissions and fees			296,505	300,902	328,815
	Other service charges and fees			1,131,452	1,002,589	855,032
	Income on company-owned life insurance			304,390	351,024	397,401
	Security gains, net			1,049,353	132,760	1,072,441
	Mortgage banking income			977,206	772,638	776,493
	Other income			(35,588)	364,597	341,478
			Total Non-interest Income	5,758,705	5,123,182	5,910,691

NON-INTEREST EXPENSES
	Salaries and employee benefits			10,419,718	10,248,952	9,354,188
	Occupancy expense, net			1,902,421	1,895,054	1,840,610
	Furniture and equipment expense			749,169	729,064	724,327
	Advertising and public relations			618,859	571,388	447,328
	Impairment on available for sale securities and other
		equity investments		-	-	39,200
	Foreclosed assets, net			459,685	199,922	992,247
	FDIC insurance expense			487,442	636,492	924,048
	Other operating expenses			3,485,312	3,754,585	3,320,495
			Total Non-interest Expenses	18,122,606	18,035,457	17,642,443

			Income before income taxes	10,583,787	9,078,813	5,341,099
			Applicable income tax expense	3,505,496	2,829,824	1,312,723

			NET INCOME	$7,078,291	$6,248,989	$4,028,376
				==========	==========	==========
			Earnings per common share:
			Basic	$4.50	$3.98	$2.58
				==========	==========	==========
			Diluted	$4.50	$3.98	$2.57
				==========	==========	==========

			Basic earnings per Class A share:	$4.54	$3.99	$2.58
				==========	==========	==========

	Comprehensive income:
	Net income			$7,078,291	$6,248,989	$4,028,376
	Reclassification adjustment for gains included
		in net income, net of taxes		(647,556)	(81,926)	(661,803)
	Change in unrealized gains (losses) on available
		for sale securities, net of taxes		854,476	2,613,035	(1,365,494)
			Other comprehensive income	206,920	2,531,109	(2,027,297)
	Comprehensive income			$7,285,211	$8,780,098	$2,001,079
				==========	==========	==========
The accompanying notes are an integral part of these financial statements.

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2012, 2011 and 2010

					2012	2011	2010
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income				$7,078,291	$6,248,989	$4,028,376
	Adjustments to reconcile net income to net cash
		provided by operating activities-
			Provision for loan losses		500,000	1,455,000	4,750,000
			Depreciation		1,047,997	1,012,753	1,045,302
			Amortization and accretion of investment securities, net		2,102,402	1,404,322	1,041,035
			Deferred income tax expense (benefit)		74,136	647,015	(1,080,836)
			(Gain) loss on sale or write-downs of other assets		342,725	(510,674)	301,418
			Security gains, net		(1,049,353)	(132,760)	(1,072,441)
			Stock-based compensation expense		105,989	134,750	134,750
			Loans originated for sale		(37,371,080)	(28,552,444)	(27,514,025)
			Proceeds from sale of loans		38,000,105	28,467,231	28,116,751
			Mortgage banking income		(977,206)	(772,638)	(776,493)
			Impairment of available for sale securities and other equity investments		-	-	39,200
			Increase in cash surrender value of company-owned life insurance		(304,390)	(351,024)	(397,401)
			Decrease (increase) in interest receivable		302,468	(34,891)	813,141
			Decrease in prepayments and other assets		550,206	457,311	1,021,383
			Decrease in accrued interest payable		(63,983)	(456,843)	(311,006)
			(Decrease) increase in accrued taxes		(162,016)	(39,733)	135,456
			(Decrease) increase in other liabilities		(456,969)	1,615,789	1,217,768
				Cash Provided by Operating Activities, net	9,719,322	10,592,153	11,492,378

CASH FLOWS FROM INVESTING ACTIVITIES:
	Purchases of securities available for sale				(155,829,991)	(123,596,278)	(179,788,066)
	Proceeds from sales of securities available for sale				42,611,113	6,760,940	35,666,787
	Proceeds from maturities of securities available for sale				69,775,746	93,391,203	101,484,084
	Increase in interest bearing balances with banks				(2,380,620)	(2,774)	(3,258)
	Purchase of company-owned life insurance				-	-	-
	Net (increase) decrease in loans				(236,307)	(3,723,280)	18,070,978
	Capital expenditures				(1,330,007)	(417,191)	(1,527,269)
	Proceeds from sale of other assets				990,215	9,849,958	5,688,085
				Cash Used by Investing Activities, net	(46,399,851)	(17,737,422)	(20,408,659)

CASH FLOWS FROM FINANCING ACTIVITIES:
	Borrowings repaid				(1,135,903)	(218,985)	(233,678)
	Net increase (decrease) in securities sold under repurchase agreements				464,389	47,801	(156,121)
	Net increase (decrease) in deposits				42,893,226	25,907,722	(9,653,489)
	Cash dividends paid				(2,441,887)	(1,962,157)	(1,564,111)
	Proceeds from exercise of stock options, including tax benefit				-	-	21,020
	Proceeds from issuance of common stock				24,723	150,150	121,220
				Cash (Used) Provided by Financing Activities, net	39,804,548	23,924,531	(11,465,159)

INCREASE (DECREASE) IN CASH, net					3,124,019	16,779,262	(20,381,440)
CASH AND CASH EQUIVALENTS, beginning of year					33,822,394	17,043,132	37,424,572
CASH AND CASH EQUIVALENTS, end of year					$36,946,413	$33,822,394	$17,043,132
					==========	==========	==========
Supplemental cash flow information
	Interest paid				$4,479,188	$5,725,013	$7,911,966
	Income taxes paid				3,821,000	2,323,000	2,193,796

Supplemental noncash disclosures
	Transfers from loans to other real estate owned				1,015,381	3,751,635	6,167,790

The accompanying notes are an integral part of these financial statements.

FIRST PULASKI NATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Years Ended December 31, 2012, 2011 and 2010
								Accumulated
								Other
		Common Stock		Class A Stock		Capital	Retained	Comprehensive
		Shares	Amount	Shares	Amount	Surplus	Earnings	Income, net	Total
Balance at January 1, 2010		1,559,016	$1,559,016	-	$-	$1,051,367	$47,606,043	$1,734,079	$51,950,505

Net income		-	-	-	-	-	4,028,376	-	4,028,376

Other comprehensive loss		-	-	-	-	-	-	(2,027,297)	(2,027,297)

Cash dividends paid $1.00
	per share	-	-	-	-	-	(1,564,111)	-	(1,564,111)

Compensation expense for
	restricted stock	-	-	-	-	134,750	-	-	134,750

Tax benefit arising from exercise
	of director stock options	-	-	-	-	4,020	-	-	4,020

Exercise of stock options		500	500	-	-	16,500	-	-	17,000

Issuance of new common stock		2,450	2,450	-	-	(2,450)	-	-	-

Issuance of common stock through
	dividend reinvestment plan	2,384	2,384	-	-	118,836	-	-	121,220
Balance at December 31, 2010		1,564,350	1,564,350	-	-	1,323,023	50,070,308	(293,218)	52,664,463


Net income		-	-	-	-	-	6,248,989	-	6,248,989

Other comprehensive income		-	-	-	-	-	-	2,531,109	2,531,109

Cash dividends paid $1.25
	per share	-	-	-	-	-	(1,962,157)	-	(1,962,157)

Compensation expense for
	restricted stock	-	-	-	-	134,750	-	-	134,750

Issuance of new common stock		2,450	2,450	-	-	(2,450)	-	-	-

Issuance of common stock through
	dividend reinvestment plan	3,628	3,628	-	-	146,522	-	-	150,150
Balance at December 31, 2011		1,570,428	1,570,428	-	-	1,601,845	54,357,140	2,237,891	59,767,304


Net income		-	-	-	-	-	7,078,291	-	7,078,291

Other comprehensive income		-	-	-	-	-	-	206,920	206,920

Cash dividends paid $1.55
	per common share	-	-	-	-	-	(2,400,125)	-	(2,400,125)

Cash dividends paid $0.84
	per Class A share	-	-	-	-	-	(41,762)	-	(41,762)

Compensation expense for
	restricted stock	-	-	-	-	105,989	-	-	105,989

Conversion of common stock
	to Class A stock	(49,716)	(49,716)	49,716	49,716	-	-	-	-

Issuance of new common stock		2,450	2,450	-	-	(2,450)	-	-	-

Issuance of common stock through
	dividend reinvestment plan	603	603	-	-	24,120	-	-	24,723
Balance at December 31, 2012		1,523,765	$1,523,765	49,716	$49,716	$1,729,504	$58,993,544	$2,444,811	$64,741,340
		========	========	========	========	=========	=========	============	==========
The accompanying notes are an integral part of these financial statements.

				Gross	Gross
			Amortized	Unrealized	Unrealized	Fair
2012			Cost	Gains	Losses	Value
	U.S. government sponsored entities		$141,947,132	$1,791,295	$127,308	$143,611,119
	Obligations of states and
		political subdivisions	37,465,402	1,025,489	115,727	38,375,164
	Mortgage-backed securities: residential		76,820,832	1,389,995	2,895	78,207,932
		Total	$256,233,366	$4,206,779	$245,930	$260,194,215
			==========	==========	==========	==========

				Gross	Gross
			Amortized	Unrealized	Unrealized	Fair
2011			Cost	Gains	Losses	Value
	U.S. treasury securities		$100,107	$26	$-	$100,133
	U.S. government sponsored entities		114,896,330	1,522,270	11,008	116,407,592
	Obligations of states and
		political subdivisions	36,668,186	1,437,841	27,737	38,078,290
	Mortgage-backed securities: residential		62,178,656	767,916	62,859	62,883,713
	Total		$213,843,279	$3,728,053	$101,604	$217,469,728
			==========	==========	==========	==========

		Available for Sale
		Amortized Cost	Fair Value
Maturity
Due in one year or less		$7,091,195	$7,147,664
Due after one year through five years		75,778,165	77,165,420
Due after five years through ten years		90,527,342	91,688,761
Due after ten years		6,015,832	5,984,438
Mortgage-backed - residential		76,820,832	78,207,932
	TOTAL	$256,233,366	$260,194,215
		===========	===========

2012
	Less Than 12 Months		12 Months or Longer		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Description of Securities	Value	Loss	Value	Loss	Value	Loss
U.S. government
sponsored entities	$24,593,791	$127,308	$-	$-	$24,593,791	$127,308
Obligations of states and
political subdivisions	7,881,003	112,417	236,946	3,310	8,117,949	115,727
Mortgage-backed securities
- residential	6,194,258	2,895	-	-	6,194,258	2,895
Total temporarily impaired
Securities	$38,669,052	$242,620	$236,946	$3,310	$38,905,998	$245,930
	==========	=========	=========	=========	==========	=========

2011
	Less Than 12 Months		12 Months or Longer		Total
	Fair	Unrealized	Fair	Unrealized	Fair	Unrealized
Description of Securities	Value	Loss	Value	Loss	Value	Loss
U.S. government
sponsored entities	$8,505,750	$11,008	$-	$-	$8,505,750	$11,008
Obligations of states and
political subdivisions	1,125,358	17,763	254,050	9,974	1,379,408	27,737
Mortgage-backed securities
- residential	15,573,390	62,859	-	-	15,573,390	62,859
Total temporarily impaired
Securities	$25,204,498	$91,630	$254,050	$9,974	$25,458,548	$101,604
	==========	=========	=========	=========	==========	=========

				Commercial	Construction
				and Agricultural	and Land	Residential
December 31, 2012			Commercial	Real Estate	Development	Real Estate	Consumer	Other	Total
Allowance for loan losses:
	Beginning balance		$677,655	$3,825,067	$1,198,728	$1,327,170	$389,576	$52,126	$7,470,322
		Provision for loan losses	352,386	(80,044)	(225,805)	142,606	273,417	37,440	500,000
		Loans charged-off	(171,523)	(330,296)	(80,905)	(259,858)	(323,850)	(29,462)	(1,195,894)
		Recoveries	18,175	108,225	333	9,173	79,403	2,044	217,353
	Ending allowance balance		$876,693	$3,522,952	$892,351	$1,219,091	$418,546	$62,148	$6,991,781
			=========	===========	=========	=========	=========	=========	=========
				Commercial	Construction
				and Agricultural	and Land	Residential
December 31, 2011			Commercial	Real Estate	Development	Real Estate	Consumer	Other	Total
Allowance for loan losses:
	Beginning balance		$1,035,511	$3,747,046	$1,474,970	$1,274,380	$383,644	$81,410	$7,996,961
		Provision for loan losses	(27,456)	257,810	161,679	810,414	267,371	(14,818)	1,455,000
		Loans charged-off	(336,842)	(192,970)	(528,111)	(831,718)	(307,441)	(17,052)	(2,214,134)
		Recoveries	6,442	13,181	90,190	74,094	46,002	2,586	232,495
	Ending allowance balance		$677,655	$3,825,067	$1,198,728	$1,327,170	$389,576	$52,126	$7,470,322
			=========	===========	=========	=========	=========	=========	=========

			Unpaid		Allowance for	Average	Interest	Cash Basis
			Principal	Loan	Loan Losses	Loan	Income	Interest
			Balance	Balance	Allocated	Balance	Recognized	Recognized
With no related allowance recorded:
	Commercial		$145,475	$46,474	$-	$47,121	$-	$-
	Commercial and agricultural real estate:
		Commercial real estate	2,629,365	1,841,936	-	1,948,490	220,038	220,038
		Agricultural real estate	613,100	530,507	-	580,983	-	-
	Residential real estate:
		Home equity line of credit	-	-	-	-	-	-
		1-4 family closed-end	2,798,460	2,525,865	-	2,618,442	28,446	26,888
		Multi-family	-	-	-	-	-	-
	Construction and land development		1,548,286	426,380	-	448,565	-	-
With an allowance recorded:
	Commercial		-	-	-	-	$216	$216
	Commercial and agricultural real estate:
		Commercial real estate	2,605,844	2,602,499	276,420	2,659,019	32,985	32,985
		Agricultural real estate	-	-	-	-	-	-
	Residential real estate:
		Home equity line of credit	-	-	-	-	-	-
		1-4 family closed-end	-	-	-	-	-	-
		Multi-family	-	-	-	-	-	-
	Construction and land development		206,191	206,191	142,640	472,525	-	-
			$10,546,721	$8,179,852	$419,060	$8,775,145	$281,685	$280,127
			=========	=========	=========	=========	=========	=========

Average of individually impaired loans during the year	$12,907,114
Interest income recognized during impairment	326,397
Cash-basis interest income recognized	120,617

				Loans Past Due Over
		Nonaccrual		90 Days Still Accruing
		2012	2011	2012	2011
Commercial		$113,870	$59,028	$-	$-
Commercial and agricultural real estate:
	Commercial real estate	4,553,409	3,504,851	-	-
	Agricultural real estate	871,588	378,527	-	-
Residential real estate:
	Home equity line of credit	-	-	-	-
	1-4 family closed-end first lien	3,734,063	3,983,744	-	-
	1-4 family closed-end junior lien	215,576	6,250	-	-
	Multi-family	-	-	-	-
Construction and land development		632,571	1,539,053	-	-
Consumer		39,661	92,786	-	23,684
Other		-	26,507	298	-
		$10,160,738	$9,590,746	$298	$23,684
		==========	==========	==========	==========

		Pre-Modification	Post-Modification
	Number	Unpaid Principal	Unpaid Principal
	of Loans	Balance	Balance
Commercial real estate	4	$1,073,952	$1,073,952
1-4 family closed-end	2	208,781	208,781
	6	$1,282,733	$1,282,733
	=======	===========	===========

			Special
December 31, 2012		Pass	Mention	Substandard	Doubtful	Not Rated
Commercial		$33,228,374	$1,563,736	$418,210	$-	$-
Commercial and agricultural real estate :
	Commercial real estate	117,684,550	1,541,235	9,997,608	-	-
	Agricultural real estate	30,582,687	1,058,687	880,493	-	-
Residential real estate:
	Home equity line of credit	15,621,203	177,799	59,279	-	-
	1-4 family closed-end first lien	61,438,010	768,094	4,469,679	20,809	-
	1-4 family closed-end junior lien	1,485,555	54,935	215,576	-	-
	Multi-family	638,165	-	-	-	-
Construction and land development		20,585,787	319,737	951,456	-
Consumer		24,535,838	153,524	315,972	-	-
Other		9,909,342	63,685	4,338	-	217,704
Total		$315,709,511	$5,701,432	$17,312,611	$20,809	$217,704
		=========	=========	=========	=========	=========

			Special
December 31, 2011		Pass	Mention	Substandard	Doubtful	Not Rated
Commercial		$29,009,547	$125,766	$383,481	$-	$-
Commercial and agricultural real estate :
	Commercial real estate	115,705,423	3,656,544	8,108,427	-	-
	Agricultural real estate	35,611,655	819,682	394,111	-	-
Residential real estate:
	Home equity line of credit	17,244,456	33,020	295,718	-	-
	1-4 family closed-end first lien	55,194,491	1,177,666	4,607,820	-	-
	1-4 family closed-end junior lien	2,194,417	101,553	297,421	-	-
	Multi-family	997,839	-	-	-	-
Construction and land development		25,051,579	14,472	2,189,678	-
Consumer		25,625,547	170,075	399,269	-	-
Other		10,672,388	19,337	26,506	-	619,136
Total		$317,307,342	$6,118,115	$16,702,431	$-	$619,136
		=========	=========	=========	=========	=========

		Fair Value Measurements at			Fair Value Measurements at
		December 31, 2012 using			December 31, 2011 using
			Quoted Prices			Quoted Prices
			in Active	Significant		in Active	Significant
			Markets for	Other		Markets for	Other
			Identical	Observable		Identical	Observable
		Carrying	Assets	Inputs	Carrying	Assets	Inputs
		Value	(Level 1)	(Level 2)	Value	(Level 1)	(Level 2)
Assets:
	Available for sale securities:
	U.S. treasuries	$-		$-	$100,133		$100,133
	Obligations of U.S. government
	sponsored entities	143,611,119		143,611,119	116,407,592		116,407,592
	Obligations of states and
	political subdivisions	38,375,164		38,375,164	38,078,290		38,078,290
	Mortgage-backed securities
	- residential	78,207,932		78,207,932	62,883,713		62,883,713
	Total	$260,194,215	$-	$260,194,215	$217,469,728	$-	$217,469,728
		===========	===========	===========	===========	===========	===========

			Valuation		Discount
		Fair Value	Technique(s)	Unobservable Input(s)	on Appraisal
Impaired loans -
	Commercial
	real estate	$3,093,506	Cost approach	Adjustment for differences	29.5%
				in estimated costs
			Sales comparison	Adjustment for differences
			approach	between comparable
				sales

	Agricultural		Sales comparison	Adjustment for differences	29.5%
	real estate	273,849	approach	between comparable
				sales

	Residential		Sales comparison	Adjustment for differences	29.5%
	real estate	1,721,995	approach	between comparable
				sales

	Construction and		Sales comparison	Adjustment for differences	29.5%
	land development	426,380	approach	between comparable
				sales

Other real estate owned -
	Agricultural		Sales comparison	Adjustment for differences	6%
	real estate	48,880	approach	between comparable
				sales

	Residential		Sales comparison	Adjustment for differences	6%
	real estate	576,690	approach	between comparable
				sales

	Construction and		Sales comparison	Adjustment for differences	6%
	land development	3,262,660	approach	between comparable
				sales

			Fair Value Measurements at
			December 31, 2012
		Carrying Value	Level 1	Level 2	Level 3	Total

		(Dollars in thousands)
Financial assets:
	Cash and cash equivalents	$36,946	$36,946	$-	$-	$36,946
	Interest bearing balances with banks	2,924	-	2,909	-	2,909
	Securities	260,194	-	260,194	-	260,194
	Loans held for sale	2,517	-	2,517	-	2,517
	Loans, net	331,811	-	-	331,826	331,826
	Federal Home Loan Bank stock	1,527	N/A	N/A	N/A	N/A
	Accrued interest receivable	3,049	-	1,085	1,964	3,049

Financial liabilities:
	Deposits	602,124	328,635	275,660	-	604,295
	Securities sold under repurchase agreements	2,315	2,315	-	-	2,315
	Other borrowed funds	6,190	-	6,429	-	6,429
	Accrued interest payable	800	7	793	-	800

		2011
		(In thousands)
		Carrying Amount	Fair Value
Financial assets:
	Cash and cash equivalents	$33,822	$33,822
	Interest bearing balances with banks	544	544
	Securities	217,470	217,470
	Loans held for sale	2,169	2,169
	Loans, net	333,083	332,387
	Federal Home Loan Bank stock	1,527	N/A
	Accrued interest receivable	3,351	3,351

Financial liabilities:
	Deposits	559,231	560,864

FIRST PULASKI NATIONAL CORP 10-K