SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB

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

                   For the fiscal year ended December 31, 2003

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934

                        Commission file number 000-22473

                             VOLUNTEER BANCORP, INC.
                 (Name of small business issuer in its charter)

         TENNESSEE                                        62-1271025
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

                              210 East Main Street
                          Rogersville, Tennessee 37857
              (Address of principal executive offices and Zip Code)

                    Issuer's telephone number (423) 272-2200


Securities registered under Section 12(b) of the Exchange Act:  None
Securities registered under Section 12(g) of the Exchange Act:  Common Stock

     Check  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements for the past 90 days. Yes X  No
                                                                       ---   ---

     Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ X ]

     The  registrant's  revenues for the twelve  months ended  December 31, 2003
were $6,905,274.

     The  aggregate  market  value  of  the  shares  of  Common  Stock  held  by
nonaffiliates  of the  registrant  as of March 22,  2004 is  approximately  $4.8
million.  (For purposes of this  calculation  only,  all executive  officers and
directors are classified as affiliates.)

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.  Outstanding at March 22, 2004,
Common Stock, $.01 par value, 539,027.

Documents  Incorporated by Reference:  Current Report on Form 8-K filed July 21,
2003 (Part II hereof) and Proxy  Statement for the 2004 Meeting of  Shareholders
(Part III hereof)


<PAGE>

                                     PART I

Item 1.  Description of Business

THE COMPANY

Volunteer Bancorp, Inc. is a registered bank holding company organized under the
laws of Tennessee,  chartered in 1985. Volunteer, with consolidated total assets
of  approximately  $108.9  million at December 31,  2003,  is  headquartered  in
Rogersville,  Tennessee with offices in Church Hill and  Sneedville,  Tennessee,
and we conduct  operations  through our  subsidiary,  The Citizens  Bank of East
Tennessee (the "Bank"),  a state bank  organized  under the laws of the state of
Tennessee in April 1906. We do not engage in any activities other than acting as
a bank holding company for the Bank. We believe we can present an alternative to
recent mega-mergers by offering local ownership, local decision making and other
personalized  service  characteristics  of community  banks. The holding company
structure  provides  flexibility for expansion of our banking  business  through
acquisition  of  other  financial   institutions  and  provision  of  additional
banking-related  services which the traditional  commercial bank may not provide
under present laws.

The Bank  provides a full range of retail  banking  services,  including (i) the
acceptance  of demand,  savings and time  deposits;  (ii) the making of loans to
consumers,  businesses  and other  institutions;  (iii) the investment of excess
funds in the sale of federal funds, U.S. government and agency obligations,  and
state,  county  and  municipal  bonds;  and (iv) other  miscellaneous  financial
services usually handled for customers by commercial banks.

MARKET AREA AND COMPETITION

We compete with other commercial banks,  savings and loan  associations,  credit
unions and finance  companies  operating  in Hancock and  Hawkins  counties  and
elsewhere. One other commercial bank is doing business in Hancock County, and in
Hawkins  County  there  are  eight   commercial   banks  and  savings  and  loan
associations.  The Bank is subject to substantial  competition in all aspects of
its  business.  Intense  competition  for loans and  deposits  comes  from other
financial  institutions  in the market area. In certain aspects of its business,
the Bank also  competes  with credit  unions,  small loan  companies,  insurance
companies,  mortgage  companies,  finance companies,  brokerage houses and other
financial  institutions,  some of which are not  subject  to the same  degree of
regulation  and  restriction  as the  Bank  and  some of  which  have  financial
resources  greater than those of the Bank.  The future  success of the Bank will
depend  primarily  upon  the  difference  between  the  cost  of  its  borrowing
(primarily  interest  paid on deposits)  and income from  operations  (primarily
interest  or fees  earned on loans,  sales of loans and  investments).  The Bank
competes  for  funds  with  other  institutions,   which,  in  most  cases,  are
significantly  larger and are able to provide a greater variety of services than
the Bank and thus may obtain deposits at lower rates of interest.

                                       2

<PAGE>


NET INTEREST INCOME

The  following  table sets forth  weighted  average  yields  earned by us on our
earning assets and the weighted  average rates paid on our average  deposits and
other  interest-bearing  liabilities for the years indicated,  and certain other
information:
<TABLE>
<CAPTION>

                                              2003                                2002
                                  ------------------------------        -----------------------------
(Fully taxable equivalent)                  Interest    Average                   Interest    Average
(Dollars in thousands except       Average   Income/     Yields/         Average   Income/    Yields/
for per share data)               Balance    Expense      Rate           Balance  Expense       Rate
                                  --------  --------    --------         -------  --------    -------
<S>                                <C>        <C>         <C>            <C>       <C>         <C>

Assets:

Interest-earning assets:

Loans net of unearned income       $69,038   $4,977       7.21%          $69,672   $5,711      8.20%

U.S.Treasury and other U.S.
government agencies                 23,210      784       3.38%           23,468    1,117      4.76%

States and municipalities            7,017      439       6.26%            5,541      367      6.62%

FHLB stock                             377       15       3.98%              361       16      4.43%

Federal  funds  sold                 1,877       24       1.28%            4,924       74      1.50%
                                    ------      ---       -----           ------    -----      -----
Total interest-earning
assets/interest income             101,519    6,239       6.15%          103,966    7,285      7.01%
                                   -------    -----                      -------    -----
Cash and due from  banks             2,708                                 2,936
Other assets                         8,661                                 6,250
Allowance for loan losses             (999)                                 (995)
                                     -----                                 -----
     Total                        $111,889                              $112,157
                                  ========                              ========
Liabilities and stockholders'equity:
Interest-bearing liabilities:
Demand deposits                    $22,217      161       0.72%          $19,303      239      1.24%
Savings                              7,067       27       0.38%            7,096      106      1.49%
Individual retirement accounts       8,364      207       2.47%            8,768      284      3.24%
Time  certificates                  49,639    1,204       2.43%           53,857    1,694      3.15%
FHLB advances                            0        0       0.00%                0        0      0.00%
Fed funds purchased                    196        3       1.53%                0        0      0.00%

Securities sold under repurchase     1,666       32       1.92%            1,749       50      2.86%
Note payable                         1,448       48       3.31%            1,841       71      3.86%
                                     -----       --                        -----       --
  Total interest-bearing
  liabilities/interest expense      90,597    1,682       1.86%           92,614    2,444      2.64%
                                    ------    -----                       ------    -----
Non-interest bearing demand
  deposits                          13,694                                12,276
Other liabilities                      523                                   677
Stockholders' equity                 7,075                                 6,590
                                     -----                                 -----
  Total                           $111,889                              $112,157
                                  ========                              ========
Net interest earnings                         4,557                                $4,841
                                              -----                                ------
Net interest spread                                       4.29%                                4.37%
                                                          -----                                -----
Net interest margin                                       4.49%                                4.66%
                                                          -----                                -----

Performance Ratios and Other Data
Return on average assets             0.54%                                         0.34%
Return on average equity             8.55%                                         5.87%
Cash dividends declared                $0                                       $53,903
Dividend payout ratio                   0                                         13.94%
Net income                       $604,622                                       $386,577

</TABLE>



                                       3
<PAGE>


The following table presents a summary of changes in interest  income,  interest
expense, and the interest rate differential aggregated by the changes in volumes
and rates:

<TABLE>
<CAPTION>

                                                December 31,                                        December 31,
                                                    2003                                                2002
                                                   versus                                              versus
                                                December 31,                                        December 31,
                                                    2002                                                2001
                                            Increases (decreases)                               Increases (decreases)
(Dollars in Thousands)                       Change Due To: (1)                                  Change Due To: (1)
                                         Volume        Rate        Total                     Volume        Rate         Total
<S>                                 <C>           <C>          <C>                     <C>          <C>          <C>

Loans net of unearned income        $      (52)   $    (682)   $    (734)              $      (460) $      (966) $     (1,426)
U.S. Treasury and other U.S.
  Government agencies                      (12)        (321)        (333)                      (56)        (295)         (351)
States and municipalities                   94          (22)         (72)                      175            2           177
FHLB stock                                   1           (2)          (1)                        1           (8)           (7)
Federal funds sold                         (40)         (10)         (50)                      (23)        (137)         (160)
                                    -------------------------------------              ---------------------------------------
Total interest income               $       (9)   $  (1,037)   $  (1,046)              $      (363) $    (1,404) $     (1,767)
                                    =====================================              =======================================

Increase (decrease) in:
Demand deposits                     $       45    $    (123)   $     (78)              $       (34) $      (371) $       (405)
Savings                                      0          (79)         (79)                        31         (60)          (29)
Individual retirement accounts             (13)         (64)         (77)                       (2)        (185)         (187)
Time certificates                         (125)        (365)        (490)                     (215)      (1,422)       (1,637)
FHLB advances                                0            0            0                        (7)           0            (7)
Fed funds purchased                          3            0            3                         0            0             0
Securities sold under repurchase            (2)         (16)         (18)                      (34)         (37)           (5)
Note payable                               (14)          (9)         (23)                      (16)         (52)          (68)
                                    -------------------------------------              ---------------------------------------
Total interest expense              $     (106)   $    (656)   $    (762)              $      (207) $    (2,127) $     (2,336)
Increase (decrease in
  net interest income               $        97   $    (381)   $    (284)              $      (154) $       723 $         569
                                    =====================================              =======================================

</TABLE>

(1)  Increases  (decreases) are  attributable to volume changes and rate changes
     on the following  basis:  Volume Change equals change in volume times prior
     year rate.  Rate Change equals change in rate times prior year volume.  The
     Rate/Volume  Change  equals the change in volume  times the change in rate,
     and it is allocated between Volume Change and Rate Change at the ratio that
     the absolute value of each of these  components bears to the absolute value
     of their total.

     For  purposes  of this  schedule,  non-accruing  loans are  included in the
     average  balances and tax exempt  income is  reflected on a tax  equivalent
     basis.  As tax exempt income is exempt only for Federal income tax purposes
     and  not  Tennessee  purposes,  tax  equivalent  income  is  based  upon an
     effective  34% tax rate.  Loan fees  included  in  interest  income are not
     material to the presentation.

LIABILITY AND ASSET MANAGEMENT

The matching of assets and  liabilities  may be analyzed by examining the extent
to which such  assets and  liabilities  are  "interest  rate  sensitive"  and by
monitoring  an  institution's  interest  rate  sensitivity  "gap."  An  asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference  between the amount of interest- earning assets
maturing  or  repricing  within  a  specific  time  period  and  the  amount  of
interest-bearing  liabilities  maturing or repricing  within that time period. A
gap is considered  positive when the amount of interest  rate  sensitive  assets
exceeds the amount of interest rate sensitive  liabilities.  A gap is considered
negative  when the amount of interest  rate  sensitive  liabilities  exceeds the
amount of interest rate  sensitive  assets.  During a period of rising  interest
rates, a negative gap would

                                       4

<PAGE>

tend to adversely  affect net interest income while a positive gap would tend to
result  in an  increase  in net  interest  income.  During a period  of  falling
interest  rates,  a  negative  gap would  tend to result in an  increase  in net
interest income while a positive gap would tend to adversely affect net interest
income.

The  asset/liability  committee,  which consists of Reed D. Matney, Jim Friddell
and other officers, is charged with monitoring our liquidity and funds position.
The  Committee  regularly  reviews  (a)  the  rate  sensitivity  position  on  a
three-month,  six-month, and one-year time horizon; (b) loans to deposit ratios;
and (c) average maturity for certain categories of liabilities.

We  currently  use the  asset/liability  modeling  services  of First  Tennessee
Financial  Corporation,  with  which we  simulate  operations  and  subsequently
develop  policies  regarding   permitted  gap  positions,   permitted  risks  in
deviations  from budget  earnings and liquidity.  We apply the system  quarterly
using rate fluctuations of +/-2%.

At December 31, 2003, we had a negative cumulative repricing gap within one year
of approximately $40 million,  or approximately  40.85% of total earning assets.
This negative repricing gap indicates that our future earnings may be materially
adversely  impacted  by a rise in market  interest  rates,  as occurred in early
1995,  and such impact would  primarily be felt in the twelve month period after
such a rise in rates.

The following table represents our interest  sensitivity  profile as of December
31,  2003 and 2002.  The table  represents  a static  point in time and does not
consider other variables, such as changing spread relationships or interest rate
levels.  "Net repricing gap" is the difference  between total earning assets and
total interest-bearing liabilities repricing in any given period and "cumulative
gap" is the sum of the net repricing gap from period to period. Interest-bearing
demand,  savings and money market account deposits are presented as repricing in
the earliest period presented.

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

                                                     After 3    After 12
                                                      months     months
                                          Within    Within 12   Within 5     After
                                          3 months    months     years      5 years     Total
                                         ---------  ---------   --------    -------     ------
<S>                                       <C>         <C>       <C>        <C>         <C>

(Dollars in thousands)
Earning assets:

Loans                                     $26,074     $9,733    $16,289    $17,535     $69,631
Investment securities:
   Available for sale                       1,372         20     12,583     12,101      26,076
   Held to maturity                             -        265        445          -         710
Equity securities                           1,386          -          -          -       1,386
Federal funds sold                            354          -          -          -         354
                                          -------                                      -------
    Total earning assets                  $29,186    $10,018    $29,317    $29,636     $98,157
                                          =======    =======    =======    =======     =======


Interest-bearing liabilities:

Interest-bearing deposits                 $46,317    $28,763     $7,066          -     $82,146
Securities sold under
  repurchase agreements                       746        613          -          -       1,359
Federal funds purchased                     1,450          -          -          -       1,450
Long-term debt                              1,415          -          -          -       1,415
                                          -------                                      -------

  Total interest-bearing liabilities      $49,928    $29,376     $7,066      $   -     $86,370
                                          =======    =======     ======      =====     =======

Net repricing gap                       ($20,742)  ($19,358)    $22,251    $29,636     $11,787
                                        ---------  ---------    -------    -------     -------
Rate sensitivity gap:

Net repricing gap as a percentage
  of total earning assets                (21.13%)   (19.72%)     22.67%     30.19%      12.01%
                                        ---------  ---------  ---------    -------      ------
Cumulative gap                          ($20,742)  ($40,100)  ($17,849)    $11,787
                                        ---------  ---------  ---------    -------
Cumulative gap as a percentage of
  total earning assets                   (21.13%)   (40.85%)   (18.18%)     12.01%
                                         --------   --------   --------    -------
</TABLE>

                                       5
<PAGE>

<TABLE>
<CAPTION>

                                                            December 31,  2002
                                        ------------------------------------------------------
                                                    After 3   After 12
                                                    months     months
                                         Within   Within 12   Within 5    After
                                        3 months    months      years    5 years      Total
                                        --------    ------      -----    -------      -----
<S>                                       <C>         <C>        <C>       <C>         <C>

(Dollars in thousands)
Earning assets:
Loans                                     $19,426     $18,321   $16,443    $13,935     $68,125
Investment securities:
   Available for sale                         576         543     8,729     16,087      25,935
   Held to maturity                                                          1,053       1,053
FHLB stock                                  1,831                                        1,831
Federal funds sold                          4,450                                        4,450
                                          -------                                     --------
    Total earning assets                  $26,283     $18,864   $25,172    $31,075    $101,394
                                          =======     =======   =======    =======    ========
Interest-bearing liabilities:

Interest-bearing deposits                 $47,322     $23,161   $17,315                $87,798
Securities sold under
   repurchase agreements                    2,289                                        2,289
Long-term debt                              1,810                                        1,810
                                          -------                                      -------
  Total interest-bearing liabilities      $51,421     $23,161   $17,315         $0     $91,897
                                          =======     =======   =======     ======     =======

Net repricing gap                        ($25,138)    ($4,297)  $ 7,857    $31,075      $9,497
                                         ---------    --------  -------    -------     -------

Rate sensitivity gap:

Net repricing gap as a percentage
  of total earning assets                (24.79%)     (4.24%)     7.75%     30.65%       9.37%
                                        ---------   --------- ---------     ------       -----
Cumulative gap                          ($25,138)   ($29,435) ($21,578)     $9,497
                                        ---------   --------- ---------     ------
Cumulative gap as a percentage of
  total earning assets                   (24.79%)    (29.03%)  (21.28%)      9.37%
                                        ---------   --------- ---------     ------
</TABLE>



Management has made the following assumptions in the above analysis:

(a)  Assets and liabilities are generally  assigned to a period based upon their
     earliest  repricing  period when the repricing is less than the contractual
     maturity.

(b)  Nonaccrual loans are included in the loan category.

(c)  Investment  securities available for sale are currently treated in the same
     manner  as  comparable  securities  in the  investment  securities  held to
     maturity  portfolio in that they are scheduled  according to the earlier of
     their  contractual  maturities or earliest  repricing dates;  however,  the
     maturities of callable agency  securities are scheduled  according to their
     call dates when valued at a premium to par.

(d)  Money  market  deposits  and  savings  deposits  that  have no  contractual
     maturities are scheduled in the within 3 months category.


                                       6


<PAGE>


DEPOSITS

Our primary source of funds is interest-bearing deposits. The following table
sets forth our deposit structure at December 31, 2003 and 2002.

<TABLE>
<CAPTION>

                                                                     December 31
                                                             ---------------------------
                                                                2003               2002
                                                                ----               ----
<S>                                                           <C>                <C>

Non interest-bearing deposits:
Individuals, partnerships and corporations                    $12,513            $11,036
U.S. Government and states and political subdivisions             251                716
Commercial banks and other depository institutions                 36                 63
Certified and official checks                                     408                345
                                                               ------             ------
  Total non-interest bearing deposits                          13,208             12,160
                                                               ------             ------
Interest-bearing deposits:
Interest-bearing demand accounts                               20,895             20,791
Savings accounts                                                7,355              7,062
Individual retirement accounts                                  2,300              2,405
Certificates of deposit, less than $100,000                    36,502             40,421
Certificates of deposit, greater than $100,000                 16,453             17,119
                                                               ------             ------
  Total interest-bearing deposits                              83,505             87,798
                                                               ------             ------
  Total deposits                                              $96,713            $99,958
                                                              =======            =======

</TABLE>


The following  table presents a breakdown by category of the average  amounts of
deposits  and the  weighted  average  rate  paid  on  deposits  for the  periods
indicated:
<TABLE>
<CAPTION>

                                                                          December 31,
                                                 ---------------------------------------------------------
                                                            2003                            2002
                                                            ----                            ----
<S>                                               <C>                <C>           <C>               <C>

Non-interest bearing deposits                      $13,694                         $12,276
Savings deposits                                     7,067            .38%           7,096           1.49%
Individual retirement accounts                       8,364           2.47%           8,768           3.24%
Time deposits                                       49,639           2.43%          53,857           3.15%
Interest bearing demand deposits                    22,217            .72%          19,303           1.24%
                                                  --------                        --------
  Total deposits                                  $100,981                        $101,300
                                                  ========                        ========
</TABLE>


At December 31, 2003 and 2002,  time deposits  greater than $100,000  aggregated
approximately  $16 million and $17 million,  respectively.  The following  table
indicates,  as of December 31, 2003 and 2002,  the dollar  amount of $100,000 or
more deposits by time remaining until maturity:
<TABLE>
<CAPTION>
                                   December 31, 2003                              December 31, 2002
                                            1 year                                        1 year
                         3 Months  3 to 12  through                    3 Months 3 to 12   through
                         or less   Months   5 years    Total           or less   Months   5 years     Total
                         -------   ------   -------    -----           -------   ------   -------     -----
<S>                      <C>        <C>      <C>      <C>               <C>       <C>     <C>        <C>

(In thousands)

Time certificates        $5,140     8,948    2,365    $16,453           $2,948    6,785    7,386     $17,119
                         ------     -----    -----    -------           ------    -----    -----     -------
</TABLE>


                                       7

<PAGE>


SHORT-TERM BORROWINGS

Short-term  borrowings  are generally  comprised of federal funds  purchased and
repurchase  agreements.  Federal funds  purchased are overnight  borrowings from
various  correspondent  banks.  Repurchase  agreements are advances by customers
that are not covered by federal deposit  insurance.  This obligation of the bank
is secured by bank-owned securities held in safekeeping at a correspondent bank.

The balances at year-end are shown below:

                                                   Repurchase      Federal Funds
                                                   Agreements        Purchased
                                                   ----------      -------------
                                                       (Amounts in thousands)

Outstanding at December 31, 2003                  $    1,359      $     1,450
   Average interest rate at year-end                    1.27%            1.25%
   Average balance during year                         1,666              196
   Average interest rate during year                    1.92%            1.53%
   Maximum month end balance during year               2,103            2,275

Outstanding at December 31, 2002                 $     2,289      $         0
   Average interest rate at year-end                    2.47%               0%
   Average balance during year                         1,749                0
   Average interest rate during year                    2.86%               0%
   Maximum month end balance during year               2,365                0


ASSETS

Our   management   considers  many  criteria  in  managing   assets,   including
creditworthiness,  diversification and structural characteristics,  maturity and
interest rate  sensitivity.  The following table sets forth our interest earning
assets by category at December 31, 2003 and 2002.


                                                            December 31,
                                                     -------------------------
                                                          2003            2002
                                                          ----            ----
(In thousands)
Investment securities:
  Available for sale
    U.S. Government and agencies                       $18,959         $19,392
    Obligations of states and political
    FHLB stock                                             386             371
    FNMA preferred stock                                 1,000           1,460
                                                         -----           -----
      Total available for sale                          27,462          27,766
  Held to maturity                                         710           1,053
Federal funds sold                                         354           4,450
Loans:
  Real estate                                           55,580          50,702
  Commercial and other                                  14,051          17,423
                                                        ------          ------
    Total loans                                         69,631          68,125
Interest earning assets                                $98,157        $101,394
                                                       =======        ========

                                       8

<PAGE>


INVESTMENT PORTFOLIO

At year end 2003,  obligations  of the United States  Government or its agencies
and obligations of states and political subdivisions  represented 100.00% of the
investment portfolio.

The  following  table sets forth the  composition  of the carrying  value of our
investment portfolio at December 31, 2003 and 2002:


                                                             December 31,
                                                     -------------------------
                                                        2003             2002
                                                        ----             ----
(In thousands)
Held to maturity:
Obligations of U.S. Government
  agencies                                              $710          $1,053
                                                        ----          ------
Available for sale:
U.S. Treasury securities                                   0            $515
Obligations of U.S. Government
  agencies                                            18,959          18,877
Obligations of states and
  political subdivisions                               7,117           6,543
FNMA preferred stock                                   1,000           1,460
FHLB stock                                               386             371
                                                     -------         -------

                                                     $27,462         $27,766
                                                     =======         =======


                                       9
<PAGE>

The following table presents the maturity distribution of the amortized cost and
estimated market value of our debt securities at December 31, 2003 and 2002. The
weighted  average  yields  on these  instruments  are  presented  based on final
maturity.  Yields on states and political  subdivisions  have been adjusted to a
fully-taxable equivalent basis.

<TABLE>
<CAPTION>
                                                    December 31, 2003                December 31, 2002
                                       ---------------------------------    --------------------------------
                                                    Estimated   Weighted                Estimated   Weighted
                                        Amortized     Market     Average     Amortized    Market     Average
                                           Cost       Value      Yield          Cost       Value     Yield
                                           ----       -----      -----          ----       -----     -----
<S>                                      <C>         <C>       <C>         <C>         <C>          <C>

(Dollars in thousands)
 Held to maturity:
------------------
 Obligations of U.S. Government
  agencies:
  Due after 1 year but within
   5 years
  Due after 5 years but within
   10 years                               690         697                       6           7
  Due after 10 years                       20          20                   1,047       1,047
                                         ----        ----                  ------      ------
   Total                                 $710        $717      4.05%       $1,053      $1,054       4.82%
                                         ====        ====                  ======      ======

Available for sale:
------------------
 U.S. Securities:
 Due within 1 year                          0           0                     501         515
 Due after 1 year but within
   5 years
   Total                                    0           0         0%          501         515       5.44%
                                         ----        ----                     ---         ---
  Obligations of U.S. Government
   agencies:

 Due within 1 year                                                             38          38
   Due after 1 year but within
   5 years                              1,320       1,345                   6,113       6,213
 Due after 5 years but within
   10 years                             6,663       6,693                   6,775       6,912
 Due after 10 years                    10,872      10,921                   5,545       5,714
                                       ------      ------                   -----       -----
    Total                              18,855      18,959      3.44%       18,471      18,877       4.68%
                                       ------      ------                  ------      ------
 Obligations of states and
   political subdivisions
 Due after 1 year but within
   5 years                                901         940                     495         515
 Due after 5 years but within
     10 years                           3,343       3,455                   2,365       2,414
 Due after 10 years                     2,627       2,722                   3,516       3,614
                                      -------     -------                 -------     -------
     Total                              6,871       7,117      6.04%        6,376       6,543       5.92%
                                      -------     -------                 -------     -------
                                      $25,726     $26,076      4.13%      $25,348     $25,935       4.87%
                                      =======     =======                 =======     =======
Equity securities with
  No stated maturity:
  FHLB stock                             $386        $386                    $371        $371
 FNMA stock                             1,000       1,000                   1,475       1,460
                                       ------      ------                  ------      ------

                                       $1,386      $1,386      3.84%       $1,846      $1,831       4.55%
                                       ======      ======                  ======      ======
</TABLE>

                                       10
<PAGE>

INVESTMENT POLICY

The objective of our investment  policy is to invest funds not otherwise  needed
to meet the loan demand of our market area to earn the maximum return, yet still
maintain  sufficient  liquidity  to meet  fluctuations  in our loan  demand  and
deposit  structure.  In doing so, we balance the market and credit risks against
the potential  investment  return,  make investments  compatible with the pledge
requirements  of  our  deposits  of  public  funds,   maintain  compliance  with
regulatory investment requirements,  and assist the various public entities with
their financing needs.  The CEO is authorized to execute  security  transactions
for the investment portfolio based on the decisions of the investment committee.
The investment  committee,  which consists of the President and Chief  Executive
Officer,  the Executive  Vice  President and the Senior Vice  President has full
authority  over the  investment  portfolio and makes  decisions on purchases and
sales  of  securities.  All the  investment  transactions  occurring  since  the
previous  board of  directors'  meeting  are  reviewed  by the board at its next
monthly meeting,  and the entire  portfolio is reviewed on a semi-annual  basis.
The investment policy allows portfolio holdings to include short-term securities
purchased to provide us needed liquidity and longer term securities purchased to
generate level income for us over periods of interest rate fluctuations.

Our  investment  securities  portfolio  of  $28,172,007  at December  31,  2003,
consisted  of  $709,910 of  securities  held to  maturity,  which are carried at
amortized  cost and  $27,462,097  of  securities  available  for sale  which are
carried at market value. In addition,  unrealized gains on investment securities
available  for sale were  $404,783  and  unrealized  losses  were  $54,562.  Our
investment  securities  portfolio of $28,818,746 at December 31, 2002, consisted
of  $1,052,991 of  securities  held to maturity,  which are carried at amortized
cost and  $27,765,755  of  securities  available  for sale which are  carried at
market value. In addition,  unrealized gains on investment  securities available
for sale were $592,270 and unrealized losses were $19,431.

As reflected in Note 2 to  Consolidated  Financial  Statements,  the  investment
securities held to maturity had unrealized gains of $7,446 at December 31, 2003,
compared to $1,430 unrealized gains at year end December 31, 2002.

LOAN PORTFOLIO

Total loans of $69,631 at December  31,  2003,  reflected  an increase of $1,506
compared to total loans for the year ended December 31, 2002.  Residential  real
estate loans, which historically have had low loss experience,  increased $3,841
or 12.2%. Construction and land development loans, loans secured by farmland and
commercial  real  estate  loans  increased  by  $1,037 or 5.4%.  Commercial  and
industrial  loans and  agricultural  loans decreased by $1,691 or 23.16%.  These
types of loans carry a higher  level of risk in that the  borrowers'  ability to
repay may be affected by local economic  trends.  Installment and other consumer
loans  decreased  by  $2,192  or  22.02%.  These  loans,  generally  secured  by
automobiles  and other consumer  goods,  contain a historically  higher level of
risk;  however,  this risk is mitigated  by the fact that these loans  generally
consist of small individual  balances.  As the loan portfolio is concentrated in
Hawkins and surrounding counties, there is a risk that the borrowers' ability to
repay the loans could be affected by changes in local economic conditions.

The following table sets forth the composition of our loan portfolio as December
31, 2003 and 2002.

                                       11


<PAGE>




                                                              December 31,
                                                   -----------------------------

(In thousands)                                          2003               2002
                                                        ----               ----
Real estate loans:

  Construction and land development                  $992                $2,647

  Secured by farmland and improvements                823                 1,403

  Secured by residential properties                35,323                31,482

  Commercial real estate loans                     18,442                15,170
                                                   ------                ------

    Total real estate loans                        55,580                50,702

Loans to farmers                                      890                 1,413

Commercial and industrial loans                     4,721                 5,889

Installment loans                                   5,588                 7,725

Other consumer loans                                2,178                 2,233

All other loans                                       674                   163
                                                      ---                   ---
    Total loans                                   $69,631               $68,125
                                                  =======               =======


The  following  table sets forth the  maturities  of the loan  portfolio and the
sensitivity  to interest rate changes of that portion of our loan portfolio that
matures after one year.

<TABLE>
<CAPTION>

                                                                             December 31, 2003
                                                       -----------------------------------------------------
                                                                               Maturity Range
                                                       -----------------------------------------------------
<S>                                                <C>               <C>             <C>             <C>

                                                      One Year     One Through         Over
                                                      or Less       Five Years       Five Years        Total
(In thousands)
Real estate construction loans                        $678               $10            $304            $992
Real estate mortgage loans                          17,253            10,694          26,641          54,588
Commercial and industrial loans                      3,212             1,397             112           4,721
Agricultural loans                                     715               175               0             890
All other loans                                      2,626             4,738           1,076           8,440
                                                     -----             -----           -----           -----
  Total loans                                      $24,484           $17,014         $28,133         $69,631
                                                   =======           =======         =======         =======

</TABLE>

The  sensitivity  to interest rate changes of that portion of our loan portfolio
that matures after one year is set below:

Real estate, commercial and industrial and agricultural loans maturing after one
year as of December 31, 2003 (in thousands);


Fixed rate                                                $27,146

Floating rate                                              12,187
                                                           ------
                                                          $39,333

Other loans maturing after one year:


                                       12

<PAGE>
Fixed rate                                                 $5,190

Floating rate                                                 624
                                                          -------
                                                           $5,814
                                                          -------
Total loans maturing after one year                       $45,147
                                                          -------
LOAN POLICY

All of our lending  activities are under the direct  supervision  and control of
the  Executive  Vice  President  and Senior  Credit  Officer  and the Board loan
committee,  which consists of eight directors.  The loan committee enforces loan
authorizations  for each  officer,  decides  on  loans  exceeding  such  limits,
services all requests for officer credits to the extent  allowable under current
laws and  regulations,  administers  all problem  credits,  and  determines  the
allocation  of funds for each lending  division.  Our  established  maximum loan
volume to deposits is 85%. The loan portfolio consists primarily of real estate,
commercial,  farming and installment  loans.  Commercial loans consist of either
real estate loans or term loans.  Maturity of term loans is normally  limited to
five to seven years. Conventional real estate loans may be made up to 90% of the
appraised  value  or  purchase  cost  of the  real  estate  for no  more  than a
thirty-year  term.  Installment  loans are  based on the  earning  capacity  and
vocational stability of the borrower.

The board of directors at its regularly scheduled meetings reviews all new loans
in excess of $100,000 made the preceding month.  Loans which are 30 days or more
past due are reviewed monthly.

Management periodically reviews the loan portfolio,  particularly nonaccrual and
renegotiated  loans. The review may result in a determination that a loan should
be placed on a nonaccrual  status for income  recognition.  In addition,  to the
extent that management  identifies  potential  losses in the loan portfolio,  it
reduces the book value of such loans,  through  charge-offs,  to their estimated
collectible  value.  Our policy is to classify as  nonaccrual  any loan on which
payment of  principal or interest is 90 days or more past due except where there
is adequate  collateral to cover principal and accrued  interest and the loan is
in the  process of  collection.  No  concessions  are  granted and late fees are
collected.  In addition,  a loan will be  classified  as  nonaccrual  if, in the
opinion of the management,  based upon a review of the borrower's or guarantor's
financial condition, collateral value or other factors, payment is questionable,
even though payments are not 90 days or more past due.

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

The large number of consumer  installment  loans and the relatively small dollar
amount of each makes an  individual  review  impracticable.  It is our policy to
charge off any consumer installment loan which is past due 90 days or more.

In  addition,  mortgage  loans  secured by real estate are placed on  nonaccrual
status when the  mortgagor is in  bankruptcy,  or  foreclosure  proceedings  are
instituted.  Any  accrued  interest  receivable  remains  an  obligation  of the
borrower,  except  in those  cases  where  the loan to value  ratio is more than
adequate to recover accrued principal and interest.

Our  underwriting  guidelines  are  applied to four major  categories  of loans,
commercial and industrial, consumer, agricultural and real estate which includes
residential,  construction  and development and certain other real estate loans.
We require our loan  officers  and loan  committee  to consider  the  borrower's
character,  the borrower's financial condition as reflected in current financial
statements,  the borrower's management  capability,  the borrower's industry and
the economic  environment in which the loan will be repaid.  Before  approving a
loan,  the loan  officer  or  committee  must  determine  that the  borrower  is
basically  creditworthy,  determine  that the  borrower  is a  capable


                                       13

<PAGE>

manager,  understand the specific purpose of the loan, understand the source and
plan of repayment,  determine that the purpose,  plan and source of repayment as
well as collateral are  acceptable,  reasonable  and practical  given the normal
framework within which the borrower operates.

CREDIT RISK MANAGEMENT AND RESERVE FOR LOAN LOSSES

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

Management's  objective in establishing  lending and investment  standards is to
manage  the risk of loss and  provide  for  income  generation  through  pricing
policies.  To effectuate this policy, we make commercial real estate and farming
loans with one year or less fixed maturity.

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

The reserve for loan losses is  increased  by  provisions  charged to  operating
expense.  The reserve is reduced by  charging  off loans or portions of loans at
the time they are deemed by management to be  uncollectible  and increased  when
loans  previously  charged off are  recovered.  The  resulting  reserve for loan
losses is viewed by management as a single,  unallocated  reserve  available for
all loans and, in  management's  opinion,  is  adequate to provide for  probable
incurred loan losses. The reserve is determined by management, based on formulas
and techniques applied similar to those used by the Bank's regulatory  agencies.
The  reserve for loan  losses was  $911,538 at year end 2003,  or 1.31% of loans
outstanding, net of unearned income, compared to $1,110,481 or 1.63% at year end
2002.
















                                       14



<PAGE>


RESERVE FOR LOAN LOSSES

The following table presents the data related to our reserve for loan losses for
the years ended December 31, 2003 and 2002:

                                                             December 31,
                                                    ----------------------------
                                                       2003              2002
                                                    --------          ----------
(In thousands)

Balance at beginning of period                        $1,110          $  908
Charge offs:
  Commercial, financial and agricultural                (129)           (174)
  Real estate mortgage                                  (400)            (90)
  Installment loans to individuals                      (183)           (371)
                                                      -------         -------
                                                        (712)           (635)
                                                      -------         -------
Recoveries:
  Commercial, financial and agricultural                   1               7
  Real estate mortgage
  Installment loans to individuals                        47              35
                                                      -------         -------
                                                          48              42
                                                      -------         -------
Net charge offs                                         (664)           (593)
                                                      -------         -------
Additions charged to operations                          465             795
                                                      -------         -------
Balance at end of period                                $911          $1,110
                                                      -------         -------
Ratio of net charge offs during the period to
  average loans outstanding during the period           0.96%           0.85%
                                                      -------         -------
Average allowance for loan losses to average
  total loans                                           1.32%           1.43%
                                                      -------         -------

At December 31, 2003 and 2002,  the  allowance  for loan losses was allocated as
follows:
(In thousands)
<TABLE>
<CAPTION>

                                                    December 31, 2003                   December 31, 2002
                                                   --------------------               -------------------
                                                             Percent of                        Percent of
                                                   Amount      category                Amount   category
                                                   ------    ----------               -------  ----------
<S>                                                  <C>      <C>                     <C>        <C>

Commercial, financial and agricultural               $102       9.03%                   $236      10.96%
Real estate mortgage                                  598      79.82%                    178      74.42%
Installment loans to individuals                      211      11.15%                    696      14.62%
                                                   ------    ----------               -------   ---------
                                                      911     100.00%                 $1,110     100.00%
                                                   ------    ----------               -------   ---------
</TABLE>

The  allocation of the allowance is presented  based in part on  evaluations  of
past history and  composition  of the loan  portfolio.  Since these  factors are
subject to change,  the current  allocation of the allowance is not  necessarily
indicative of the breakdown of future losses.

The following  table sets forth  information  with respect to our  nonperforming
loans on the dates indicated.  Accrual of interest is discontinued when there is
reasonable  doubt as to the full,  timely  collections of interest or principal.
When a loan becomes  contractually  past due 90 days with respect to interest or
principal, it is reviewed and a determination is made as to whether it should be
placed on nonaccrual  status.  When a loan is placed on nonaccrual  status,  all
interest previously accrued but not collected is reversed against current period
interest income. Income on such loans is then recognized only to the extent that
cash is received  and where the future  collection  of  principal  is  probable.
Interest  accruals  are resumed on such loans only when they are  brought  fully
current  with respect to  principal  and  interest and when,  in the judgment of
management,  the loans are estimated to be fully collectible as to principal and
interest.  Restructured loans are those loans on which concessions in terms have
been granted because of a borrower's financial difficulty. Interest is generally
accrued on such loans in accordance with the new terms.

                                       15

<PAGE>

<TABLE>
<CAPTION>

Non-performing assets (In thousands)                                                     December 31
                                                                                ---------------------------
<S>                                                                                 <C>            <C>

                                                                                      2003          2002
                                                                                      ----          ----
Nonaccrual loans                                                                      $175          $923
Restructured loans                                                                       -             -
Other loans past due 90 days or more to principal or interest payments              $1,035          $673
Non-performing loans as a percentage of net loans before allowance
  for loan losses                                                                     1.74%         2.34%
Allowance for loan losses as a percentage of nonperforming loans                     75.29%        69.55%
Foregone interest on nonaccrual loans                                               $    5          $ 37
</TABLE>


LIQUIDITY

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

Although we have no formal liquidity policy,  in the opinion of management,  our
liquidity  levels are  considered  adequate.  We are not subject to any specific
liquidity  requirements  imposed by  regulatory  orders.  The Bank is subject to
general  FDIC  guidelines  which do not  require a minimum  level of  liquidity.
Management  believes  its  liquidity  ratios  meet or exceed  these  guidelines.
Management does not know of any trends or demands which are reasonably likely to
result in liquidity increasing or decreasing in any material manner.

The following table sets forth liquidity ratios for the periods indicated:

                                                       2003            2002
                                                       ----            ----
Average loans to average deposits                     68.37%          68.78%

IMPACT OF INFLATION AND CHANGING PRICES

The consolidated  financial statements and related  consolidated  financial data
presented  herein  have been  prepared in  accordance  with  generally  accepted
accounting  principles  which require the measurement of financial  position and
operating results in terms of historical dollars without considering the changes
in the relative  purchasing  power of money over time and due to inflation.  The
impact of inflation on our operations is reflected in increased operating costs.
Unlike most  industrial  companies,  virtually all of our assets and liabilities
are  monetary in nature.  As a result,  interest  rates have a more  significant
impact on our  performance  than the  effects  of general  levels of  inflation.
Interest  rates do not  necessarily  move in the same  direction  or in the same
magnitude as the price of goods and services.


                                       16

<PAGE>

IMPACT OF PROSPECTIVE ACCOUNTING STANDARDS

For discussion regarding the impact of new accounting standards, refer to Note 1
of Notes to Consolidated Financial Statements.

CAPITAL ADEQUACY

Capital adequacy refers to the level of capital required to sustain asset growth
over time and to absorb losses. The objective of our management is to maintain a
level of capitalization that is sufficient to take advantage of profitable
growth opportunities while meeting regulatory requirements. This is achieved by
improving profitability through effectively allocating resources to more
profitable businesses, improving asset quality, strengthening service quality,
and streamlining costs. The primary measures used by management to monitor the
results of these efforts are the ratios of average equity to average assets,
average tangible equity to average tangible assets, and average equity to net
loans.

The  Federal  Reserve  Board  has  adopted  capital  guidelines   governing  the
activities of bank holding  companies.  These guidelines require the maintenance
of an amount of capital  based on  risk-adjusted  assets so that  categories  of
assets with  potentially  higher  credit risk will require more capital  backing
than assets with lower risk. In addition,  banks and bank holding  companies are
required  to maintain  capital to support,  on a  risk-adjusted  basis,  certain
off-balance sheet activities such as loan commitments.

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

Our consolidated capital ratios are set forth below. See Note 12 to the Notes to
Consolidated Financial Statements for Bank-only capital ratios.
















                                       17

<PAGE>




                                                 December 31        December 31
                                                       2003                2002
                                                       ----                ----

(Dollars in thousands)
Capital:
Tier I capital:
   Stockholders' common equity                      $  7,301           $  6,834
   Accumulated comprehensive income                     (217)              (355)
   Disallowed intangibles                               (131)              (131)
                                                    ---------          ---------
       Total Tier I capital                           6, 953              6,348

Tier II capital:
   ALL                                                   901                867
                                                    ---------          --------
           Total capital                            $  7,854           $  7,215
                                                    ---------          --------
Risk-adjusted assets                                $ 72,050           $ 69,115

Quarterly average assets                            $109,820           $111,032

Ratios:
Tier I capital to risk-adjusted assets                  9.65%             9.18%
Total capital to risk-adjusted assets                  10.90%            10.44%
Leverage - Tier I capital to quarterly
  average assets less disallowed intangibles            6.33%             5.72%


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

The following table lists the five categories of capital and each of the minimum
requirements for the three risk-based capital ratios.

                                 Total Risk-Based  Tier I Risk-Based  Leverage
                                   Capital Ratio    Capital Ratio       Ratio
                                 ---------------   ---------------  ------------

Well-capitalized.................. 10% or above     6% or above    5% or above
Adequately capitalized............  8% or above     4% or above    4% or above
Undercapitalized..................  Less than 8%    Less than 4%   Less than 4%
Significantly undercapitalized....  Less than 6%    Less than 3%   Less than 3%
Critically undercapitalized.......     --               --         2% or less


On December 31, 2003 and 2002,  the Bank and Volunteer  exceeded the  regulatory
minimums and qualified under the regulations as well capitalized.

                                       18
<PAGE>

CERTAIN REGULATORY CONSIDERATIONS

As  a  bank  holding  company,  Volunteer  is  subject  to  the  regulation  and
supervision  of the  Board of  Governors  of the  Federal  Reserve  System  (the
"Federal  Reserve Board") under the Bank Holding Company Act of 1956, as amended
(the "BHCA"). Under the BHCA, bank holding companies may not in general directly
or  indirectly  acquire the  ownership  or control of more than 5% of the voting
shares or substantially all the assets of any company, including a bank, without
the prior  approval of the Federal  Reserve  Board.  The BHCA also restricts the
types of activities  in which a bank holding  company and its  subsidiaries  may
engage. Generally, activities are limited to banking and activities found by the
Federal  Reserve  Board to be so  closely  related  to banking as to be a proper
incident thereto.

In addition,  the BHCA  prohibits the Federal  Reserve  Board from  approving an
application  by a bank  holding  company  to  acquire  shares  of a bank or bank
holding  company  located  outside the acquiror's  principal state of operations
unless such an acquisition is specifically authorized by statute in the state in
which the bank or bank  holding  company  whose  shares  are to be  acquired  is
located. Tennessee has adopted legislation that authorizes nationwide interstate
bank  acquisitions,  subject  to  certain  state law  reciprocity  requirements,
including  the  filing of an  application  with and  approval  of the  Tennessee
Commissioner  of Financial  Institutions.  The Tennessee  Bank  Structure Act of
1974, as amended,  restricts the acquisition by bank holding  companies of banks
in Tennessee.  A bank holding  company is prohibited  from acquiring any bank in
Tennessee  as long as banks  that it  controls  retain  30% or more of the total
deposits in individual,  partnership and corporate demand and other  transaction
accounts and in savings  accounts  and time  deposits in all  federally  insured
financial  institutions  in  Tennessee,   subject  to  certain  limitations  and
exclusions.  Also,  under this act, no bank holding company may acquire any bank
in  operation  for less than five years or begin a de novo bank in any county in
Tennessee  with a population,  in 1970,  of 200,000 or less,  subject to certain
exceptions.

Under Tennessee law, branch banking is permitted in any county in the state.

The Bank is a Tennessee  state-chartered  bank and is subject to the regulations
of and supervision by the Federal Deposit Insurance  Corporation (the "FDIC") as
well as the  Department  of Financial  Institutions,  Tennessee's  state banking
authority.  The Bank is also subject to various  requirements  and  restrictions
under federal and state law, including requirements to maintain reserves against
deposits, restrictions on the types and amounts of loans that may be granted and
the  interest  that may be  charged  thereon  and  limitations  on the  types of
investments  that  may be made  and the type of  services  that may be  offered.
Various consumer laws and regulations also affect the operations of the Bank. In
addition  to  the  impact  of   regulation,   commercial   banks  are   affected
significantly  by the  actions of the  Federal  Reserve  Board as it attempts to
control  the money  supply and credit  availability  in order to  influence  the
economy.

As a result  of  certain  findings  in the  Tennessee  Department  of  Financial
Institution's  Report of Examination  dated June 4, 2001, the Board of Directors
of Bank entered into a Memorandum of  Understanding  (Memorandum),  dated August
16,  2001,  with the  Commissioner  of the  Tennessee  Department  of  Financial
Institutions and the Memphis Regional  Director of the Federal Deposit Insurance
Corporation.  A Memorandum of Understanding is an informal  administrative  tool
for  institutions  that have some weaknesses that if not properly  addressed and
corrected  could lead to supervisory  concern  requiring  formal  administrative
action.  The areas addressed in the Memorandum cover capital adequacy,  laws and
regulations,  data  processing  audit and  review,  investment  policy  maturity
strategies, adequate documentation of each of the foregoing but primarily credit
administration.  As a  result,  the Board  has  revised  a number of the  Bank's
policies  and  procedures   including  its  loan  policy  and  has  incorporated
recommendations  designed to  strengthen  credit  quality and the Bank's  review
procedures regarding loan loss reserve adequacy. Management of Volunteer and the
Bank believe that the Bank is in substantial  compliance  with the provisions of
the Memorandum.

As a result of certain  findings in the  Federal  Reserve  Bank's  review of our
company as of September 17, 2002, our Board of Directors  adopted  certain Board
Resolutions as of October 31, 2002. Board Resolutions are recommendations of the
Federal  Reserve  adopted  by our Board of  Directors  requesting  that  certain
actions  be  taken  to  strengthen  our  financial  condition  and  that  of our
subsidiary. The areas addressed in the Board Resolutions include restrictions on
incurring  additional  debt,   declaration  and  payment  of  dividends  to  our
shareholders,  and certain capital transactions. Our management believes that we
are in substantial compliance with the provisions of the Resolutions.

                                       19

<PAGE>


PAYMENT OF DIVIDENDS

We are a legal entity  separate and distinct  from our banking  subsidiary.  The
principal  source  of  cash  flow of our  company,  including  cash  flow to pay
dividends  on its  stock  or  principal  and  interest  on debt  securities,  is
dividends from the Bank.  There are statutory and regulatory  limitations on the
payment of dividends by the Bank to us, as well as by us to our shareholders.

The Bank is subject to the Tennessee  Banking Act, which provides that dividends
will be paid out of undivided profits.  Capital surplus,  however, must equal or
exceed 50% of capital stock, and in the event capital surplus falls below 50% of
capital stock, no dividends may be paid until net profits have been  transferred
to capital  surplus so that it equals 50% of capital stock.  Thereafter,  10% of
net profits must be transferred to capital surplus prior to payment of dividends
until capital  surplus  equals  capital  stock.  The Bank is also subject to the
minimum capital  requirements of the FDIC which impact the Bank's ability to pay
dividends.  If the Bank fails to meet these standards, it may not be able to pay
dividends or to accept additional  deposits because of regulatory  requirements.
See "Certain Regulatory Considerations."

If, in the  opinion of the  applicable  federal  bank  regulatory  authority,  a
depository  institution or a holding company is engaged in or is about to engage
in an unsafe or unsound practice (which, depending on the financial condition of
the  depository  institution  or holding  company,  could include the payment of
dividends),  such authority may require that such institution or holding company
cease and desist from such practice. The federal banking agencies have indicated
that  paying  dividends  that  deplete a  depository  institution's  or  holding
company's  capital  base to an  inadequate  level  would be such an  unsafe  and
unsound banking practice.  Moreover,  the Federal Reserve Board, the Comptroller
of the Currency and the FDIC have issued  policy  statements  which provide that
bank holding companies and insured depository institutions generally should only
pay dividends out of current operating earnings.

The payment of  dividends  by us and the Bank may also be affected or limited by
other  factors,  such as the  requirement  to maintain  adequate  capital  above
regulatory guidelines.

TRANSACTIONS WITH AFFILIATES

There are  various  legal  restrictions  on the extent to which we can borrow or
otherwise obtain credit from the Bank. There are also legal  restrictions on the
Bank's  purchases of or  investments in the securities of and purchase of assets
from our  company,  a bank's  loans or  extensions  of credit to third  parties,
collateralized by the securities or obligations of our company,  the issuance of
guaranties, acceptances and letters of credit on behalf our company, and certain
bank  transactions  with our company,  or with respect to which we act as agent,
participate or have a financial interest. Subject to certain limited exceptions,
the Bank may not  extend  credit  to us or to any other  affiliate  in an amount
which  exceeds  10% of the Bank's  capital  stock and surplus and may not extend
credit in the aggregate to such affiliates in an amount which exceeds 20% of its
capital stock and surplus. Further, there are legal requirements as to the type,
amount and quality of collateral  which must secure such extensions of credit by
the Bank to our company or to such other affiliates.  Also, extensions of credit
and other transactions between the Bank and our company or such other affiliates
must be on terms and under circumstances,  including credit standards,  that are
substantially  the same or at least as favorable to the Bank as those prevailing
at the time for comparable transactions with non-affiliated companies.  Also, we
and our subsidiaries are prohibited from engaging in certain tie-in arrangements
in  connection  with any  extension  of  credit,  lease or sale of  property  or
furnishing of services.

HOLDING COMPANY STRUCTURE AND SUPPORT OF THE BANK

Because we are a holding company,  its right to participate in the assets of any
subsidiary upon the latter's  liquidation or  reorganization  will be subject to
the prior claims of the subsidiary's creditors (including depositors in the case
of bank  subsidiaries)  except to the extent  that we may  ourself be a creditor
with recognized claims against the subsidiary.

                                       20

<PAGE>


Under  Federal  Reserve  Board  policy,  we are  expected  to act as a source of
financial  strength to, and commit resources to support,  the Bank. This support
may be required at times when,  absent such Federal Reserve Board policy, we may
not be inclined to provide it. In addition,  any capital loans by a bank holding
company to any of its  subsidiary  banks are  subordinate in right of payment to
deposits and to certain other indebtedness of such subsidiary bank. In the event
of a bank  holding  company's  bankruptcy,  any  commitment  by the bank holding
company  to a federal  bank  regulatory  agency to  maintain  the  capital  of a
subsidiary  bank will be assumed by the  bankruptcy  trustee  and  entitled to a
priority of payment.

CROSS-GUARANTEE LIABILITY

Under the Federal Deposit Insurance Act (the "FDIA"),  a depository  institution
insured by the FDIC can be held liable for any loss  incurred by, or  reasonably
expected to be incurred by, the FDIC after August 9, 1989 in connection with (i)
the default of a commonly controlled FDIC-insured depository institution or (ii)
any  assistance  provided by the FDIC to any  commonly  controlled  FDIC-insured
depository institution "in danger of default." "Default" is defined generally as
the  appointment  of a  conservator  or  receiver  and "in danger of default" is
defined  generally as the  existence  of certain  conditions  indicating  that a
default is likely to occur in the absence of regulatory  assistance.  The FDIC's
claim  for  damages  is  superior  to  claims  of  shareholders  of the  insured
depository  institution  or its holding  company but is subordinate to claims of
depositors,  secured  creditors  and  holders of  subordinated  debt (other than
affiliates) of the commonly controlled insured depository institution.  The Bank
is subject to these cross-guarantee  provisions.  As a result, any loss suffered
by the FDIC in respect  of the Bank  would  likely  result in  assertion  of the
cross- guarantee provisions, and a potential loss of our investment in the Bank.

FDICIA

The Federal  Deposit  Insurance  Corporation  Improvement Act of 1991 ("FDICIA")
which was enacted on December 19,  1991,  substantially  revised the  depository
institution  regulatory and funding provisions of the FDIA and made revisions to
several other federal banking statutes.  Among other things, FDICIA requires the
federal  banking  regulators  to take "prompt  corrective  action" in respect of
FDIC-insured   depository   institutions   that  do  not  meet  minimum  capital
requirements.   FDICIA  establishes  five  capital  tiers:  "well  capitalized,"
"adequately capitalized,"  "undercapitalized,"  "significantly undercapitalized"
and "critically  undercapitalized." Under applicable regulations, a FDIC-insured
depository  institution  is defined to be well  capitalized  if it  maintains  a
Leverage  Ratio of at least 5%, a risk adjusted Tier 1 Capital Ratio of at least
6% and a Total  Capital Ratio of at least 10% and is not subject to a directive,
order or written  agreement to meet and maintain  specific  capital  levels.  An
insured  depository  institution  is defined to be adequately  capitalized if it
meets all of its minimum capital  requirements as described  above. In addition,
an insured  depository  institution  will be considered  undercapitalized  if it
fails to meet any minimum required measure, significantly undercapitalized if it
is significantly below such measure and critically  undercapitalized if it fails
to  maintain  a level of  tangible  equity  equal  to not less  than 2% of total
assets.   An  insured   depository   institution  may  be  deemed  to  be  in  a
capitalization  category  that is lower than is indicated by its actual  capital
position if it receives an unsatisfactory examination rating.

The  capital-based  prompt  corrective  action  provision  of  FDICIA  and their
implementing  regulations apply to FDIC-insured  depository institutions and are
not directly  applicable to holding  companies which control such  institutions.
However,  the Federal  Reserve  Board has indicated  that,  in  regulating  bank
holding companies,  it will take appropriate action at the holding company level
based on an assessment of the effectiveness of supervisory  actions imposed upon
subsidiary depository institutions pursuant to such provisions and regulations.

FDICIA generally  prohibits an FDIC-insured  depository  institution from making
any  capital  distribution  (including  payment  of  dividends)  or  paying  any
management  fee to its  holding  company  if the  depository  institution  would
thereafter be  undercapitalized.  Undercapitalized  depository  institutions are
subject to  restrictions  on  borrowing  from the  Federal  Reserve  System.  In
addition,   undercapitalized  depository  institutions  are  subject  to  growth
limitations and are required to submit capital  restoration  plans. A depository
institution's  holding  company must guarantee the capital plan, up to an amount
equal to the lesser of 5% of the depository  institution's assets at the time it
becomes  undercapitalized  or the  amount  of the  capital  deficiency  when the
institution  fails to comply with the plan. The federal banking agencies may not
accept a capital plan without determining,  among other things, that the plan is

                                       21

<PAGE>

based on  realistic  assumptions  and is  likely to  succeed  in  restoring  the
depository institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.

Significantly  undercapitalized  depository  institutions  may be  subject  to a
number of requirements  and  restrictions,  including  orders to sell sufficient
voting  stock to become  adequately  capitalized,  requirements  to reduce total
assets and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized  depository  institutions  are  subject  to  appointment  of  a
receiver  or  conservator  generally  within  90 days of the date on which  they
became critically undercapitalized.

We believe that at December 31, 2003,  the Bank was well  capitalized  under the
criteria discussed above.

FDICIA contain numerous other  provisions,  including new accounting,  audit and
reporting  requirements,  beginning in 1995 termination of the "too big to fail"
doctrine except in special cases,  limitations on the FDIC's payment of deposits
at foreign  branches,  new regulatory  standards in such areas as asset quality,
earnings and  compensation  and revised  regulatory  standards  for, among other
things, powers of state banks, real estate lending and capital adequacy.  FDICIA
also requires that a depository  institution provide 90 days prior notice of the
closing of any branches.

Various other  legislation,  including  proposals to revise the bank  regulatory
system and to limit the investments that a depository  institution may make with
insured funds, is from time to time introduced in Congress.

INTERSTATE ACT

The  Riegle-Neal  Interstate  Banking  and  Branching  Efficiency  Act  of  1994
("Interstate  Act"), which was enacted on September 29, 1994, among other things
and subject to certain conditions and exceptions, permits on an interstate basis
(i) bank holding  company  acquisitions  commencing one year after  enactment of
banks (of a minimum age of up to five years as  established  by state law in any
state),  (ii)  mergers of national and state banks after May 31, 1997 unless the
home state of either bank has opted out of the interstate bank merger provision,
(iii)  branching  de novo by  national  and  state  banks if the host  state has
opted-in to this provision of the  Interstate  Act, and (iv) certain bank agency
activities  after one year after  enactment.  The  Interstate Act contains a 30%
intrastate  deposit  cap,  except  for the  initial  acquisition  in the  state,
restriction that applies to certain interstate  acquisitions  unless a different
intrastate  cap  has  been  adopted  by the  applicable  state  pursuant  to the
provisions of the  Interstate  Act and a 10% national  deposit cap  restriction.
Regulations  have not yet been issued under the Interstate  Act. A bill has been
enacted by the Tennessee  legislature  which  repeals the  Tennessee  Reciprocal
Banking  Act,  amends  the  Tennessee  Bank  Structure  Act of 1974,  and amends
Tennessee's  bank branching laws by opting in to the Interstate Act.  Management
cannot  predict  the  extent to which our  business  and that of the Bank may be
affected.

BROKERED DEPOSITS AND PASS-THROUGH INSURANCE

The FDIC has adopted  regulations under FDICIA governing the receipt of brokered
deposits  and pass-  through  insurance.  Under the  regulations,  a bank cannot
accept or rollover or renew brokered  deposits unless (i) it is well capitalized
or (ii) it is adequately  capitalized  and receives a waiver from the FDICIA.  A
bank that cannot  receive  brokered  deposits  also cannot offer  "pass-through"
insurance on certain employee benefit  accounts.  Whether or not it has obtained
such a waiver,  an adequately  capitalized  bank may not pay an interest rate on
any deposits in excess of 75 basis points over certain index  prevailing  market
rates specified by regulation.  There are no such restrictions on a bank that is
well  capitalized.  Because we believe that the Bank was well  capitalized as of
December 31, 2003,  we believe the brokered  deposits  regulation  will have not
material effect on the funding or liquidity of the Bank.

FDIC INSURANCE PREMIUMS

The Bank is required to pay semiannual FDIC deposit  insurance  assessments.  As
required  by  FDICIA,  the FDIC  adopted a  risk-based  premium  schedule  which
increased the assessment rates for most  FDIC-insured  depository  institutions.
Under the  schedule,  the premiums  initially  range from $.23 to $.31 for every
$100 of deposits. Each financial institution is assigned to one of three capital
groups -- well capitalized,  adequately  capitalized or  undercapitalized -- and
further  assigned to one of three subgroup  within a capital group, on the basis
of  supervisory  evaluations  by  the  institution's  primary  federal  and,  if
applicable,   state   supervisors   and  other   information   relevant  to

                                       22

<PAGE>


the institution's  financial condition and the risk posed to the applicable FDIC
deposit  insurance  fund. The actual  assessment rate applicable to a particular
institution   will,   therefore,   depend  in  part  upon  the  risk  assessment
classification so assigned to the institution by the FDIC.

Under the FDIA,  insurance  of  deposits  may be  terminated  by the FDIC upon a
finding 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 a federal bank
regulatory agency.

DEPOSITOR PREFERENCE

The Omnibus Budget Reconciliation Act of 1993 provides that deposits and certain
claims for administrative  expenses and employee compensation against an insured
depositary institution would be afforded a priority over other general unsecured
claims  against  such an  institution,  including  federal  funds and letters of
credit,  in the "liquidation or other  resolution" of such an institution by any
receiver.

EFFECT OF GOVERNMENTAL POLICIES

The Bank is affected by the policies of  regulatory  authorities,  including the
Federal Reserve System.  An important  function of the Federal Reserve System is
to regulate the national money supply.  Among the instruments of monetary policy
used by the  Federal  Reserve  are:  purchases  and  sales  of  U.S.  Government
securities in the  marketplace;  changes in the discount rate, which is the rate
any  depository  institution  must pay to borrow from the Federal  Reserve;  and
changes  in  the  reserve   requirements  of  depository   institutions.   These
instruments are effective in influencing economic and monetary growth,  interest
rate levels and inflation.

The  monetary  policies of the  Federal  Reserve  System and other  governmental
policies  have had a significant  effect on the operating  results of commercial
banks in the past and are  expected to continue to do so in the future.  Because
of changing  conditions in the national economy and in the money market, as well
as the result of actions by monetary and fiscal authorities,  it is not possible
to predict with certainty future changes in interest rates, deposit levels, loan
demand or the  business  and earnings of us and the Bank or whether the changing
economic  conditions  will have a positive or negative  effect on operations and
earnings.

Bills are pending  before the United States  Congress and the Tennessee  General
Assembly which could affect the our business and that of the Bank, and there are
indications that other similar bills may be introduced in the future.  It cannot
be predicted  whether or in what form any of these  proposals will be adopted or
the extent to which our business and the  business of Bank  subsidiaries  may be
affected thereby.

EMPLOYEES

At December 31, 2003, we had a total of 55 employees with 6 of those employed on
a part-time basis.

Item 2.  Description of Property

The  Bank's  main  office is  located  at 210 East Main  Street in  Rogersville,
Tennessee. The property consists of a masonry building with approximately 10,000
square  feet,  7,500  square  feet of which is used by the Bank.  The Bank has a
branch in Sneedville,  Tennessee  which is a masonry  building of  approximately
7,000  square  feet,  which is  constructed  on a half acre of land owned by the
Bank.  The Bank  operates  a third  location  as a branch  in Church  Hill.  All
facilities have improvements  including  drive-through  tellers,  vaults,  night
depository and certain facilities have safe deposit boxes. During 2002, the Bank
acquired a building  adjacent to its main office which is being  utilized by the
loan  administration  department on the first floor and as storage on the second
floor.

Item 3.  Legal Proceedings

There are no material  pending  legal  proceedings  to which we or the Bank is a
party or of which any of their  properties  are subject;  nor are there material
proceedings  known to us to be contemplated by any governmental  authority;  nor
are there other material  proceedings  known to us, pending or contemplated,  in
which any director,

                                       23

<PAGE>


officer or affiliate or any  principal  security  holder of our company,  or any
associate of any of the foregoing,  is a party or has an interest  adverse to us
or the Bank.

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

         None

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

We conducted a public offering of our common stock in 1997 at a price of $15 per
share (the  "Offering").  There is no established  public market for the shares.
Management  is aware that isolated  transactions  in the common stock occur from
time to time. To our best  knowledge the most recent  transaction  in the common
stock was December 17, 1997 and was for the price of $15.00 per share.

There were 483 holders of record of the common stock as of March 22, 2004.

Payment of  dividends  is at the  discretion  of the board of  directors  but is
presently  subject to the approval of the Federal Reserve in accordance with the
Board  Resolutions  adopted  October 31, 2002.  While we have paid  dividends in
recent years, the board of directors cannot predict when such dividends, if any,
will be made. The payment of dividends, if any, shall at all times be subject to
the payment of our expenses,  the maintenance of reasonable  working capital and
risk reserves, and minimum capitalization requirements for state banks.

Item 6.  Management's Discussion and Analysis

The  purpose of this  discussion  and  analysis  is to provide the reader with a
concise  description of our financial  condition and changes therein and results
of our  operations  and the Bank for the years ended December 31, 2003 and 2002.
This  discussion  and analysis is intended to complement  the audited  financial
statements  and  footnotes  and  the  supplemental  financial  data  and  charts
appearing elsewhere in this report, and should be read in conjunction therewith.
This discussion and analysis will focus on the following major areas: Results of
Operations,  Financial Position, Capital Resources, Asset Quality, and Liquidity
and Interest-Sensitivity.

RESULTS OF OPERATIONS

Net income for 2003 was $604,622 increasing $218,045 compared with net income of
$386,577 for 2002.  Our return on average  assets was 0.54% for 2003 compared to
0.34% for  2002.  Our  return  on  average  equity  increased  to 8.55% for 2003
compared with 5.87% for 2002.

Our net income for 2003 and 2002 was impacted by the following:










                                       24
<PAGE>


--   The yield on average  interest earning assets was 6.15% for 2003 decreasing
     86 basis points from 7.01% for 2002.

-    Average  earning  assets  decreased  $2,447,000  to  $101,519,000  for 2003
     compared to $103,966,000 for 2002.

     --   Yield on  average  interest  bearing  liabilities  decreased  78 basis
          points from 2.64% in 2002 to 1.86% for 2003.

     --   Average  interest   bearing   liabilities   decreased   $2,017,000  to
          $90,597,000 for 2003 compared to $92,614,000 for 2002.

     --   Average  interest  earning  assets to average  total assets  decreased
          slightly from 92.70% for 2002 to 90.73% for 2003.

     --   Average interest bearing liabilities to average total assets decreased
          from 82.58% for 2002 to 80.97% for 2003.

As a result of the  foregoing  net interest  income as a  percentage  of average
interest  earning  assets  decreased  from  4.66%  for 2002 to 4.49%  for  2003.
Accordingly,  net interest  income for 2003 of $4,408,075 was $307,173 less than
net interest income of $4,715,248 for 2002.

Net interest  income for 2003 was positively  impacted by a decrease in interest
expense of $23,838 on parent  company only  borrowings.  Average  parent company
only borrowings  were $1,448,000 for 2003 or a decrease of $393,000  compared to
2002 of $1,841,000.  The decrease of $23,838 was  attributable  to a decrease in
the average rate on such outstanding borrowings from 3.86% for 2002 to 3.31% for
2003.  The  borrowing  was  incurred  in order to  increase  the  capital of our
subsidiary bank. Without this borrowing,  the Bank would not have had sufficient
capital to permit the Bank to open branches in Rogersville and Church Hill.

We are in violation of certain loan  covenants with respect to this loan in that
annualized  earnings to tangible assets are less than the 0.75% required and the
ratio of  nonperforming  assets is greater than 2.5%.  These violations have not
been waived by the lender.

Because of these  violations,  the lender may,  at its  option,  by notice to us
declare the note in  default.  In such an event we would have ten days to remedy
compliance with all loan  covenants.  If we did not or could not comply with all
loan covenants within such ten day period the note would be in default.  In such
a case the lender may  declare  the note  immediately  due and payable and among
other things proceed to foreclose upon 100% of the stock of The Citizens Bank of
East Tennessee which is pledged as security for the note.

We have notified the lender of our non-compliance  with certain covenants of the
note that could lead to the lender declaring the note in default.  However,  the
lender has not given us  notification  that we are in default under the terms of
the loan agreement.

We are in discussions  with the lender and anticipate the lender to first pursue
remedies other than  foreclosure.  Accordingly,  we expect that the note will be
restructured  resulting in, among other things,  increasing the interest rate on
the note and substantially reducing the final maturity date on the note. In such
a case,  there can be no assurance that we could satisfy the  restructured  debt
without  obtaining  new  financing  from  other  lenders  or funds  from a stock
offering.  Further,  there can be no assurance that a stock offering by us would
be successful or that new lenders would provide funds to us.


                                       25
<PAGE>


The following table indicates the average  balance,  interest income or expense,
average interest rates earned or paid, interest rate spread, and interest margin
for the years ended December 31, 2003 and 2002.

<TABLE>
<CAPTION>

                                                      2003                                          2002
                                        -----------------------------------         ----------------------------------
(Fully taxable equivalent)                          Interest     Average                          Interest     Average
(Dollars in thousands except            Average     Income/      Yields/             Average      Income/      Yields/
for per share data)                     Balance     Expense        Rate              Balance      Expense       Rate
                                        -------     -------        ----              -------      -------       ----
<S>                                    <C>            <C>           <C>              <C>          <C>           <C>

Assets:

Interest-earning assets:
Loans net of unearned income           $ 69,038       $4,977        7.21%            $ 69,672     $ 5,711       8.20%
U.S. Treasury and other U.S.
  government agencies                    23,210          784        3.38%              23,468       1,117       4.76%
States and municipalities                 7,017          439        6.26%               5,541         367       6.62%
FHLB stock                                  377           15        3.98%                 361          16       4.43%
Federal funds sold                        1,877           24        1.28%               4,924          74       1.50%
                                       --------       ------                         --------     -------
  assets/interest income                101,519        6,090        6.00%             103,966       7,285       7.01%
                                       --------       ------                         --------     -------
Cash and due from banks                   2,708                                         2,936
Other assets                              8,661                                         6,250
Allowance for loan losses                  (999)                                         (995)
                                       --------                                      --------
    Total                              $111,889                                      $112,157
                                       --------                                      --------
Liabilities and stockholders'
  equity:
Interest-bearing liabilities:
Demand deposits                        $ 22,217         $161        0.72%            $ 19,303     $   239       1.24%
Savings                                   7,067           27        0.38%               7,096         106       1.49%
Individual retirement accounts            8,364          207        2.47%               8,768         284       3.24%
Time certificates                        49,639        1,204        2.43%              53,857       1,694       3.15%
FHLB advances                                 0            0        0.00%                   0           0       0.00%
Fed funds purchased                         196            3        1.53%
Securities sold under repurchase          1,666           32        1.92%               1,749          50       2.86%
Note payable                              1,448           48        3.31%               1,841          71       3.86%
                                       --------       ------                         --------     -------
  Total interest-bearing
    liabilities/interest expense         90,597        1,682        1.86%              92,614       2,444       2.64%
                                       --------       ------                         --------     -------
Non-interest bearing demand
  deposits                               13,694                                        12,276
Other liabilities                           523                                           677
Stockholders' equity                      7,075                                         6,590
                                       --------                                      --------
  Total                                $111,889                                      $112,157
                                       ========                                      --------
Net interest earnings                                  4,557                                      $ 4,841
                                                      ------                                      -------
Net interest on interest earning
  assets                                                            4.49%                                       4.66%
                                                                    -----                                       -----

Performance ratios and other data
Return on average assets                   0.54%                                         0.34%
Return on average equity                   8.55%                                         5.87%
Cash dividends declared                      $0                                       $53,903
Dividend payout ratio                         0                                         13.94%
Net income                             $604,684                                      $386,577

</TABLE>





                                       26


<PAGE>


NONINTEREST EXPENSE

Non-interest  expense  increased  $51,226 from $3,886,898 for 2002 to $3,938,124
for 2003.  Non-interest  expense as a percentage of average assets  increased by
0.05% from 3.47% in 2002 to 3.52% for 2003.

The following table presents  non-interest expense for 2003 compared to 2002 and
as a percentage of average assets for each year (in thousands):

<TABLE>
<CAPTION>
                                                               % Average                     % Average
                                                  2003           Assets          2002           Assets
                                                  ----           -------         ----           ------
<S>                                             <C>               <C>           <C>             <C>
Salaries and employee benefits                  $1,970            1.76%         $1,846          1.65%
Occupancy, net                                     247             .22             263          0.23%
Furniture and equipment                            387             .35             399          0.36%
Directors fees                                      72             .06              68          0.06%
Advertising                                         27             .02              31          0.03%
FDIC insurance                                      46             .04              48          0.04%
Office supplies                                     96             .09             133          0.12%
Professional services                              218             .19             206          0.18%
Telephone                                           66             .06              53          0.05%
Postage and courier                                 88             .08              79          0.07%
Loss on other real estate owned                     97             .09             299          0.27%
Other                                              624             .56             462          0.41%
                                                ------                          ------
                                                $3,938           3.52%          $3,887          3.47%
                                                ======           =====          ======          =====
</TABLE>


Non-interest  expenses  increased  1.35% in absolute terms from 2002 to 2003 and
increased as a percentage  of average  total  assets.  The increase is primarily
attributable to an increase in salaries and employee benefits.

The  provision  for loan losses in 2003 was $465,000 and for 2002 was  $795,000.
The  provision  for loan  losses is the amount  management  deems  necessary  to
maintain a reserve for loan losses at a level  sufficient to meet risks inherent
in the  Bank's  loan  portfolio.  The  level of the  reserve  is  determined  by
management  after  considering  ongoing reviews of the loan portfolio as well as
considering  the  level  and  magnitude  of   non-performing   assets  and  loan
delinquencies,  general economic  conditions in the areas served by us, historic
loan-loss experience, loan mix and the level of loans relative to reserves.

Non-interest income increased $281,292 from $499,616 in 2002 to $780,908 in 2003
primarily due to an increase in service charges on deposit accounts and gains on
sales of securities.

Income tax expense increased $34,848 from $146,389 in 2002 to $181,237 in 2003.

FINANCIAL POSITION

Our total assets decreased 2.42% or $2.69 million during 2003 to $108.68 million
at year end 2003  from  $111.37  million  at year end  2002.  This  decrease  is
primarily attributable to a decrease of $4.17 million in deposits and securities
sold under repurchase  agreements during 2003 to $98.07 million at year end 2003
from $102.25 million at year end 2002.

Portfolio  securities  decreased  $650,000 in 2003 to $28.17 million at year end
2003 from $28.82  million at year end 2002 while  federal funds  decreased  $4.1
million during 2003.

                                       27

<PAGE>


Loans  increased  $1.51 million  during 2003 to $69.63  million at year end 2003
compared to $68.12 million at year end 2002. Real estate and commercial mortgage
loans  increased $4.88 million in 2003 and consumer loans decreased $2.2 million
in 2003.  Real estate  mortgage loans  represented  79.82% of gross  outstanding
loans at year end 2003.  Consumer loans represented  11.15% of gross outstanding
loans at year end 2003.  Commercial loans represented 6.78% of gross outstanding
loans at year end 2003.

Deposits and securities sold under repurchase agreements decreased $4.17 million
in 2003 from  $102.25  million  at year end 2002 to $98.07  million  at year end
2003.

CAPITAL REQUIREMENTS

Our equity  capital was $7.30 million at year end 2003 compared to $6.83 million
at year end 2002. This increase of  approximately  $466,600  consists of our net
income  for  2003  of  $604,622  less  the  decrease  in the  accumulated  other
comprehensive income of $138,022. No dividends were paid in 2003.

We are a "small  one-bank  holding  company"  within the meaning of  regulations
promulgated  by  the  Board  of  Governors  of  the  Federal   Reserve   System.
Accordingly,  our capital compliance, for bank holding company purposes, will be
measured solely with respect to the Bank and not on a consolidated basis.

Management  believes,  as of  December  31,  2003,  that  we  meet  all  capital
requirements  to which we are  subject  and that we are in  compliance  with all
conditions  and  commitments  to banking  regulators  regarding the approval and
opening of branches in Rogersville and Church Hill, Tennessee.  However,  events
beyond our control,  such as a downturn in the local  economy,  could  adversely
affect  future  earnings  and,  consequently,  our ability of to meet our future
minimum capital requirements.

The Bank would be considered "well capitalized" within the applicable regulatory
capital guidelines at December 31, 2003.

LIQUIDITY RESOURCES

Liquidity  management  focuses  on the  need to  meet  both  short-term  funding
requirements  and long-term  growth  objectives.  Primary  sources for liquidity
include deposits,  loan repayments and security repayments or sales of available
for sale  securities.  The  consolidated  statement  of cash flows  provides  an
indication of the cash in-flows and out-flows and the Company's  ability to meet
its liquidity needs.  Additionally,  the Bank has established relationships with
correspondent  banks  and the FHLB to  borrow an  additional  approximately  $14
million to meet liquidity requirements.

ASSET LIABILITY MANAGEMENT

Our long-term  profitability  depends on properly  priced products and services,
asset  quality  and  asset-liability  management.  Historically,  we have  had a
mismatch between the maturities of our assets and liabilities  because customers
have  traditionally  preferred  short-term  deposits and longer-term loans. This
mismatch  makes us  sensitive  to changes in  interest  rates and the  resulting
effect on interest  income and the market value of assets.  We attempt to manage
this  mismatch  and thus  reduce  its  effect  on  earnings  during  periods  of
significant changes in interest rates. Our strategies include the origination of
shorter-term  fixed  rate  loans and  adjustable  rate  loans or loans with call
provisions.  We also emphasize checking accounts and other transaction  accounts
which management believes are less rate sensitive than certificate accounts.

A traditional  measure of interest rate sensitivity and its impact upon the next
years  earnings is our one-year gap position  (total assets subject to repricing
less total liabilities  subject to repricing).  A negative one-year gap position
generally  exposes our  earnings to rising  short term rates over the period and
thus reduced net interest income because current liabilities reprice faster than
current  assets.  However,  this earnings  exposure can be mitigated  during the
period if total asset  growth is  sufficient  such that new assets are priced at
relatively higher rates and new deposit maturities are extended. At December 31,
2003 we had a  cumulative  one year  negative gap of (40.85%) or a net of $40.10
million in liabilities repricing faster than assets.

                                       28

<PAGE>

While the one-year-gap  measure helps provide some information about a financial
institution's  interest  sensitivity,  it does not  predict the trends of future
earnings.

ASSET QUALITY

Non-performing  and other loans past due 90 days or more were $1,210,115 at year
end 2003  compared to  $1,595,984  at year end 2002  representing  a decrease of
$385,869. Non-performing loans as a percentage of net loans before the allowance
for loan  losses  was  1.74% at year end 2003 and  2.34% at year end  2002.  The
reserve  for loan  losses to  non-performing  loans,  which is a measure  of the
Bank's  ability to cover problem  assets with existing  reserves,  was 75.29% at
year end 2003 and 69.55% at year end 2002.  Other real  estate  owned  increased
$292,347 to $1,533,749 at year end 2003 compared to $1,241,402 at year end 2002.
We had no material restructured loans in 2003 or 2002.

The level of non-accrual  loans is primarily  comprised of  installment/consumer
loans.  Seventy-four  percent of other  real  estate  owned  relates to one real
estate  development  project.  The  remaining  twenty-six  percent  consists  of
one-to-four family mortgage loans.

EFFECTS OF INFLATION AND CHANGING PRICES

The  consolidated  financial  statements  and related  financial  data presented
herein have been  prepared in  accordance  with  generally  accepted  accounting
principles,  which require the  measurement of financial  position and operating
results in terms of historical dollars,  without considering changes in relative
purchasing power over time due to inflation.

Unlike most industrial companies, virtually all of the assets and liabilities of
a financial  institution  are monetary in nature.  As a result,  interest  rates
generally  have  a  more  significant   impact  on  a  financial   institution's
performance  than does the effect of  inflation.  In the current  interest  rate
environment, the liquidity and maturity structures of our assets and liabilities
are critical to maintenance of acceptable performance levels.









                                       29



<PAGE>


Item 7.  Financial Statements

Index to Consolidated Financial Statements:                                 Page
                                                                            ----

    Independent Auditor's Report.............................................F-1

    Consolidated Balance Sheets at December 31, 2003 and 2002................F-2

    Consolidated Statements of Income for the years ended
         December 31, 2003 and 2002..........................................F-3

    Consolidated Statements of Changes in Stockholders' Equity
         for the years ended December 31, 2003 and 2002......................F-4

    Consolidated Statements of Cash Flows for the years
         ended December 31, 2003 and 2002....................................F-5

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


Item 8.  Changes  In  and  Disagreements  With  Accountants  on  Accounting  and
         Financial Disclosure

     The information called for by this item is incorporated by reference to our
Current  Report on Form 8-K which was filed  with the  Securities  and  Exchange
Commission on July 21, 2003.

Item 8A. Controls and Procedures

     An  evaluation   was  conducted   under  the   supervision   and  with  the
participation  of our  management,  including  our Chief  Executive  Officer and
President and our Senior Vice  President and Cashier,  of the  effectiveness  of
Volunteer's disclosure controls and procedures (as defined in Exchange Act Rules
13a-15 (e) and 15d-15(e)  under the  Securities  Exchange Act of 1934) as of the
end of the period covered by this report.  Based on this  evaluation,  our Chief
Executive  Officer and  President  and Senior Vice  President  and Cashier  have
concluded that our disclosure  controls and procedures are, to the best of their
knowledge,  effective to ensure that information  required to be disclosed by us
in reports that we file or submit under the Exchange Act is recorded, processed,
summarized  and reported  within the time periods  specified in  Securities  and
Exchange Commission rules and forms.

     There were no  significant  changes in our internal  control over financial
reporting that occurred  during the last fiscal  quarter  covered by this report
that have materially  affected or are reasonably likely to materially affect our
internal control over financial reporting.



                                       30


<PAGE>

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons

     Following  is certain  information  regarding  the  nominee  directors  and
executive officers of Volunteer.

     Reed D. Matney  (54)  assumed the  position of Chief  Executive  Officer in
November  1996 and has served as the President  and a Director  since 1994.  Mr.
Matney was employed by First Union  National Bank of Tennessee  until April 1994
and he was employed by the Bank in May 1994.

     G.  Douglas  Price (63) has served as a Director  since 1994.  Mr. Price is
retired and was the former Executive for Hawkins County, Tennessee.

     William E.  Phillips  (56) has served as  Chairman of the Board since 1994.
Mr.  Phillips  is an  attorney  with  the  law  firm  of  Phillips  and  Hale in
Rogersville, Tennessee.

     Gary E. Varnell (57) has served as a Director  since 1994.  Mr.  Varnell is
the manager of a retail office products store in Rogersville, Tennessee.

     George L.  Brooks  (74) has served as a Director  since  1994.  Mr.  Brooks
retired from Citizens Union Bank in 1993 and resides in Rogersville, Tennessee.

     Shirley A. Price (69) has served as a Director  since 1994. Ms. Price is an
insurance agent in Rogersville, Tennessee.

     Leon Gladson  (78) has served as a Director  since 1994.  Mr.  Gladson is a
retired businessman and resides in Rogersville, Tennessee.

     Neil D. Miller (84) has served as a Director  since 1994.  Mr.  Miller is a
farmer in Rogersville, Tennessee.

     M. Carlin Greene (61) has served as a Director  since 1994. Mr. Greene is a
real estate agent and farmer in Sneedville, Tennessee.

     Scott F. Collins (55) has served as a Director  since 1994.  Mr. Collins is
the Hancock County Clerk & Master in Sneedville, Tennessee.

     Lawrence  E. Gray (59) has  served as a Director  since  1994 and  formerly
served as Executive Vice President of the Bank.

     Jim Friddell (53) has served as a Director since 2002. Mr.  Friddell is the
former  president of Tennessee State Bank and currently  resides in Rogersville,
Tennessee.

     None of our  directors is a director or  executive  officer of another bank
holding company, bank, savings and loan association, or credit union.

     During  2003 our Board of  Directors  held 2  meetings.  The  Directors  of
Volunteer  also serve as  directors  of the Bank.  The Board of Directors of the
Bank  held 12  meetings  in 2003.  No  director  attended  less  than 75% of the
meetings held by Volunteer or the Bank during 2003.  The  Directors  received no
compensation  as directors of  Volunteer  but as directors of the Bank  received
$500 for each meeting attended.

     The Board of Directors has three committees.  Messrs. Phillips,  Miller and
Matney serve as the Executive Committee,  Messrs. Doug Price, Gladson,  Phillips
and  Collins,  serve as members of the Audit  Committee  and  Messrs.  Phillips,
Matney,  and G.  Douglas  Price serve as members of the Trust  Committee.  These
persons receive no compensation as members of such committees.

                                       31
<PAGE>

     Audit Committee Financial Expert

     The Board of  Directors  has  determined  that  there is at least one audit
committee  financial expert,  G. Douglas Price,  serving on the Audit Committee.
Mr. Price is not independent  under the  independence  standards of the National
Association  of  Securities  Dealers  ("NASD").  We believe the cost  related to
retaining a financial  expert that satisfies  NASD's  independence  standards is
prohibitive at this time.

     Corporate Code of Ethics

     The Board of Directors has adopted a Corporate Code of Ethics which applies
to all of our directors,  officers and  employees.  A copy of our code of ethics
may be  obtained  free of charge by making a written  request  to our  corporate
office located at 210 East Main Street, Rogersville, Tennessee 37857.

Item 10. Executive Compensation.

     The following table sets forth the aggregate cash  compensation  paid by us
to the chief executive officer of Volunteer. No other executive officer received
cash  compensation in excess of $100,000  (determined as of the end of 2003) for
the years ended December 31, 2003, 2002 and 2001.


                                                             Annual Compensation
                                                             -------------------
Name and Position                        Year                     Salary ($)
---- --- --------                        ----                -------------------
Reed Matney                              2003                      110,000
Chief Executive Officer and President    2002                      105,000
                                         2001                      105,000

Item 11. Security Ownership of Certain Beneficial Owners and Management

     As of March 15, 2004, our records  indicated  that the following  number of
shares were  beneficially  owned by (i) each person known by us to  beneficially
own more than 5% of our shares;  (ii) directors and persons  nominated to become
directors of Volunteer  and  executive  officers;  and (iii) our  directors  and
executive officers as a group.

<TABLE>
<CAPTION>
                                                                     Amount and Nature
                               Name of                            of Beneficial Ownership     Percent
                          Beneficial Owner                           (Number of Shares)       of Class
                         -----------------                           ------------------       --------
<S>                                                                        <C>                  <C>
(i)       Ralph T. Hurley.................................                 85,500               15.86%
(ii)      William E. Phillips(1)..........................                 22,495                4.17
          Lawrence E. Gray(2).............................                 13,201                2.49
          Shirley A. Price................................                  7,937                1.47
          Reed D. Matney..................................                  8,393                1.56
          Leon Gladson....................................                  3,723                   *
          G. Douglas Price(3).............................                 15,934                2.96
          Gary E. Varnell(4)..............................                 22,365                4.15
          Scott F. Collins................................                  1,647                   *
          George L. Brooks................................                  6,165                1.14
          M. Carlin Greene................................                 16,465                3.05
          Neil D. Miller(5)...............................                 11,150                2.07
          Jim Friddell....................................                  1,685                   *
(iii)     Directors and executive officers as a group (12
             persons).....................................                131,160               24.33
</TABLE>
---------------
*    Less than 1%

(1)  Includes  12,211  shares  owned by the Joe H. Wilson  Trust,  for which Mr.
     Phillips  serves as  co-trustee.  Also  includes  700  shares  owned by his
     spouse.

                                       32

<PAGE>

(2)  Includes 665 shares owned by his spouse.
(3)  Includes  6,105 shares owned by his spouse,  for which he disclaims  voting
     and investment power.
(4)  Includes 200 shares owned jointly with his two sons.
(5)  Includes  11,150 shares owned by Miller Family Trust,  for which Mr. Miller
     serves as trustee

Item 12. Certain Relationships and Related Transactions

     The  information  required by this item is  incorporated  by reference from
Volunteer's Proxy Statement to be dated approximately April 23, 2004.

Item 13. Exhibits and Reports on Form 8-K

(1) Exhibits
------------

Exhibit Number   Description
-------------    -----------

   3.1*         Articles of Incorporation of Volunteer Bancorp, Inc., as amended

   3.2*         Bylaws of Volunteer Bancorp, Inc.

  16**          Letter  from  Welch  &  Associates, Ltd., to  the Securities and
                Exchange Commission dated July 21, 2003.

  21.1          List of Subsidiaries

  31.1***       Certification  of  Reed  D. Matney, Chief  Executive Officer and
                President  of Volunteer Bancorp, Inc., Pursuant  to  Section 302
                of  the Sarbanes-Oxley Act of 2002.

  31.2***       Certification  of Greg Oliver, Senior Vice President and Cashier
                of  Volunteer  Bancorp, Inc.,  Pursuant  to  Section  302 of the
                Sarbanes-Oxley Act of 2002.

  32.1***       Certification  of  Reed  D. Matney, Chief  Executive Officer and
                President  of Volunteer Bancorp, Inc., Pursuant  to  Section 906
                of the Sarbanes-Oxley Act of 2002.

  32.2***       Certification  of Greg Oliver, Senior Vice President and Cashier
                of  Volunteer  Bancorp,  Inc.,  Pursuant  to  Section 906 of the
                Sarbanes-Oxley Act of 2002.

*    Incorporated by reference to exhibits filed with  Volunteer's  Registration
     Statement on Form SB-1, Registration No. 33-94050.

**   Incorporated by reference to Volunteer's 8-K dated July 16, 2003.

***  A signed original of this written  statement has been provided to Volunteer
     and will be retained by  Volunteer  and  furnished  to the  Securities  and
     Exchange Commission or its staff upon request.

(2)  Reports on Form 8-K
     ------- -- ---- ---

     No reports on Form 8-K were filed  during the quarter  ended  December  31,
2003.

Item 14. Principal Accounting Fees and Services

     Incorporated  by reference  from  Volunteer's  Proxy  Statement to be dated
approximately April 23, 2004.


                                       33


<PAGE>


     In accordance  with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,  thereunto
duly authorized.

                                        VOLUNTEER BANCORP, INC.

                                        By:/s/ Reed D. Matney
                                           -------------------
                                           Reed D. Matney
                                           Chief Executive Officer and President

                                           Date: March 29, 2004

     In accordance  with the  requirements  of the Exchange Act, this report has
been signed below by the following  persons on behalf of the  registrant  and in
the capacities and on the dates indicated.

<TABLE>
<CAPTION>

Signature                                   Capacity                                           Date
---------                                   ----------                                         -----
<S>                                     <C>                                                <C>

/s/ William E. Phillips
---------------------------             Chairman of the Board and Director                 March 29, 2004
William E. Phillips

/s/ Reed D. Matney
---------------------------             Chief Executive Officer and President and          March 29, 2004
Reed D. Matney                          Director (principal executive officer)

/s/ Greg Oliver
---------------------------             Vice President and Cashier                         March 29, 2004
Greg Oliver                             (principal accounting officer)

/s/ Carlin Greene
----------------------------            Director                                           March 29, 2004
Carlin Greene

/s/ Douglas Price
---------------------------             Director                                           March 29, 2004
Douglas Price

/s/ Gary Varnell
---------------------------             Director                                           March 29, 2004
Gary Varnell

/s/ George Brooks
---------------------------             Director                                           March 29, 2004
George Brooks

/s/ Shirley Price
---------------------------             Director                                           March 29, 2004
Shirley Price

/s/ Neil Miller
---------------------------             Director                                           March 29, 2004
Neil Miller

/s/ Lawrence Gray
----------------------------            Director                                           March 29, 2004
Lawrence Gray

/s/ Scott Collins
----------------------------            Director                                           March 29, 2004
Scott Collins

/s/ Leon Gladson
----------------------------            Director                                           March 29, 2004
Leon Gladson

/s/ Jim Friddell
----------------------------            Director                                           March 29, 2004
Jim Friddell
</TABLE>



<PAGE>
















                     VOLUNTEER BANCORP, INC. AND SUBSIDIARY
                             Rogersville, Tennessee

                        CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


<PAGE>



                     VOLUNTEER BANCORP, INC. AND SUBSIDIARY
                             Rogersville, Tennessee



                        CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002









                                    Contents




REPORT OF INDEPENDENT AUDITORS.............................................  F-1

FINANCIAL STATEMENTS

   CONSOLIDATED BALANCE SHEETS.............................................  F-2

   CONSOLIDATED STATEMENTS OF INCOME ......................................  F-3

   CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME.........................  F-4

   CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY..............  F-5

   CONSOLIDATED STATEMENTS OF CASH FLOWS...................................  F-6

   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..............................  F-8





<PAGE>



                         REPORT OF INDEPENDENT AUDITORS



Board of Directors
Volunteer Bancorp, Inc.
Rogersville, Tennessee



We have  audited  the  accompanying  consolidated  balance  sheet  of  Volunteer
Bancorp,  Inc.  and  Subsidiary  as  of  December  31,  2003,  and  the  related
consolidated   statements   of   income,   comprehensive   income,   changes  in
stockholders'  equity and cash flows for the year then  ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit. The consolidated  financial statements of Volunteer Bancorp, Inc. and
Subsidiary for the year ended December 31, 2002 were audited by other  auditors,
whose report dated February 6, 2003  expressed an  unqualified  opinion on those
statements.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Volunteer Bancorp,
Inc. and  Subsidiary as of December 31, 2003,  and the results of its operations
and its cash  flows for the year  then  ended,  in  conformity  with  accounting
principles generally accepted in the United States of America.


                                          /s/ Crowe Chizek and Company LLC

                                          Crowe Chizek and Company LLC

Lexington, Kentucky
February 20, 2004

                                      F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS


Board of Directors
Volunteer Bancorp, Inc.
Rogersville, Tennessee

We have  audited  the  accompanying  consolidated  balance  sheet  of  Volunteer
Bancorp,  Inc. as of December 31, 2002, and the related consolidated  statements
of income and retained  earnings  and cash flows for the year then ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Volunteer Bancorp,
Inc. as of December  31,  2002 and the  results of its  operations  and its cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.




/s/ Welch & Associates, Ltd.

Welch & Associates, Ltd.
Nashville, Tennessee
February 6, 2003











                                      F-2

<PAGE>


                     VOLUNTEER BANCORP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS
                                   December 31

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                   2003                  2002
                                                                                   ----                  ----
<S>                                                                          <C>                   <C>

ASSETS
Cash and due from banks                                                      $      2,881,551      $      4,705,507
Federal funds sold                                                                    354,371             4,450,000
                                                                             ----------------      ----------------
     Cash and cash equivalents                                                      3,235,922             9,155,507
Securities
   Available for sale                                                              27,462,097            27,765,755
   Held to maturity                                                                   709,910             1,052,991
Loans, less allowance for loan losses                                              68,719,127            67,014,982
Accrued interest receivable                                                           759,388               935,616
Premises and equipment, net                                                         3,715,926             3,788,671
Real estate acquired through foreclosure                                            1,533,749             1,241,402
Goodwill                                                                              131,259               131,259
Cash surrender value of life insurance                                              2,088,704                     -
Other assets                                                                          322,846               285,832
                                                                             ----------------      ----------------

Total assets                                                                 $    108,678,928      $    111,372,015
                                                                             ================      ================

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
     Non-interest bearing                                                    $     13,207,426      $     12,159,852
     Interest bearing                                                              83,505,414            87,797,905
                                                                             ----------------      ----------------
         Total deposits                                                            96,712,840            99,957,757
Accrued interest payable                                                              317,580               411,322
Federal funds purchased                                                             1,450,000                     -
Securities sold under repurchase agreements                                         1,358,902             2,288,784
Other accrued taxes, expenses and liabilities                                         123,765                69,910
Long-term debt                                                                      1,415,000             1,810,000
                                                                             ----------------      ----------------
     Total liabilities                                                            101,378,087           104,537,773

Stockholders' equity
     Common stock, $0.01 par value; 1,000,000 shares
       authorized; 539,027 shares issued
       and outstanding in 2003 and 2002                                                 5,390                 5,390
     Additional paid-in capital                                                     1,916,500             1,916,500
     Retained earnings                                                              5,161,814             4,557,192
     Accumulated other comprehensive income                                           217,137               355,160
                                                                             ----------------      ----------------
         Total stockholders' equity                                                 7,300,841             6,834,242
                                                                             ----------------      ----------------

Total liabilities and stockholders' equity                                   $    108,678,928      $    111,372,015
                                                                             ================      ================
</TABLE>

                                      F-3
<PAGE>



                        CONSOLIDATED STATEMENTS OF INCOME
                             Years Ended December 31

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                       2003                2002
                                                                                       ----                ----
<S>                                                                               <C>                <C>


Interest income
     Loans, including fees                                                        $   4,975,865      $    5,710,663
     Federal funds                                                                       23,830              73,631
     Securities
         Taxable                                                                        799,954           1,132,633
         Tax exempt                                                                     289,929             241,961
                                                                                  -------------      --------------
                                                                                      6,089,578           7,158,888

Interest expense
     Deposits                                                                         1,599,433           2,322,582
     Repurchase agreements and other borrowings                                          82,070             121,058
                                                                                  -------------      --------------
                                                                                      1,681,503           2,443,640

Net interest income                                                                   4,408,075           4,715,248
Provision for loan losses                                                               465,000             795,000
                                                                                  -------------      --------------
Net interest income after provision for loan losses                                   3,943,075           3,920,248

Other income
     Service charges                                                                    476,504             297,299
     Fees and commissions                                                                87,719             107,193
     Securities gains (losses), net                                                     106,465              39,222
     Other                                                                              110,220              55,902
                                                                                  -------------      --------------
                                                                                        780,908             499,616
Other expenses
     Salaries and employee benefits                                                   1,970,417           1,834,197
     Occupancy expenses                                                                 247,485             262,800
     Furniture and equipment                                                            387,293             399,402
     Other                                                                            1,332,929           1,390,499
                                                                                  -------------      --------------
                                                                                      3,938,124           3,886,898

Income before income taxes                                                              785,859             532,966
Provision for income taxes                                                              181,237             146,389
                                                                                  -------------      --------------

Net income                                                                        $     604,622      $      386,577
                                                                                  =============      ==============

Basic and diluted earnings per share                                              $        1.12      $         0.72

Average common shares outstanding                                                       539,027             539,027

</TABLE>
                                      F-4
<PAGE>


                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                             Years Ended December 31

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                                         2003                2002
                                                                                         ----                ----
<S>                                                                               <C>               <C>


Net income                                                                        $     604,622      $      386,577

Other comprehensive income (loss), net of tax:
     Unrealized gains (losses) on securities arising
       during the period                                                               (116,153)            635,835
     Reclassification of realized amount                                                106,465              39,222
                                                                                  -------------      --------------
         Other comprehensive income                                                    (222,618)            596,613

     Income taxes related to other comprehensive income                                  84,595            (226,713)
                                                                                  -------------      --------------

     Other comprehensive income, net of income taxes                                   (138,023)            369,900
                                                                                  -------------      --------------

     Total comprehensive income                                                   $     466,599      $      756,477
                                                                                  =============      ==============
</TABLE>






                                      F-5
<PAGE>


           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  Years Ended December 31, 2003, 2002 and 2001

--------------------------------------------------------------------------------



<TABLE>
<CAPTION>

                                                                                         Accumulated
                                                         Additional                        Other           Total
                                           Common Stock    Paid-In       Retained       Comprehensive  Stockholders'
                                  Shares      Amount       Capital       Earnings          Income         Equity
                                  ------   ------------  ----------      --------       -------------  -------------
<S>                              <C>        <C>         <C>             <C>            <C>              <C>

Balances, January 1, 2002        539,027    $  5,390    $ 1,916,500     $ 4,224,518    $   (14,740)     $ 6,131,668

Net income                             -           -              -         386,577              -          386,577

Dividends declared
  ($0.10 per share)                    -           -              -         (53,903)             -          (53,903)

Other comprehensive income             -           -              -               -        369,900          369,900
                                --------    --------    -----------     -----------    -----------      -----------

Balances, December 31, 2002      539,027       5,390      1,916,500       4,557,192        355,160        6,834,242

Net income                             -           -              -         604,622              -          604,622

Other comprehensive income                                                                (138,023)        (138,023)
                                --------    --------    -----------     -----------    -----------      -----------

Balances, December 31, 2003      539,027    $  5,390    $ 1,916,500     $ 5,161,814    $   217,137      $ 7,300,841
                                ========    ========    ===========     ===========    ===========      ===========

</TABLE>



                                      F-6
<PAGE>


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             Years Ended December 31

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                          2003            2002
                                                                                          ----            ----
<S>                                                                                 <C>              <C>

Cash flows from operating activities
     Net income                                                                     $     604,622    $      386,577
     Adjustments to reconcile net income to net
       cash from operating activities
           Depreciation and amortization                                                  204,558           205,483
           Provision for loan losses                                                      465,000           795,000
           Securities (gains) losses, net                                                (106,465)          (39,222)
           Federal Home Loan Bank stock dividends                                         (14,900)          (16,400)
           Write downs of other real estate                                                40,000           235,528
           (Gain) loss on sale of other real estate                                        56,758            38,425
           Increase in bank owned life insurance                                          (88,704)                -
       Changes in:
           Interest receivable                                                            176,228           130,863
           Other assets                                                                    47,581          (128,788)
           Other liabilities                                                              (39,887)         (445,581)
                                                                                    -------------    --------------
                Net cash from operating activities                                      1,344,791         1,161,885

Cash flows from investing activities
     Securities available for sale
       Purchases                                                                      (21,853,726)      (20,071,988)
       Proceeds from calls and maturities                                              15,899,444        13,142,700
       Proceeds from sales                                                              5,904,082         5,782,690
     Securities held to maturity
       Purchases                                                                         (445,779)       (1,017,384)
       Proceeds from calls and maturities                                                 788,860           591,252
     Net change in loans                                                               (2,738,970)        3,207,275
     Investment in bank owned life insurance                                           (2,000,000)                -
     Proceeds from sale of other real estate                                              433,325           770,314
     Purchases of premises and equipment, net                                            (131,813)         (127,796)
                                                                                    -------------    --------------
         Net cash from investing activities                                            (4,144,577)        2,277,063

Cash flows from financing activities
     Net change in deposits                                                            (3,244,917)       (3,951,898)
     Net change in repurchase agreements                                                 (929,882)        1,179,181
     Federal funds purchased                                                            1,450,000                 -
     Dividends paid                                                                             -           (53,903)
     Repayment of long-term debt                                                         (395,000)         (360,000)
                                                                                    -------------    --------------
         Net cash from financing activities                                            (3,119,799)       (3,186,620)
                                                                                    -------------    --------------

Net change in cash and cash equivalents                                                (5,919,585)          252,328

Cash and cash equivalents at beginning of year                                          9,155,507         8,903,179
                                                                                    -------------    --------------

Cash and cash equivalents at end of year                                            $   3,235,922    $    9,155,507
                                                                                    =============    ==============
</TABLE>

                                      F-7
<PAGE>


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             Years Ended December 31

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                          2003            2002
                                                                                          ----            ----
<S>                                                                                 <C>              <C>


Supplemental disclosures of cash flow information: Cash paid during the year
     for:
         Interest expense                                                           $   1,775,245    $    2,926,665
         Income taxes                                                                     128,704           278,526

Supplemental non-cash disclosures:
     Transfers from loans to other real estate                                            822,430         1,140,900
</TABLE>

                                      F-8
<PAGE>


                     VOLUNTEER BANCORP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


NOTE  1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis  of  Presentation:  The  consolidated  financial  statements  include  the
accounts of Volunteer Bancorp, Inc. (the Company), its wholly-owned  subsidiary,
Citizens  Bank  of East  Tennessee  (the  Bank),  and  the  Bank's  wholly-owned
investment  subsidiary,  Sierra Securities,  Inc. Intercompany  transactions and
balances have been eliminated in consolidation.

Nature of Operations:  The Bank operates under a state bank charter and provides
full banking  services,  including trust services.  As a state bank, the Bank is
subject to regulation by the Tennessee Department of Financial  Institutions and
the Federal Deposit Insurance  Corporation  (FDIC).  The Company, a bank holding
company, is regulated by the Federal Reserve.

Use of Estimates:  The  preparation of financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.  The allowance for loan losses and fair value of financial
instruments are particularly subject to change.

Cash Flows:  For purposes of  reporting  cash flows,  cash and cash  equivalents
include cash on hand,  amounts due from banks,  federal funds sold,  and certain
short-term  investments  with  maturities of less than three months.  Generally,
federal  funds are sold for one-day  periods.  Net cash flows are  reported  for
loan, deposit and short-term borrowing transactions.

Securities:  The Company is required to classify its  securities  portfolio into
three  categories:  trading  securities,   securities  available  for  sale  and
securities held to maturity.  Fair value  adjustments are made to the securities
based  on  their  classification  with the  exception  of the  held to  maturity
category. The Company has no investments classified as trading.

Securities  available for sale are carried at fair value. The difference between
amortized  cost and fair  value is  recorded  in  stockholders'  equity,  net of
related income tax, under accumulated  other  comprehensive  income.  Changes in
this   difference  are  recorded  as  a  component  of   comprehensive   income.
Amortization  of premiums and accretion of discounts are recorded as adjustments
to interest income using the constant yield method.

Securities for which the Company has the positive  intent and ability to hold to
maturity are stated at cost, adjusted for amortization of premiums and accretion
of discounts  which are  recorded as  adjustments  to interest  income using the
constant yield method.

Federal Home Loan Bank stock is carried at cost.

                                      F-9
<PAGE>


NOTE  1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Gains or losses on  dispositions  are based on the net proceeds and the adjusted
carrying  amount  of the  securities  sold,  using the  specific  identification
method.

Loans:  Loans are  stated  at the  amount of  unpaid  principal,  reduced  by an
allowance for loan losses. Interest income on loans is recognized on the accrual
basis except for those loans on a nonaccrual  status. The accrual of interest on
impaired loans is discontinued when management believes,  after consideration of
economic and business  conditions  and collection  efforts,  that the borrowers'
financial  condition  is such that  collection  of  interest is  doubtful.  When
interest  accrual is  discontinued,  interest  income  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.

Allowance  for Loan  Losses:  The  allowance  for  loan  losses  is a  valuation
allowance for probable  incurred  credit losses,  increased by the provision for
loan losses and decreased by charge-offs less recoveries.  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.
Loan losses are charged  against the  allowance  when  management  believes  the
uncollectibility of a loan balance is confirmed.

A loan is  impaired  when full  payment  under the loan  terms is not  expected.
Commercial  and  commercial  real estate loans 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 homogenous loans, such as consumer and residential real estate loans are
collectively evaluated for impairment, and accordingly,  they are not separately
identified for impairment disclosures.

Premises and Equipment: Land is carried at cost. Bank premises and equipment are
stated at cost less accumulated  depreciation.  Buildings and related components
are depreciated using the straight-line  method with useful lives ranging from 5
to 40  years.  Furniture,  fixtures  and  equipment  are  depreciated  using the
straight-line method with useful lives ranging from 2 to 15 years.


                                      F-10
<PAGE>


NOTE  1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Real  Estate  Acquired  Through   Foreclosure:   Real  estate  acquired  through
foreclosure  is carried at the lower of the recorded  investment in the property
or its fair value.  The value of the underlying loan is written down to the fair
value of the real estate to be acquired  by a charge to the  allowance  for loan
losses,  if  necessary.  Any  subsequent  write-downs  are charged to  operating
expenses.  Operating  expenses of such  properties,  net of related income,  and
gains and losses on their disposition are included in other expenses.

Repurchase  Agreements:   Substantially  all  repurchase  agreement  liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance.

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. The Company
uses the  liability  method  for  computing  deferred  income  taxes.  Under the
liability method,  deferred income taxes are based on the change during the year
in the deferred tax liability or asset  established  for the expected future tax
consequences  of differences in the financial  reporting and tax bases of assets
and liabilities.

Earnings Per Common Share: Basic earnings per common share is net income divided
by the weighted average number of common shares  outstanding  during the period.
Diluted  earnings per share include the dilutive effect of additional  potential
common shares issuable under certain financial  instruments.  The Company has no
dilutive instruments outstanding.

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 a separate
component of equity.

Goodwill: Goodwill results from prior business acquisitions,  and represents the
excess of the purchase price over the fair value of acquired tangible assets and
liabilities and identifiable  intangible  assets.  Goodwill is assessed at least
annually for impairment and any such impairment will be recognized in the period
identified.

Industry Segments: While the Company's chief decision makers monitor the revenue
streams of the various Company products and services, operations are managed and
financial performance is evaluated on a Company-wide basis. Accordingly,  all of
the Company's  operations are considered by management to be aggregated into one
reportable operating segment.



                                      F-11
<PAGE>


NOTE  1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Adoption of New  Accounting  Standards:  During 2003,  the Company  adopted FASB
Statement 149, Amendment of Statement 133 on Derivative  Instruments and Hedging
Activities,  FASB Statement 150,  Accounting for Certain  Financial  Instruments
with  Characteristics  of both  Liabilities  and  Equities,  FASB  Statement 132
(revised 2003),  Employers'  Disclosures about Pensions and Other Postretirement
Benefits,   FASB  Interpretation  45,  Guarantor's   Accounting  and  Disclosure
Requirements  for  Guarantees,  and FASB  Interpretation  46,  Consolidation  of
Variable  Interest  Entities.  Adoption of the new standards did not  materially
affect the Company's operating results or financial condition.

Reclassifications:  Certain  reclassifications  were  made  to  the  prior  year
financial statements to conform to the current year presentation.

NOTE 2 - SECURITIES

Year-end securities are as follows:
<TABLE>
<CAPTION>

                                                              Fair               Unrealized            Unrealized
                                                              Value                 Gains                Losses
                                                              -----              -----------           ----------
Available for Sale
<S>                                                     <C>                     <C>                  <C>

2003
   U. S. government agencies                            $     2,071,245         $      43,451        $            -
   States and political subdivisions                          7,116,882               246,017                     -
   Mortgage-backed                                           16,887,970               115,315               (54,562)
   FNMA preferred stock                                       1,000,000                     -                     -
   Federal Home Loan Bank stock                                 386,000                     -                     -
                                                        ---------------         -------------        --------------

     Total                                              $    27,462,097         $     404,783        $      (54,562)
                                                        ===============         =============        ==============

                                                              Fair               Unrealized            Unrealized
                                                              Value                 Gains                Losses
                                                              -----              -----------           ----------
Available for Sale

2002
   U. S. Treasury                                       $       514,690         $      13,789        $            -
   U. S. government agencies                                 18,877,353               411,984                (4,760)
   States and political subdivisions                          6,542,612               166,497                     -
   FNMA preferred stock                                       1,460,000                     -               (14,671)
   Federal Home Loan Bank stock                                 371,100                     -                     -
                                                        ---------------         -------------        --------------

     Total                                              $    27,765,755         $     592,270        $      (19,431)
                                                        ===============         =============        ==============
</TABLE>

                                      F-12
<PAGE>


NOTE 2 - SECURITIES (Continued)

Year-end securities are as follows:
<TABLE>
<CAPTION>

                                                          Carrying     Unrecognized      Unrecognized         Fair
                                                            Amount          Gains            Losses           Value
                                                            ------          -----            ------           -----
Held to Maturity
----------------
<S>                                                     <C>            <C>              <C>              <C>
2003
----
   Mortgage-backed securities                           $    709,910   $    7,447       $        -       $    717,357

2002
----
   Mortgage-backed securities                           $  1,052,991   $    1,430       $        -       $  1,054,421

</TABLE>


The  amortized  cost and fair value of  securities  at  December  31,  2003,  by
category and by contractual maturity,  are shown below. Expected maturities will
differ from contractual  maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment  penalties.  Securities
not due at a single maturity are shown separately.

<TABLE>
<CAPTION>
                                                                                                        Available
                                                                  Held to Maturity                      for Sale
                                                                  ----------------                      --------
                                                            Carrying                Fair                  Fair
                                                             Amount                 Value                 Value
<S>                                                     <C>                     <C>                  <C>

   Due in one year or less                              $             -         $           -        $            -
   Due after one year through five years                              -                     -             1,959,120
   Due after five years through ten years                             -                     -             4,506,824
   Due after ten years                                                -                     -             2,722,183
                                                        ---------------         -------------        --------------
                                                                      -                     -             9,188,127
   Mortgage-backed                                              709,910               717,357            16,887,970
   Equity                                                             -                     -             1,386,000
                                                        ---------------         -------------        --------------

     Total                                              $       709,910         $     717,357        $   27,462,097
                                                        ===============         =============        ==============
</TABLE>


Proceeds  from sales of  securities  during  2003 and 2002 were  $5,904,082  and
$5,782,690.  Gross gains of $107,903  and $39,222 and gross losses of $1,438 and
$0, were realized on those sales.

Securities with an approximate  carrying value of $14,576,734 and $11,888,000 at
December 31, 2003 and 2002, were pledged to secure public deposits, trust funds,
securities  sold  under  agreements  to  repurchase  and for other  purposes  as
required or permitted by law.


                                      F-13
<PAGE>


NOTE 2 - SECURITIES (Continued)

Securities  with  unrealized  losses at year-end 2003,  aggregated by investment
category and length of time that individual securities have been in a continuous
unrealized loss position, are as follows:
<TABLE>
<CAPTION>

                                   Less than 12 Months           12 Months or More                Total
                                   -------------------           -----------------                -----
                                   Fair     Unrealized         Fair        Unrealized       Fair       Unrealized
Description of Securities          Value       Loss            Value          Loss          Value         Loss
-------------------------          -----       ----            -----          ----          -----         ----
<S>                            <C>           <C>            <C>            <C>           <C>           <C>

Mortgage backed securities     $ 9,007,399   $   54,562     $              $             $9,007,399    $     54,562
                               ===========   ==========     ==========     =========     ==========    ============
</TABLE>

Unrealized losses on securities have not been recognized into income because the
securities are of high credit quality,  management has the intent and ability to
hold for the foreseeable future, and the decline in fair value is largely due to
increases in market interest rates. The fair value is expected to recover as the
bonds approach their maturity and/or market rates decline.

NOTE  3 - LOANS

Loans at year-end were as follows:
<TABLE>
<CAPTION>
                                                                                   2003                  2002
                                                                                   ----                  ----
<S>                                                                          <C>                   <C>

Commercial                                                                   $      4,720,539      $      7,302,050
Real estate construction                                                              992,161             2,647,018
Real estate mortgage                                                               54,588,204            48,055,327
Consumer                                                                            7,765,185             9,958,068
Other                                                                               1,564,576               163,000
                                                                             ----------------      ----------------

         Subtotal                                                                  69,630,665            68,125,463
Less: Allowance for loan losses                                                      (911,538)           (1,110,481)
                                                                             ----------------      ----------------
Loans, net                                                                         68,719,127            67,014,982
                                                                             ================      ================
</TABLE>

Activity in the allowance for loan losses was as follows:

<TABLE>
<CAPTION>
                                                                                    2003                  2002
                                                                                    ----                  ----
<S>                                                                          <C>                   <C>

Beginning balance                                                            $      1,110,481      $        908,016
Charge-offs                                                                          (712,391)             (635,246)
Recoveries                                                                             48,448                42,711
Provision for loan losses                                                             465,000               795,000
                                                                             ----------------      ----------------

Ending balance                                                               $        911,538      $      1,110,481
                                                                             ================      ================
</TABLE>

                                      F-14
<PAGE>


NOTE  3 - LOANS (Continued)

Impaired loans were as follows:
<TABLE>
<CAPTION>
                                                                                            2003           2002
                                                                                            ----           ----
<S>                                                                                     <C>             <C>

     Year-end loans with no allocated allowance
       for loan losses                                                                  $         -     $         -
     Year-end loans with allocated allowance
       for loan losses                                                                    1,210,115       1,595,984
                                                                                        -----------     -----------

         Total                                                                          $ 1,210,115     $ 1,595,984
                                                                                        ===========     ===========

     Amount of the allowance for loan losses allocated                                  $   181,517     $   155,196

                                                                                            2003           2002
                                                                                            ----           ----

     Average of impaired loans during the year                                          $   692,400     $   873,750
     Interest income recognized during impairment                                                 -               -
     Cash-basis interest income recognized                                                        -               -



Nonperforming loans were as follows:
                                                                                            2003            2002
                                                                                            ----            ----

Loans past due over 90 days still on accrual                                           $  1,034,715      $  673,292
Nonaccrual loans                                                                            175,400         922,692

</TABLE>


Nonperforming  loans  include  impaired  loans and smaller  balance  homogeneous
loans,  such as residential  mortgage and consumer loans,  that are collectively
evaluated for impairment.

Certain  directors and executive  officers of the Company and companies in which
they have  beneficial  ownership were loan customers of the Bank during 2003 and
2002.  An analysis of the activity  with  respect to all director and  executive
officer loans is as follows:

                                                                     2003
                                                                  ----------

Balance, beginning of year                                     $     295,048
Additions, including loans now meeting
   disclosure requirements                                           428,290
Amounts collected, including loans no
   longer meeting disclosure requirements                            239,298
                                                               -------------

Balance, end of year                                           $     484,040
                                                               =============

                                      F-15
<PAGE>


NOTE  4 - PREMISES AND EQUIPMENT

Year-end premises and equipment were as follows:
                                                    2003                 2002
                                                    ----                 ----
Land                                       $      619,168     $       619,168
Buildings                                       3,317,755           3,317,755
Furniture and equipment                         1,312,572           1,258,516
                                           --------------     ---------------
                                                5,249,495           5,195,439
Less accumulated depreciation                   1,533,569           1,406,768
                                           --------------     ---------------
                                           $    3,715,926     $     3,788,671
                                           ==============     ===============

Depreciation expense was $204,558 and $205,483 in 2003 and 2002.

The Bank  leases a parcel of real  estate in  Rogersville.  The parcel is leased
through  September 1, 2009.  The Bank subleased this parcel on January 15, 2000,
to the town of Rogersville through January 1, 2006. The Bank leases a portion of
a building  in  Rogersville  used as a branch  location.  This lease  expires on
December 1, 2009. In addition,  certain  computer and other  equipment is leased
under various  long-term  operating  leases.  Total net rental expense for these
leases,  net of sublease  income of $12,000 per year,  was $145,324 and $182,092
for December 31, 2003 and 2002.

Rent commitments under noncancelable operating leases were as follows, before
considering renewal options that generally are present.

               2004                                $      102,361
               2005                                        92,076
               2006                                        77,436
               2007                                        36,408
               2008                                        36,408

NOTE  5 - DEPOSITS

Time deposits of $100,000 or more were  $16,453,000  and $17,119,000 at year-end
2003 and 2002.

At December 31, 2003, the scheduled maturities of all time deposits are as
follows:

               2004                                 $   45,889,000
               2005                                      4,294,000
               2006                                      2,075,000
               2007                                        697,000
                                                    --------------
                                                    $   52,955,000

                                      F-16
<PAGE>


NOTE  5 - DEPOSITS (Continued)

Certain  directors and executive  officers of the Company and companies in which
they have beneficiary ownership are deposit customers of the Bank. The amount of
these deposits was approximately  $1,944,000 and $1,901,000 at December 31, 2003
and 2002.

NOTE 6 - SHORT-TERM BORROWINGS

Short-term  borrowings  are generally  comprised of federal funds  purchased and
repurchase  agreements.  Federal funds  purchased are overnight  borrowings from
various  correspondent  banks.  Repurchase  agreements are advances by customers
that are not covered by federal deposit  insurance.  This obligation of the Bank
is secured by bank-owned securities held in safekeeping at a correspondent bank.

The balances are shown below:
                                                 Repurchase       Federal Funds
                                                 Agreements         Purchased
                                                ------------      ------------
                                                     (Amounts in thousands)

Outstanding at December 31, 2003               $       1,359    $       1,450
   Average interest rate at year-end                    1.27%            1.25%
   Average balance during year                 $       1,666    $         196
   Average interest rate during year                    1.92%            1.53%
   Maximum month end balance during year       $       2,103    $       2,275

Outstanding at December 31, 2002               $       2,289    $           0
   Average interest rate at year-end                    2.47%               0%
   Average balance during year                 $       1,749    $           0
   Average interest rate during year                    2.86%               0%
   Maximum month end balance during year       $       2,365    $           0

NOTE 7 - LONG-TERM DEBT

The Company's  long-term debt consists of a single note payable in the amount of
$1,415,000 and  $1,810,000 at December 31, 2003 and 2002 due to an  unaffiliated
commercial bank. The interest rate on the note adjusts quarterly and is equal to
the three-month London Interbank Offered Rate (Three Month LIBOR) plus 1.95% per
annum  or at the  option  of the  Company  the  rate on the note is equal to the
lender's  index rate as such rate  changes  from time to time.  The  Company may
change  interest  rate  options  at any time with  prior  notice to the  lender.
Interest is payable  quarterly.  At December 31, 2003,  the rate on the note was
3.12% per annum.

                                      F-17
<PAGE>


NOTE 7 - LONG-TERM DEBT (Continued)

Principal is payable each January 31 as follows:

               2004                                    $       435,000
               2005                                            470,000
               2006                                            510,000
                                                       ---------------
                                                       $     1,415,000

The loan is secured by all of the stock of the Bank.

The Company is in violation of certain loan  covenants with respect to this loan
in that annualized  earnings to tangible assets are less than the 0.75% required
and the ratio of  nonperforming  assets is greater than 2.5%.  These  violations
have not been waived by the lender.

Because of these  violations,  the lender may,  at its option,  by notice to the
Company  declare the note in default.  In such an event,  the Company would have
ten days to remedy compliance with all loan covenants. If the Company did not or
could not comply with all loan  covenants  within such ten day period,  the note
would be in default. In such a case, the lender may declare the note immediately
due and payable and among other  things  proceed to  foreclose  upon 100% of the
stock of Citizens  Bank of East  Tennessee  which is pledged as security for the
note.

The lender has been notified by the Company of its  non-compliance  with certain
covenants  of the note  that  could  lead to the  lender  declaring  the note in
default.  However, the lender has not notified the Company that it is in default
under the terms of the loan agreement.

The  Company is in  discussions  with the lender  that would  result in the note
being  restructured  resulting in, among other things,  increasing  the interest
rate on the note and substantially reducing the final maturity date on the note.
In such a case,  there can be no assurance  that the Company  could  satisfy the
restructured  debt without  obtaining new financing  from other lenders or funds
from a stock offering.  Further, there can be no assurance that a stock offering
by the Company  would be  successful  or that new lenders would provide funds to
the Company.

NOTE  8 - FEDERAL HOME LOAN BANK ADVANCES

The Bank owns stock of the Federal  Home Loan Bank (FHLB) of  Cincinnati,  Ohio.
This stock allows the Bank to borrow  advances  from the FHLB.  Any advances are
secured by physical  delivery of the Bank's  qualifying 1-4 mortgage loans.  The
Bank is required to maintain eligible collateral representing 125 percent of the
current  outstanding  balance  of all  advances.  The  Bank  had no  outstanding
advances at December 31, 2003 and 2002.

                                      F-18
<PAGE>


NOTE 9 - INCOME TAXES

Income tax expense was as follows:

                                              2003                2002
                                              ----                ----

Current                                $     103,836     $      293,129
Deferred                                      77,401           (146,740)
                                       -------------     ---------------

                                       $     181,237     $      146,389
                                       =============     ===============

Year-end  deferred  tax assets and  liabilities  were due to the  following.  No
valuation  allowance  for the  realization  of deferred tax assets is considered
necessary.

                                             2003                2002
                                             ----                ----
Deferred tax assets
   Allowance for loan losses             $ 181,029         $   266,815
   Other real estate                        34,394              61,846
   AMT credit carryforward                  53,085                   -
   Other                                         -               4,805

Deferred tax liabilities
   Unrealized gain on securities          (133,084)           (217,679)
   Bank premises and equipment             (55,974)            (48,570)
   FHLB stock                              (37,294)            (32,255)
                                          ---------           ---------

    Net deferred tax asset (liability)   $  42,156         $    34,962

Effective  tax rates differ from federal  statutory  rates  applied to financial
statement income due to the following:

                                                     2003          2002
                                                     ----          ----

Tax expense at statutory rate                   $  267,192     $  181,208
Increase (decrease) in taxes resulting from:
   Tax-exempt investment income                   (102,890)       (74,301)
   Non-deductible interest expense related to
     carrying tax-exempt investments                 2,544          7,965
   State income taxes net of federal benefit        30,096         22,911
   Other                                           (15,705)         8,606
                                                ----------     -----------
                                                $  181,237     $   146,389

                                      F-19
<PAGE>


NOTE  10 - RETIREMENT PLANS

The Company has a qualified profit sharing plan which covers  substantially  all
employees  and  includes  a  401(k)  provision.  Profit  sharing  contributions,
excluding the 401(k) provision,  are at the discretion of the Company's Board of
Directors.  Expense  recognized  in  connection  with the plan was  $16,891  and
$15,910 in 2003 and 2002.

NOTE 11 - COMMITMENTS AND 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.

In the normal  course of business,  the Company makes  various  commitments  and
incurs certain contingent liabilities that are not presented in the accompanying
balance sheet.  The commitments  and contingent  liabilities may include various
guarantees,  commitments  to extend  credit,  standby  letters  of  credit,  and
litigation. The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial  instrument for commitments to extend credit
and standby letters of credit is represented by the contractual  notional amount
of these  instruments.  The  Company  uses the same  credit  policies  in making
commitments  and  conditional  obligations  as  it  does  for  on-balance  sheet
instruments.  Unless noted otherwise, the Company does not require collateral or
other security to support financial instruments with credit risk.

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition  established in the contract.  Since some
commitments  are  expected  to  expire  without  being  drawn  upon,  the  total
commitment amounts do not necessarily  represent future cash  requirements.  The
Company evaluates each customer's  creditworthiness on a case by case basis. The
amount of collateral  obtained if deemed necessary by the Company upon extension
of credit  is based on  management's  credit  evaluation  of the  counter-party.
Collateral held varies but may include accounts receivable, inventory, property,
plant, and equipment.

Standby letters of credit are conditional  commitments  issued by the Company to
guarantee the performance of a customer to a third party.  Those  guarantees are
primarily  issued to support  public and private  borrowing  arrangements.  Most
guarantees  expire within one year with some having  automatic one year renewals
cancelable  by the  Company.  The credit  risk in  issuing  letters of credit is
essentially the same as that involved in extending loans to customers.

                                      F-20
<PAGE>


NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)

At December 31, 2003 and 2002, the Bank had the following financial  instruments
whose contract amounts represent credit risk:

                                                  2003              2002
                                                  ----              ----

Standby letters of credit                $     236,225      $      202,725

Commitments to extend credit             $   6,278,327      $    5,845,319

NOTE  12 - LIMITATION ON BANK DIVIDENDS

The  Company's  principal  source of funds is dividends  received from the Bank.
Banking  regulations  limit the amount of dividends that may be paid by the Bank
without prior  approval of regulatory  agencies.  Under these  regulations,  the
amount of  dividends  that may be paid in any  calendar  year is  limited to the
current year's net profits,  as defined,  combined with the retained net profits
of the  preceding  two years.  During 2004 the Bank could  declare  dividends of
approximately  $226,000  plus any 2004 net  profits  retained to the date of the
dividend   declaration,   subject  to  the   provisions  of  the  Memorandum  of
Understanding described in Note 14.

NOTE  13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of the Company's financial  instruments at December 31, 2003 and
2002 are as follows:

<TABLE>
<CAPTION>

                                                  ------------2003-------------        ------------2002-------------
                                                  Carrying                               Carrying
                                                  Amount         Fair Value              Amount        Fair Value
                                                  --------       ----------              --------      ----------
<S>                                            <C>              <C>                 <C>             <C>

Financial assets
   Cash and due from banks                     $   2,881,551    $   2,881,551       $   4,705,507   $     4,705,507
   Securities                                     28,172,007       28,179,454          28,818,746        28,820,176
   Federal funds sold                                354,371          354,371           4,450,000         4,450,000
   Loans, net                                     68,719,127       70,594,251          67,014,982        70,002,286
   Accrued interest receivable                       759,388          759,388             935,616           935,616

Financial liabilities
   Deposits                                    $  96,712,840    $  96,996,529       $  99,957,757   $   103,281,008
   Securities sold under agreements
     to repurchase                                 1,358,902        1,358,902           2,288,784         2,288,784
   Federal funds purchased                         1,450,000        1,450,000                   -                 -
   Long-term debt                                  1,415,000        1,415,000           1,810,000         1,810,000
   Accrued interest payable                          317,580          317,580             411,322           411,322

</TABLE>
                                      F-21
<PAGE>


NOTE  13 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
         (Continued)

Carrying  amount is the  estimated  fair  value  for cash and cash  equivalents,
short-term borrowings, Federal Home Loan Bank stock, accrued interest receivable
and  payable,  demand  deposits,  short-term  debt,  and  deposits  that reprice
frequently and fully.  Security fair values are based on market prices or dealer
quotes,  and if no such  information  is available,  on the rate and term of the
security  and  information  about  the  issuer.  For loans or  deposits  and for
deposits with infrequent  repricing or repricing limits,  fair value is based on
discounted  cash flows using current  market rates applied to the estimated life
and credit risk. Fair values for impaired loans are estimated  using  discounted
cash flow analysis or underlying  collateral values. Fair value of debt is based
on current rates for similar financing.  The fair value of commitments to extend
credit and standby letters of credit is not considered material.

NOTE  14 - CAPITAL REQUIREMENTS

Regulatory  Matters:  The Company and the Bank are subject to various regulatory
capital  requirements  administered by the federal banking agencies.  Failure to
meet minimum capital  requirements can initiate  certain  mandatory and possible
additional discretionary actions by regulators that, if undertaken, could have a
direct  material  effect on the Company's  financial  statements.  Under capital
adequacy  guidelines and the regulatory  framework for prompt corrective action,
the Company and the Bank must meet  specific  capital  guidelines  that  involve
quantitative measures of the Company's and the Bank's assets,  liabilities,  and
certain  off-balance  sheet  items as  calculated  under  regulatory  accounting
practices.  The Company and Bank capital  amounts and  classifications  are also
subject  to  qualitative   judgments  by  regulators  about   components,   risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company  and the Bank to  maintain  minimum  amounts and ratios (set
forth in the  following  table) of Total and Tier I capital  (as  defined in the
regulations)  to  risk-weighted  assets (as  defined),  and of Tier I capital to
average assets (as defined).  Management  believes,  as of December 31, 2003 and
2002,  that the Company and the Bank meet all capital  adequacy  requirements to
which they are subject.

The most recent  notification  from the Federal  Deposit  Insurance  Corporation
categorized  the Bank as well  capitalized  under the  regulatory  framework for
prompt corrective  action. To be categorized as well capitalized,  the Bank must
maintain minimum Total risk-based,  Tier I risk-based and Tier I leverage ratios
as set forth in the  following  table.  There are no  conditions or events since
that  notification  that  management  believes  have  changed the  institution's
category.

                                      F-22
<PAGE>


NOTE  14 - CAPITAL REQUIREMENTS (Continued)

The Company's and the Bank's actual amounts and ratios are presented in the
table below:

<TABLE>
<CAPTION>

                                                                                                          To Be Well
                                                                                                         Capitalized
                                                                                                         Under Prompt
                                                                                For Capital               Corrective
                                                         Actual              Adequacy Purposes        Action Provisions
                                                   Amount        Ratio       Amount       Ratio       Amount        Ratio
                                                   ------        -----       ------       -----       ------        -----
2003                                                                      (Dollars in Thousands)
----
<S>                                               <C>            <C>         <C>            <C>      <C>             <C>

Consolidated
  Total Capital (to Risk-Weighted Assets)         $   7,854      10.90%      $  5,764       8%       $   7,205       10%
  Tier I Capital (to Risk-Weighted Assets)            6,953       9.65          2,882       4            4,323        6
  Tier I Capital (to Average Assets)                  6,953       6.33          4,398       4            5,491        5


Bank Only
  Total Capital (to Risk-Weighted Assets)         $   9,249      12.84%      $  5,763       8%       $   7,204       10%
  Tier I Capital (to Risk-Weighted Assets)            8,348      11.59          2,882       4            4,322        6
  Tier I Capital (to Average Assets)                  8,348       7.60          4,392       4            5,490        5

2002
----
Consolidated
  Total Capital (to Risk-Weighted Assets)         $   7,215      10.44%      $  5,529       8%       $   6,912       10%
  Tier I Capital (to Risk-Weighted Assets)            6,348       9.18          2,765       4            4,147        6
  Tier I Capital (to Average Assets)                  6,348       5.72          4,441       4            5,552        5


Bank Only
  Total Capital (to Risk-Weighted Assets)         $   8,983      13.00%      $  5,529       8%       $   6,911       10%
  Tier I Capital (to Risk-Weighted Assets)            8,116      11.73          2,764       4            4,147        6
  Tier I Capital (to Average Assets)                  8,116       7.32          4,436       4            5,545        5

</TABLE>

                                      F-23
<PAGE>


NOTE  14 - CAPITAL REQUIREMENTS (Continued)

As a result  of  certain  findings  in the  Tennessee  Department  of  Financial
Institution's  Report of Examination  dated June 4, 2001, the Board of Directors
of Bank entered into a Memorandum of  Understanding  (Memorandum),  dated August
16,  2001,  with the  Commissioner  of the  Tennessee  Department  of  Financial
Institutions and the Memphis Regional  Director of the Federal Deposit Insurance
Corporation.  A Memorandum of Understanding is an informal  administrative  tool
for  institutions  that have some weaknesses that if not properly  addressed and
corrected  could lead to supervisory  concern  requiring  formal  administrative
action.  The areas addressed in the Memorandum cover capital adequacy,  laws and
regulations,  data  processing  audit and  review,  investment  policy  maturity
strategies, adequate documentation of each of the foregoing but primarily credit
administration.  As a  result,  the Board  has  revised  a number of the  Bank's
policies  and  procedures   including  its  loan  policy  and  has  incorporated
recommendations  designed to  strengthen  credit  quality and the Bank's  review
procedures  regarding loan loss reserve adequacy.  Management of the Company and
the Bank believe that the Bank is in substantial  compliance with the provisions
of the Memorandum.

As a result  of  certain  findings  in the  Federal  Reserve  Bank's  review  of
Volunteer  Bancorp,  Inc. as of  September  17,  2002,  the  Company's  Board of
Directors  adopted  certain  Board  Resolutions  as of October 31,  2002.  Board
Resolutions are  recommendations of the Federal Reserve adopted by the Company's
Board of Directors  requesting  that certain  actions be taken to strengthen the
financial  condition of the Company and its  subsidiary.  The areas addressed in
the Board  Resolutions  include the  prohibition of incurring  additional  debt,
declaration and payment of dividends to the Company's shareholders,  and certain
capital transactions,  without the prior written approval of the Federal Reserve
Board.  Management  of the Company  believe  that the Company is in  substantial
compliance with the provisions of the Resolutions.



                                      F-24
<PAGE>


NOTE  15 - PARENT COMPANY FINANCIAL STATEMENTS

                            Condensed Balance Sheets
                                   December 31

<TABLE>
<CAPTION>
                                                                                       2003                2002
                                                                                       ----                ----
<S>                                                                               <C>                <C>
ASSETS
Cash on deposit with subsidiary                                                   $      15,747      $       28,538
Investment in subsidiary                                                              8,696,100           8,616,445
Tax benefit receivable                                                                   11,527              10,516
                                                                                  -------------      --------------

Total assets                                                                      $   8,723,374      $    8,655,499
                                                                                  =============      ==============


LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
     Long-term debt                                                               $   1,415,000      $    1,810,000
     Accrued interest payable                                                             7,533              11,257

Stockholders' equity                                                                  7,300,841           6,834,242
                                                                                  -------------      --------------

Total liabilities and stockholders' equity                                        $   8,723,374      $    8,655,499
                                                                                  =============      ==============
</TABLE>


                                      F-25
<PAGE>


NOTE  15 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                         Condensed Statements of Income
                             Years Ended December 31

<TABLE>
<CAPTION>
                                                                                           2003             2002
                                                                                           ----             ----
<S>                                                                                   <C>               <C>

Income
   Dividends from subsidiary                                                          $   435,122       $   435,798

Expenses
   Interest                                                                                47,583            71,421
   Professional services                                                                   34,033            21,115
   Other                                                                                       40            (4,405)
                                                                                      -----------       -----------
                                                                                           81,656            88,131

Income before income taxes and equity in
   undistributed income of subsidiary                                                     353,466           347,667

Applicable income tax (expense) benefits                                                   33,479            30,149

Equity in undistributed income of subsidiary                                              217,677             8,761
                                                                                      -----------       -----------

Net income                                                                            $   604,622       $   386,577
                                                                                      ===========       ===========

</TABLE>




                                      F-26
<PAGE>



NOTE  15 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)

                       Condensed Statements of Cash Flows
                             Years Ended December 31
<TABLE>
<CAPTION>
                                                                                          2003                2002
                                                                                          ----                ----
<S>                                                                                  <C>               <C>

Cash flows from operating activities
   Net income                                                                         $   604,622       $   386,577
   Adjustments to reconcile net income to net
     cash from operating activities
       Equity in undistributed earnings of
         subsidiary                                                                      (217,677)           (8,761)
       Deferred income taxes                                                                    -             6,869
       Change in other assets                                                              (1,012)            2,595
       Change in other liabilities                                                         (3,724)           (4,375)
                                                                                      -----------       -----------
         Net cash from operating activities                                               382,209           382,905

Cash flows from financing activities
   Dividends paid                                                                               -           (53,903)
   Repayment of note payable                                                             (395,000)         (360,000)
                                                                                      -----------       -----------
     Net cash from financing activities                                                  (395,000)         (413,903)
                                                                                      -----------       -----------

Net change in cash                                                                        (12,791)          (30,998)

Cash at beginning of year                                                                  28,538            59,536
                                                                                      -----------       -----------

Cash at end of year                                                                   $    15,747       $    28,538
                                                                                      ===========       ===========
</TABLE>
                                      F-27