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**United      States **

**Securities      and Exchange Commission**

**Washington,      D.C. 20549**

**FORM      10-KSB**

|   |  Tennessee                                                                                            |   |   45-0471419                                    |   |
|--------|------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|--------|
|   |  (State                or other jurisdiction of                incorporation or organization)    |   |  (I.R.S.                Employer Identification No.) |   |
|   |                                                                                                       |   |                                                      |   |
|   |  401                South Illinois Avenue Oak Ridge,                TN                      |   |  37830                                               |   |
|   | (Address                of Principal Executive Offices)                                                    |   |   (Zip                Code)                     |   |
|   |                                                                                                       |   |                                                      |   |
|   |  Registrant’s                telephone number, including                area code: 865-483-9444 |   |

**Proxy      Statement related to 2007 Annual Meeting of Shareholders.**

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**Table      of Contents**

|  **Part              I:** |                                                                                                                                                                                                    |     |
|--------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|  **Item 1:**              |  Description of              Business...............................................................................................................................................               |  1  |
|  **Item 2:**              |  Description              of              Property................................................................................................................................................ |  10 |
|  **Item 3:**              |  Legal              Proceedings.........................................................................................................................................................           | 10       |
|  **Item 4:**              |  Submission of Matters to a Vote of              Security              Holders.............................................................................................                        | 10       |

| **Part                II:** |                                                                                                                                                                                         |     |
|-----------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|  **Item 5:**           |  Market for Common Stock and Related              Stockholder              Matters................................................................................                      | 11       |
|  **Item 6:**           |  Management’s Discussion and Analysis or              Plan of              Operation............................................................................                  |  12 |
|  **Item 7:**           |  Financial              Statements..................................................................................................................................................... |  24 |

|                             |                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                         |
|----------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  **Item 8:**                |  Changes              in and Disagreements with Accountants on Accounting and Financial              Disclosure.........................                                                                                                                                                                                                     | 52                                                                                                                                                           |
|  **Item 8A:**               |  Controls              and Procedures..............................................................................................................................................                                                                                                                                                          |  52                                                                                                                                                     |
|  **Part              III:** |                                                                                                                                                                                                                                                                                                                                              |                                                                                                                                                         |
|  **Item 9:**                |  Directors,              Executive Officers, Promoters and Control Persons; Compliance with              Section              16(a) of the  Exchange              Act.................................................................................................................................................................. |  52                                                                                                                                                     |
|  **Item              10:**  |  Executive              Compensation..............................................................................................................................................                                                                                                                                                           | 52                                                                                                                                                           |
|  **Item              11:**  | ** **Security              Ownership of Certain Beneficial Owners and Management and Related              Stockholder Matters              ...................................................................                                                                                                                               | ** **52                                                                                                                                                 |
| ** Item              12:**  |  Certain              Relationships and Related              Transactions.....................................................................................................                                                                                                                                                               |                                        52 |

|  **Item 13:**   |  Exhibits                ......................................................................................................................                                                                                                              | 53       |
|----------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|  **Item 14:**   |  Principal Accountant Fees and                Services...................................................................................................................                                                                                    |  53 |
|  **Signatures** |  ........................................................................................................................................... |  54 |

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**PART      I**

**ITEM      1.**
**DESCRIPTION      OF BUSINESS**

**General      **

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**Market      Area**

**Employees**

**Loan      Activities**

***General***

***Loan      Underwriting***

***General      Loan Policies***

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***Residential      Real Estate Loans***

***Consumer      Loans***

***Commercial      Business Loans***

***Commercial      Real Estate Loans***

***Income      from Loan Activities***

***Nonperforming      Loans and Real Estate Owned***

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**Competition**

**Supervision      and Regulation**

***Bank      Holding Company Regulation***

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***Sarbanes-Oxley      Act of 2002***

***Tennessee      Banking Act; Federal Deposit Insurance Act***

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***FIRREA.***

***FDICIA***

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***Interstate      Act***

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***Brokered      Deposits and Pass-Through Insurance***

***FDIC      Insurance Premiums***

***Gramm-Leach-Bliley      Act***

***USA      Patriot Act***

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**General**

**Payment      of Dividends**

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**ITEM      2.**
**DESCRIPTION      OF PROPERTY**

**ITEM      3.**
**LEGAL      PROCEEDINGS**

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

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**PART      II**

**ITEM      5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS      ISSUER PURCHASES OF EQUITY SECURITIES**

|                              | High                        | Low                                             |
|-----------------------------------|-----------------------------|-------------------------------------------------|
| 2006:                             |                        |                                            |
| First                Quarter      | $28.00                      | $28.00                                          |
| Second                Quarter (1) |                  14.00 |                  14.00                     |
| Third                Quarter (1)  |                  14.00 |        14.00 |
| Fourth                Quarter (1) |                  14.50 |                  14.00                     |
|                              |                        |                                            |
| 2005:                             |                        |                                            |
| First                Quarter      | $26.00                      | $26.00                                          |
| Second                Quarter     |                  26.00 |                  26.00                     |
| Third                Quarter      |                  26.00 |                  26.00                     |
| Fourth                Quarter     |                  28.50 |                  28.50                     |
|                              |                        |                                            |

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| **Equity                Compensation Plan Information**                                           |
|---------------------------------------------------------------------------------------------------|
|     **Plan                Category**                                          |  **Number                of securities to be issued upon exercise of outstanding options,                warrants                and rights** |  **Weighted-average                exercise price of outstanding options,****warrants                and rights** | **Number                of securities remaining available for future issuance under equity                compensation plan** |
| Equity                compensationplans                approved byshareholders                    |  97,200 |  $11.76 |  116,412 |
| Equity                compensationplans                not approvedby                shareholders |  0______________ |  NA______________ |  0______________ |
| Total                                                                                             | 97,200 | $11.76 | 116,412 |
|                                                                                              |   |   |   |

**ITEM      6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF      OPERATION**

**Forward      Looking Statements**

| ·   | Economic                conditions (both generally and more specifically in the markets in                which                we operate); |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Competition                for our customers from other providers of financial                services; |
|--------------------|---------------------------------------------------------------------------------------------------------|

| ·   | Government                legislation and regulation (which changes from time to time and over                which                we have no control); |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Changes                in interest rates; and |
|--------------------|-----------------------------------------------|

| ·   | Material                unforeseen changes in liquidity, results of operations, or financial                condition of our customers. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------|

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**Results      of Operations for the Years Ended December 31, 2006 and      2005**

**General**

|                                            | **2006** | **2005** |
|-------------------------------------------------|----------|----------|
|                                            |     |     |
| Return                on Average Assets         | 0.48%    | 0.67%    |
| Return                on Average Equity         | 6.74%    | 8.36%    |
| Dividend                Payout Ratio            | 0.00%    | 16.04%   |
| Average                Equity to Average Assets | 7.10%    | 8.06%    |
|                                            |     |     |

**Earning      Assets, Sources of Funds and Net Interest Income**

| **Schedule                II****Average                Balances, Interest and Rate/Yield** |
|--------------------------------------------------------------------------------------------|
|                                                                                       | **2006** | ** ** | **2005** |
| ** **                                                                                 | **Average****Balance(1)** | ** ** | **Interest** | ** ** | **Average****Yield/Rate** | ** ** | **Average****Balance                (1)** | ** ** | **Interest** | ** ** | **Average****Yield/Rate** |
| Assets                                                                                     |   |   |   |   |   |   |   |   |   |   |   |
| Federal                funds sold                                                          | $ 5,890 |   | $ 289 |   | 4.91% |   | $ 6,353 |   | $ 201 |   | 3.16% |
| Investment                securities:                                                      |   |   |   |   |   |   |   |   |   |   |   |
| Available                for sale:                                                         |   |   |   |   |   |   |   |   |   |   |   |
| Taxable                                                                                    | 12,422 |   | 515 |   | 4.15% |   | 10,696 |   | 364 |   | 3.40% |
| Tax                exempt                                                                  | 6,837 |   | 310 |   | 4.52% |   | 6,279 |   | 302 |   | 4.81% |
| FHLB                Stock                                                                  | 619 |   | 35 |   | 5.68% |   | 587 |   | 27 |   | 4.60% |
| Gross                loans, including fees                                                 | 128,389 |   | 10,341 |   | 8.05% |   | 107,315 |   | 7,883 |   | 7.35% |
| Total                interest earning                                                      |   |   |   |   |   |   |   |   |   |   |   |
| assets                                                                                     | 154,157 |   | $ 11,490 |   | 7.45% |   | $ 131,230 |   | $ 8,777 |   | 6.69% |
| All                other assets                                                            | 10,781 |   |   |   |   |   | 9,072 |   |   |   |   |
| Less:                                                                                      |   |   |   |   |   |   |   |   |   |   |   |
| Reserve                for loan losses                                                     | 1,492 |   |   |   |   |   | 1,317 |   |   |   |   |
| Unearned                fees and                                                           |   |   |   |   |   |   |   |   |   |   |   |
| interest                                                                                   | 135 |   |   |   |   |   | 135 |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |
| Total                assets                                                                | $ 163,311 |   |   |   |   |   | $ 138,850 |   |   |   |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |

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|                                                | **2006**                  | ** ** | **2005**     |
|-----------------------------------------------------|---------------------------|------------|--------------|
| ** **                                          | **Average****Balance(1)** | ** ** | **Interest** | ** ** | **Average****Yield/Rate** | ** ** | **Average****Balance                (1)** | ** ** | **Interest** | ** ** | **Average****Yield/Rate** |
|                                                |                      |       |         |   |   |   |   |   |   |   |   |
| Liabilities                and Shareholders' Equity |                      |       |         |   |   |   |   |   |   |   |
| Interest                bearing deposits:           |                      |       |         |   |   |   |   |   |   |   |   |
| Time                deposits                        | $ 81,536             |       | $ 3,678 |   | 4.51% |   | $ 60,422 |   | $ 2,054 |   | 3.40% |
| Other                deposits                       | 45,222                    |       | 881          |   | 1.95% |   | 46,097 |   | 671 |   | 1.46% |
| FHLB                advances and                    |                      |       |         |   |   |   |   |   |   |   |   |
| repurchase                agreements                |                      |       |         |   |   |   |   |   |   |   |   |
| and                other                            | 10,860                    |       | 534          |   | 4.92% |   | 10,896 |   | 464 |   | 4.26% |
| Total                interest-bearing               |                      |       |         |   |   |   |   |   |   |   |   |
| liabilities                                         | 137,617                   |       | $ 5,093 |   | 3.70% |   | 117,415 |   | $ 3,189 |   | 2.72% |
| Non-interest                bearing deposits        |                      |       |         |   |   |   |   |   |   |   |   |
|                                                     | 13,008                    |       |         |   |   |   | 10,850 |   |   |   |   |
| Cost                of funds                        |                      |       |         |   | 3.38% |   |   |   |   |   | 2.49% |
| All                other liabilities                | 927                       |       |         |   |   |   | 893 |   |   |   |   |
| Shareholders'                equity                 | 11,592                    |       |         |   |   |   | 9,686 |   |   |   |   |
| Unrealized                gain (loss) on            |                      |       |         |   |   |   |   |   |   |   |   |
| available                for sale                   |                      |       |         |   |   |   |   |   |   |   |   |
| securities                                          | 166                       |       |         |   |   |   | 6 |   |   |   |   |
| Total                liabilities and                |                      |       |         |   |   |   |   |   |   |   |   |
| shareholders'                equity                 | $ 163,311            |       |         |   |   |   | $ 138,850 |   |   |   |   |
|                                                |                      |       |         |   |   |   |   |   |   |   |   |
| Net                interest spread                  |                      |       |         |   | 4.07% |   |   |   |   |   | 4.20% |
|                                                |                      |       |         |   |   |   |   |   |   |   |   |
| Net                interest margin                  |                      |       |         |   | 4.15% |   |   |   |   |   | 4.26% |
|                                                |                      |       |         |   |   |   |   |   |   |   |   |

| (1)   | Average                Balances were computed averaging daily balances for the time                specified. |
|-----------------|---------------------------------------------------------------------------------------------------------------|

|   |   |
|--------|--------|

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| **Schedule                III****Rate                Volume Analysis (in thousands)** |
|---------------------------------------------------------------------------------------|
|                                                                                  |   |   |   |   |   |
|                                                                                  | **2006                vs 2005****Increase                (decrease) due to change in** |
| ** **                                                                            | **Average                Balance** | ** ** | **Rate/Yield** | ** ** | **Total** |
| Interest                income:                                                       |   |   |   |   |   |
| Federal                funds sold                                                     | $ (13) |   | $ 101 |   | $ 88 |
| Securities                available for sale                                          | 72 |   | 87 |   | 159 |
| FHLB                stock                                                             | 1 |   | 6 |   | 7 |
| Loans,                including fees                                                  | 1,655 |   | 803 |   | 2,458 |
| Total                interest income                                                  | 1,715 |   | 997 |   | 2,712 |
|                                                                                  |   |   |   |   |   |
| Interest                expense:                                                      |   |   |   |   |   |
| Interest-bearing                deposits                                              | 827 |   | 1,007 |   | 1,834 |
| FHLB                advances, repurchase                                              |   |   |   |   |   |
| agreement                and other                                                    | (2) |   | 72 |   | 70 |
| Total                interest expense                                                 | 825 |   | 1,079 |   | 1,904 |
|                                                                                  |   |   |   |   |   |
|                                                                                  |   |   |   |   |   |
| Net                  change in net interest income                                    | $ 890 |   | $ (82) |   | $ 808 |
|                                                                                  |   |   |   |   |   |

**Non-Interest      Income**

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**Non-Interest      Expense**

**Income      Taxes**

*Accounting      for Income Taxes*

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**Loan      Losses and Credit Risk**

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| **Schedule                IV****Analysis                of Loan Loss Reserve (in Thousands)** |
|-----------------------------------------------------------------------------------------------|
|                                                                                          |   |   |   |
|                                                                                          |    **Year Ended****December 31,**  |
|                                                                                          | **2006** |   | **2005** |
|                                                                                          |   |   |   |
| Balance                at beginning of period                                                 | $ 1,406 |   | $ 1,271 |
| Charge-offs:                                                                                  |   |   |   |
| Commercial,                financial and agricultural                                         | 16 |   | 2 |
| Real                estate - mortgage                                                         | 96 |   | 240 |
| Installment                - consumer                                                         | 168 |   | 205 |
| Other                                                                                         | 61 |   | - |
| Total                charge-offs                                                              | 341 |   | 447 |
|                                                                                          |   |   |   |
| Recoveries:                                                                                   |   |   |   |
| Commercial,                financial and agricultural                                         | 12 |   | - |
| Real                Estate - construction                                                     | - |   | - |
| Real                estate - mortgage                                                         | - |   | - |
| Installment                - consumer                                                         | 29 |   | 30 |
| Other                                                                                         | 1 |   | 1 |
| Total                recoveries                                                               | 42 |   | 31 |
|                                                                                          |   |   |   |
| Net                charge-offs                                                                | 299 |   | 416 |
| Provision                for loan losses                                                      | 471 |   | 551 |
|                                                                                          |   |   |   |
| Balance                at the end of period                                                   | $ 1,578 |   | $ 1,406 |
|                                                                                          |   |   |   |
| Ratio                of net charge-offs to average loans outstanding                          | 0.23% |   | 0.39% |
|                                                                                          |   |   |   |

| **Schedule                V****Allocation                of Loan Loss Reserve (in Thousands)** |
|------------------------------------------------------------------------------------------------|
|                                                                                           | **2006** | ** ** | **2005** |
| ** **                                                                                     | **$****Allocation** | ** ** | **%****Allocation** | ** ** | **$****Allocation** | ** ** | **%****Allocation** |
| Commercial,                financial and agricultural                                          | $ 450 |   | 35% |   | $ 592 |   | 42% |
| Real                estate - construction                                                      | 30 |   | 2% |   | 22 |   | 2% |
| Real                estate - mortgage                                                          | 644 |   | 51% |   | 577 |   | 41% |
| Installment                - consumer                                                          | 316 |   | 12% |   | 215 |   | 15% |
| Other                                                                                          | - |   | 0% |   | - |   | 0% |
| Total                                                                                          | $ 1,577 |   |   |   | $ 1,406 |   |   |

**Summary      of Loans and Non-Performing Assets**

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|  **Schedule                VI****                                                         Non-Performing Assets (in                Thousands)                               ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | ** December                31,** |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | **2006** | **2005** |
| Non-accrual                loans (1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | $ 326 | $ 283 |
| Loans                past due greater than 90 days and still accruing                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |   |
| interest                (2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 19 | 10 |
| Restructured                   loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 170 | 125 |
| Other                real estate owned                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 507 | - |
| Total                non-performing assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $ 1,022 | $ 418 |

| (1)   | Included                in non-accrual loans is approximately $320,000 and $283,000 of loans                considered impaired as of December 31, 2006 and 2005,                respectively. |
|-----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Included                in loans past due 90 days or more and still accruing interest are                approximately $19,000 and $10,000 considered impaired as of December                31,                2004 and 2003, respectively. At December 31, 2004 approximately $69,000                of                loans considered restructured were also considered impaired. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| **Schedule                VII****Loans                by Type (in Thousands)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **                                                                                                                                                                         December              31,** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | **2006** | **2005** |
| Loans                secured by real estate:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |
| Commercial                properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ 15,778 | $ 15,209 |
| Construction                and land development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 36,561 | 25,610 |
| Residential                and other properties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 41,444 | 36,143 |
| Total                loans secured by real estate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 93,793 | 76,962 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |
| Commercial                and industrial loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 23,308 | 18,510 |
| Consumer                loans and other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 25,879 | 14,407 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 142,980 | 109,879 |
| Less:                Allowance for loan losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | (1,578) | (1,406) |
| Unearned                loan fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | (140) | (127) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $ 141,262 | $ 108,346 |

**Investment      Securities**

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| **Schedule                VII****Maturities                of Securities at December 31, 2006**  |
|--------------------------------------------------------------------------------------------------|
| ** **                                                                                       | **Due                in One Year or Less** | ** ** | **Due                After One Year Through****Five                Years** | ** ** | **Due                After Five Years Through****Ten                Years** |
| ** **                                                                                       | **Amount** | ** ** | **Yield** | ** ** | **Amount** | ** ** | **Yield** | ** ** | **Amount** | ** ** | **Yield** |
| Securities                available for sale:                                                    |   |   |   |   |   |   |   |   |   |   |   |
| U.S.                Treasury Securities and                                                      |   |   |   |   |   |   |   |   |   |   |   |
| Obligations                of U.S. Government                                                    |   |   |   |   |   |   |   |   |   |   |   |
| corporations                and agencies                                                         | $ 1,244 |   | 4.31% |   | $ 3,704 |   | 4.16% |   | $ 1,481 |   | 3.92% |
| Mortgage-backed                and related ecurities                                             |  17 |   |  7.79% |   |  280 |   |  4.27% |   |  667 |   |  4.16% |
| Obligations                of State and political subdivisions                                   |      100  |   |  5.67% |   |  760 |   |  6.35% |   |  1,544 |   |  4.46% |
| Total                debt securities                                                             | $ 1,361 |   | 4.45% |   | $ 4,744 |   | 4.52% |   | $ 3,692 |   | 5.40% |
|                                                                                             |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                             | **Due                After Ten Years** | ** ** | **Total** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                       | **Amount** | ** ** | **Yield** | ** ** | **Amount** | ** ** | **Yield** |   |   |   |   |
| Securities                available for sale:                                                    |   |   |   |   |   |   |   |   |   |   |   |
| U.S.                Treasury Securities and                                                      |   |   |   |   |   |   |   |   |   |   |   |
| Obligations                of U.S. Government                                                    |   |   |   |   |   |   |   |   |   |   |   |
| corporations                and agencies                                                         | $ 218 |   | 6.23% |   | $ 6,647 |   | 4.52% |   |   |   |   |
|                        Mortgage-backed and related securities | 5,561 |   | 5.15% |   | 6,525 |   | 5.11% |   |   |   |   |
|                                                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Obligations                of State and political subdivisions                                   | 4,580 |   | 5.80% |   | 6,984 |   | 5.81% |   |   |   |   |
|                                                                                             |   |   |   |   |   |   |   |   |   |   |   |
| Total                debt securities                                                             | $ 10,359 |   | 5.46% |   | $ 20,156 |   | 5.19% |   |   |   |   |
|                                                                                             |   |   |   |   |   |   |   |   |   |   |   |

**Asset/Liability      Management and Interest Rate Risk Management **

| **Schedule                IX****Interest                Rate Sensitivity Analysis (in Thousands)****As                of December 31, 2006** |
|----------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                                                   | **Within****3                Months** | ** ** | **3                Months to****1                year** | ** ** | **1                to****5                Years** | ** ** | **After****5                Years** | ** ** | **Yield** |
| Earning                assets:                                                                                                               |   |   |   |   |   |   |   |   |   |
| Loans                                                                                                                                        | $ 61,126 |   | $ 11,946 |   | $ 68,404 |   | $ 2,292 |   | $ 143,768 |
| Investment                securities                                                                                                         | 916 |   | 2,486 |   | 6,567 |   | 10,187 |   | 20,156 |
| Federal                funds sold                                                                                                            | 11,941 |   | - |   | - |   | - |   | 11,941 |
| Total                earning assets                                                                                                          | 73,983 |   | 14,432 |   | 74,971 |   | 12,479 |   | 175,865 |
|                                                                                                                                         |   |   |   |   |   |   |   |   |   |
| Interest-bearing                liabilities:                                                                                                 |   |   |   |   |   |   |   |   |   |
| Interest                bearing deposits                                                                                                     | 61,958 |   | 65,621 |   | 11,830 |   | - |   | 139,409 |
| FHLB                advances                                                                                                                 | 1,000 |   | 1,000 |   | 10,500 |   | - |   | 12,500 |
| Federal                funds purchased                                                                                                       | - |   | - |   | - |   | - |   | - |
| Other                borrowings                                                                                                              | 491 |   | - |   | - |   | - |   | 491 |
| Total                interest-bearing liabilities                                                                                            | 63,449 |   | 66,621 |   | 22,330 |   | - |   | 152,400 |
|                                                                                                                                         |   |   |   |   |   |   |   |   |   |
| Repricing                gap                                                                                                                 | 10,534 |   | (52,189) |   | 52,641 |   | 12,479 |   | 12,479 |
| Repricing                gap as a percentage of earning assets                                                                               | 6.0% |   | -29.7% |   | 29.9% |   | 7.1% |   |   |
| Cumulative                repricing gap                                                                                                      | 10,534 |   | (41,655) |   | 10,986 |   | 23,465 |   | 23,465 |
|                                                                                                                                              |   |   |   |   |   |   |   |   |  |
| Cumulative                repricing gap as a percentage of earning                assets                  | 6.0% |   | -23.7% |   | 6.2% |   | 13.3% |   |   |
|                                                                                                                                         |   |   |   |   |   |   |   |   |   |

| 1.   | Assets                and liabilities are generally assigned to a period based upon their                earliest repricing opportunity, when such repricing opportunity is                before                the contractual maturity. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Non-accrual                loans are included in the loan                category |
|----------------|-----------------------------------------------------------------------------------|

| 3.   | Investment                securities are scheduled for repricing based on their earliest repricing                date; however, callable agency securities are only considered repriced                at                the call date if the security is at a market value above par value. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Liquidity      and Capital Resources**

**Impact      of New Accounting Standards**

----

----

**ITEM      7.**
**FINANCIAL      STATEMENTS**

**Index      to Financial Statements**

----

**TENNESSEE      VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**Oak      Ridge, Tennessee**

**CONSOLIDATED      FINANCIAL STATEMENTS**

**December 31,      2006 and 2005 **

----

**DIXON      HUGHES**

**Certified      Public Accountants and Adisors**

**REPORT      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

----

**TENNESSEE      VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

|                                                                                                            |  2006                                                                                                 |  2005                                                                                                      |
|-----------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------|
|  **Assets**                                                                                                |                                                                                                       |                                                                                                            |
|  Cash              and due from banks                                                                      |  $                            3,226       |  $                            3,414            |
|  Federal                funds sold                                                                         |                               11,941 |                                8,338 |
|      Cash                and cash equivalents                                          |  15,167                                                                                               |  11,752                                                                                                    |
|                                                                                                            |                                                                                                       |                                                                                                            |
|  Investment                securities available for sale, at fair value                                    |  20,156                                                                                               |  18,721                                                                                                    |
|  Loans                held for sale, at fair value                                                         |  788                                                                                                  |  1,048                                                                                                     |
|  Loans,                net                                                                                 |  141,263                                                                                              |  108,346                                                                                                   |
|  Federal              Home Loan Bank stock, at cost                                                        |  634                                                                                                  |  598                                                                                                       |
|  Premises              and equipment, net                                                                  |  5,132                                                                                                |  5,008                                                                                                     |
|  Accrued              interest receivable                                                                  |  1,119                                                                                                |  847                                                                                                       |
|  Deferred              income tax benefit                                                                  |  278                                                                                                  |  310                                                                                                       |
|  Foreclosed              real estate                                                                       |  507                                                                                                  |  -                                                                                                         |
|  Prepaid              expenses and other                                                                   |  1,468                                                                                                |  331                                                                                                       |
|      Total              assets                                                         |  $186,512                                                                                             |  $                146,961                                                                                  |
|                                                                                                            |                                                                                                       |                                                                                                            |
| ** Liabilities              and Shareholders' Equity**                                                     |                                                                                                       |                                                                                                            |
|                                                                                                            |                                                                                                       |                                                                                                            |
|  Liabilities:                                                                                              |                                                                                                       |                                                                                                            |
|                   Deposits:                                                                 |                                                                                             |                                                                                                            |
|                          Non-interest-bearing                      | $                   13,944                                                             | $                         11,864                              |
|                        Interest-bearing                            | 139,408                                                                                                    |  112,969                                                                                                   |
|            Total              deposits                   |  $                   153,352                                                           |  $                        124,833                                  |
|                                                                                                            |                                                                                                       |                                                                                                            |
|  Borrowings                                                                                                |  15,060                                                                                               |  11,053                                                                                                    |
|  Accrued              interest payable                                                 |  1,245                                                                                                |  750                                                                                                       |
|  Other              liabilities                                                                            |  355                                                                                                  |  319                                                                                                       |
|                           Total liabilities         |  170,012                                                                                              |  136,955                                                                                                   |
|                                                                                                            |                                                                                                       |                                                                                                            |
|  Shareholders'              equity:                                                                        |                                                                                                       |                                                                                                            |
|                   Common stock, par value $1, authorized 2,000,000 shares;                            |                                                                                                       |                                                                                                            |
|                      issued and outstanding, 1,500,700 and 538,985 shares at |                                                                                                       |                                                                                                            |
|                      December 31, 2006 and 2005, respectively                |  1,501                                                                                                |  539                                                                                                       |
|                  Capital in excess of par value                                                  |  11,319                                                                                               |  6,610                                                                                                     |
|    Retained              earnings                                                                |  3,750                                                                                                |  2,968                                                                                                     |
|                                                                                                            |  16,570                                                                                               |  10,117                                                                                                    |
|  Accumulated              other comprehensive loss                                                         |  (70)                                                                                                 |  (111)                                                                                                     |
|                        Total shareholders' equity                  |  16,500                                                                                               |  10,006                                                                                                    |
|                        Total liabilities and shareholders' equity  |  $                  186,512                                                                 | $                      146,961                                                    |

----

**TENNESSEE      VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

|                                                                           | **2006**                  | **2005**                 |
|--------------------------------------------------------------------------------|---------------------------|--------------------------|
| Interest                  income:                                              |                      |                     |
| Loans                  (including fees)                                        | $                  10,341 | $                  7,883 |
| Investment                  securities                                         | 860                       | 693                      |
| Federal                  funds sold                                            | 289                       | 201                      |
| Total                  interest income                                         | 11,490                    | 8,777                    |
|                                                                           |                      |                     |
| Interest                  expense:                                             |                      |                     |
| Deposits                                                                       | 4,559                     | 2,725                    |
| Borrowings                                                                     | 534                       | 464                      |
| Total                  interest expense                                        | 5,093                     | 3,189                    |
|                                                                           |                      |                     |
| Net                  interest income                                           | 6,397                     | 5,588                    |
|                                                                           |                      |                     |
| Provision                  for loan losses                                     | 471                       | 551                      |
|                                                                           |                      |                     |
| Net                  interest income after provision for loan losses           | 5,926                     | 5,037                    |
|                                                                           |                      |                     |
| Non-interest                  income:                                          |                      |                     |
| Service                  charges on demand deposits                            | 422                       | 405                      |
| Fees                  on loans sold                                            | 386                       | 371                      |
| Net                  gain on sales of investment securities available for sale | 23                        | 6                        |
| Other                                                                          | 167                       | 121                      |
| Total                  non-interest income                                     | 998                       | 903                      |
|                                                                           |                      |                     |
| Non-interest                  expense:                                         |                      |                     |
| Salaries                  and employee benefits                                | 2,752                     | 2,173                    |
| Occupancy                  costs                                               | 802                       | 542                      |
| Furniture                  and equipment depreciation and maintenance          | 241                       | 217                      |
| Data                  processing fees                                          | 502                       | 393                      |
| Office                  supplies and postage                                   | 193                       | 180                      |
| Advertising                  and promotion                                     | 144                       | 125                      |
| Legal                  and professional                                        | 176                       | 123                      |
| Director’s                  fees                                         | 115                       | 117                      |
| Loan                  expense                                                  | 366                       | 217                      |
| Other                                                                          | 493                       | 431                      |
| Total                  non-interest expense                                    | 5,784                     | 4,518                    |
|                                                                           |                      |                     |
| Interest                  before income taxes                                  | 1,140                     | 1,422                    |
|                                                                           |                      |                     |
| Income                  taxes                                                  | 358                       | 487                      |
|                                                                           |                      |                     |
| Net                  income                                                    | $                  782    | $                  935   |
|                                                                           |                      |                     |
| Earnings                  per share:                                           |                      |                     |
| Basic                                                                          | $                  0.64   | $                  0.88  |
|                                                                           |                      |                     |
| Diluted                                                                        | $                  0.63   | $                  0.87  |

----

**TENNESSEE      VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

|                                                                                                                                                        | **2006**               | **2005**               |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|------------------------|
|                                                                                                                                                        |                   |                   |
| Net                  income                                                                                                                                 | $                  782 | $                  935 |
|                                                                                                                                                        |                   |                   |
| Other                  comprehensive income (loss), net of tax:                                                                                             |                   |                   |
| Unrealized                  gains (losses) on investment securities available for sale                                                                      | 88                     | (245)                  |
| Reclassification                  adjustment for net gains included in net income                                                                           | (23)                   | (6)                    |
| Income                  taxes associated with realized and unrealized gains/losses on                    investment securities available for sale | (24)                   | 93                     |
| Other                  comprehensive income (loss), net of tax                                                                                              | 41                     | (158)                  |
|                                                                                                                                                        |                   |                   |
| ** **Comprehensive                  income                                                                                                             | $                  823 | $                  777 |
|                                                                                                                                                        |                   |                   |
|                                                                                                                                                        |                   |                   |

----

**TENNESSEE      VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

|                                                                                |  **Common****Stock** | **Capital                  in****Excess                  of****Par                  Value** |  **Retained****Earnings** | **Accumulated****Other****Comprehensive** | **Total                  Shareholders’ Equity** |
|-------------------------------------------------------------------------------------|---------------------------|---------------------------------------------------------------------------------------------|--------------------------------|-------------------------------------------|-------------------------------------------------------|
|                                                                                |                      |                                                                                        |                           |                                      |                                                  |
| Balance,                  January 1, 2005                                           | $                  534    | $                  6,491                                                                    | $                  2,183       | $                  47                     | $                  9,255                              |
|                                                                                |                      |                                                                                        |                           |                                      |                                                  |
| Net                  income                                                         | --                        | --                                                                                          | 935                            | --                                        | 935                                                   |
| Other                  comprehensive loss                                           | --                        | --                                                                                          | --                             | (158)                                     | (158)                                                 |
| Cash                  dividends paid                                                | --                        | --                                                                                          | (82)                           | --                                        | (82)                                                  |
| Issuance                  of common stock for director’s fees in lieu of cash | 1                         | 23                                                                                          | --                             | --                                        | 24                                                    |
| Stock                  dividends issued through dividend reinvestment plan          | 2                         | 66                                                                                          | (68)                           | --                                        | --                                                    |
| Common                  stock options exercised (2,020 shares at $16 per share)     | 2                         | 30                                                                                          | --                             | --                                        | 32                                                    |
|                                                                                |                      |                                                                                        |                           |                                      |                                                  |
| Balance,                  December 31, 2005                                         | 539                       | 6,610                                                                                       | 2,968                          | (111)                                     | 10,006                                                |
|                                                                                |                      |                                                                                        |                           |                                      |                                                  |
| Net                  income                                                         | --                        | --                                                                                          | 782                            | --                                        | 782                                                   |
| Other                  comprehensive loss                                           | --                        | --                                                                                          | --                             | 414                                       | 41                                                    |
| Stock                  split (2 for 1)                                              | 541                       | (541)                                                                                       | --                             | --                                        | --                                                    |
| Issuance                  of common stock for director’s fees in lieu of cash | 5                         | 94                                                                                          | --                             | --                                        | 99                                                    |
| Proceeds                  from common stock Offering                                | 416                       | 5,078                                                                                       | --                             | --                                        | 5,494                                                 |
| Stock-based                  compensation                                           | --                        | 72                                                                                          | --                             | --                                        | 72                                                    |
| Common                  stock options exercised (380 shars at $16 per share)        | --                        | 6                                                                                           | --                             | --                                        | 6                                                     |
| Balance,                  December 31, 2006                                         | $                  1,501  | $                  11,319                                                                   | $                  3,750       | $                  (70)                   | $                  16,500                             |

----

**TENNESSEE      VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

|                                                                                                                                         | **2006**               | **2005**               |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------------------|------------------------|
| Cash                  flows from operating activities:                                                                                       |                   |                   |
| Net                  income                                                                                                                  | $                  782 | $                  935 |
|                                                                                                                                         |                   |                   |
| Adjustments                  to reconcile net income to net cash provided by operating                       activities: |                   |                   |
| Provision                  for loan losses                                                                                                   | 471                    | 551                    |
| Depreciation                                                                                                                                 | 301                    | 240                    |
| Deferred                  income tax benefit                                                                                                 | 8                      | 52                     |
| Increase                  (decrease) in unearned loan fees                                                                                   | 12                     | (10)                   |
| Net                  amortization of premiums and discounts on investment                  securities                                        | 25                     | 40                     |
| FHLB                  stock dividends                                                                                                        | (35)                   | (27)                   |
| Net                  gain on sales of investment securities available for sale                                                               | (23)                   | (6)                    |
| Fees                  on loans sold                                                                                                          | (386)                  | (371)                  |
| Gain                  on sales of foreclosed real estate                                                                                     | --                     | 24                     |
| Stock                  based compensation                                                                                                    | 172                    | --                     |
| Net                  (increase) decrease in:(Increase)                  decrease in loans held for sale                                      |  646              |  182              |
| (Increase)                  decrease in accrued interest receivable                                                                          | (272)                  | (174)                  |
| (Increase)                  decrease in prepaid expenses and other                                                                           | (160)                  | (130)                  |
| Net                  increase (decrease) in:                                                                                                 |                   |                   |
| Decrease                  in prepaid income taxes                                                                                            | 102                    | (89)                   |
| Decrease                  in accrued interest payable                                                                                        | 495                    | 395                    |
| Increase                  (decrease) in accrued income taxes                                                                                 | 71                     | --                     |
| Increase                  in other liabilities                                                                                               | (11)                   | 58                     |
| Total                  adjustments                                                                                                           | 1,416                  | 734                    |
| Net                  cash provided by operating activities                                                                                   | 2,198                  | 1,669                  |
|                                                                                                                                         |                   |                   |
| Cash                  flows from investing activities:                                                                                       |                   |                   |
| Investment                  securities available for sale:                                                                                   |                   |                   |
| Sales                                                                                                                                        | 1,106                  | 4,270                  |
| Purchases                                                                                                                                    | (6,089)                | (10,379)               |
| Maturities                                                                                                                                   | 500                    | --                     |
| Principal                  repayments received                                                                                               | 3,111                  | 1,856                  |
| Net                  increase in loans                                                                                                       | (33,907)               | (7,694)                |
| Proceeds                  from sales of loans                                                                                                | (425)                  | (1,079)                |
| Purchase                  of land for future development                                                                                     | (1,104)                | --                     |
| Proceeds                  from sales of foreclosed real estate                                                                               | --                     | 346                    |
| Net                  cash provided by (used in) investing activities                                                                         | (36,808)               | (12,679)               |
|                                                                                                                                         |                   |                   |

----

**TENNESSEE      VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

|                                                                                                                                                     | **2006**                                                       | **2005**                                            |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------|-----------------------------------------------------|
|                                                                                                                                                     |                                                           |                                                |
| Cash                  flows from financing activities:                                                                                                   |                                                           |                                                |
| Net                  Increase (decrease) in deposits                                                                                                     | $                  28,519                                      | $                  20,034                           |
| Net                  Increase in securities sold under agreements to repurchase                                                                          | 30                                                             | (80)                                                |
| Net                  Increase in federal funds purchased                                                                                                 | --                                                             | (375)                                               |
| Net                  Increase in advances from Federal Home Loan Bank                                                                                    | 4,000                                                          | (1,200)                                             |
| Decrease                  in obligation under capital lease                                                                                              | (230                                                           | (22)                                                |
| Proceeds                  from subordinated debentures                                                                                                   | --                                                             | 2,062                                               |
| Cash                  dividends paid                                                                                                                     | --                                                             | (82)                                                |
| Proceeds                  from issuance of common stock                                                                                                  | 5,499                                                          | 56                                                  |
| Net                  cash provided by *used in) financing activities                                                                                     | 38,025                                                         | 20,393                                              |
|                                                                                                                                                     |                                                           |                                                |
| Net                  increase (decrease) in                                                                                                              |                                                           |                                                |
| Cash                  and cash equivalents                                                                                                               | 3,415                                                          | 9,383                                               |
|                                                                                                                                                     |                                                           |                                                |
| Cash                  and cash equivalents at beginning of year                                                                                          | 11,752                                                         | 2,369                                               |
|                                                                                                                                                     |                                                           |                                                |
| Cash                  and cash equivalents at end of year                                                                                                | $                  15,167                                      | $                  11,752                           |
|                                                                                                                                                     |                                                           |                                                |
| Supplementary                  Disclosures of Cash Flow Information:                                                                                     |                                                           |                                                |
| Cash                  paid during the year for:                                                                                                          |                                                           |                                                |
| Interest                                                                                                                                                 | $                  4,598                                       | $                  2,794                            |
| Income                  taxes                                                                                                                            | $                     314                       | $                     515            |
|                                                                                                                                                     |                                                           |                                                |
| Supplementary                  disclosures of noncash investing and financing                      activities:                            |                                                           |                                                |
| Acquisition                  of foreclosed real estate                                                                                                   | $                  4,598                                       | $                  2,794                            |
| Issuance                  of common stock through dividend reinvestment plan                                                                             | $                         0 | $                       68 |
| Change                  in unrealized gain/loss on investment securities available for                     sale                           |  $                       65      |  $ (250)                                  |
| Change                  in deferred taxes associated with unrealized gain/loss on                     investment securities available for sale |  $                       24      |  $                    (93)           |
| Change                  in net unrealized gain/loss on investment securities available                                      for sale           |  $                      41            |  $                  (157)                      |
|                                                                                                                                                     |                                                           |                                                |
|                                                                                                                                                     |                                                           |                                                |

----

**TENNESSEE      VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**December      31, 2006 and 2005**

**NOTE      1 - PRINCIPLES OF CONSOLIDATION, NATURE OF OPERATIONS AND SHARE EXCHANGE**

**NOTE      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Reclassifications**

**Use      of Estimates **

**Cash      Flows - **

**Securities      Available for Sale **

**Federal      Home Loan Bank Stock, at Cost **

----

**TENNESSEE          VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS**

**December          31, 2006 and 2005**

**NOTE      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

**Recognition      of Interest on Loans**

**Allowance      for Loan Losses**

**Loan      Fees**

**Loans      Held for Sale**

**Premises      and Equipment**

**Repurchase      Agreements **

**Advertising      and Promotion**

**Income      Taxes**

----

**TENNESSEE          VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS**

**December          31, 2006 and 2005**

**NOTE      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

**Stock-      Based Compensation **

**       For the year ended**

**                                                                          December 31, 2005**

|  Net                Income, as reported                                                                                                                                                                                          |  $                                        935                                                                                                                   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  Less:                  Total                  stock-based employee compensation expense determined under fair                  value                  based method for all awards, net of related tax                  effects  |   (33)                                                                                                                                                                                                                                                              |
|  Pro                forma net income                                                                                                                                                                                             |  $                                        902                                                                                                                   |
|  Earnings                per share:                                                                                                                                                                                              |                                                                                                                                                                                                                                                                          |
|  Basic                - as reported                                                                                                                                                                                              |  $                     0.88                                                                                                                                     |
|  Basic                - pro forma                                                                                                                                                                                                |  $                     0.85                                                                                                                                     |
|  Diluted                - as reported                                                                                                                                                                                            |  $                                      0.87                                                                                                                         |
|  Diluted                - pro Forma                                                                                                                                                                                              |                    $                                                       0.84 |

**Loan      Commitments and Related Financial Instruments **

**Earnings      Per Common Share **

----

**NOTE      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

**Comprehensive      Income **

**Loss      Contingencies **

**Fair      Value of Financial Instruments - **

**New      Accounting Pronouncements **

----

**TENNESSEE          VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS**

**December          31, 2006 and 2005**

**NOTE      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

----

**TENNESSEE          VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS**

**December          31, 2006 and 2005**

**NOTE      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)**

**NOTE      3 - SECURITIES**

**        Securities Available for        Sale**

|                                                                            | ** Amortized****Cost    **                                   | ** Gross****Unrealized****Gains    **                                                        | ** Gross****Unrealized****Losses**                                                        | ** Estimated****Fair                Value**                                                           |
|---------------------------------------------------------------------------------|---------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|
|  December                31, 2006                                          |                                                                                  |                                                                                                                       |                                                                                           |                                                                                                       |
|  Obligations              of U.S. government corporations and agencies     |                 $                       6,709 |                 $                             7 |  $                            (64) |   $                            6,648 |
|  Mortgage-backed              and related securities                       |                6,596                                                             |  14                                                                                                              |  (89)                                                                                     | 6,524                                                                                                      |
|  Obligations                of states and political subdivisions           |  6,961                                                                           |  54                                                                                                              |  (32)                                                                                     |  6,984                                                                                                |
|                    Total securities available for sale |  $                     20,266                           |  $                          75                                 |  $                          (185)       |  $                          20,156                  |

**                                                                  Securities      Available for      Sale**
|                                                                              | ** Amortized****Cost    **                                       | ** Gross****Unrealized****Gains    **                                                            | ** Gross****Unrealized****Losses**                                                           | ** Estimated****Fair                  Value**                                                           |
|-----------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------|
|  December                  31, 2005                                          |                                                                                      |                                                                                                                           |                                                                                              |                                                                                                         |
|  Obligations                of U.S. government corporations and agencies     |                   $                         6,263 |                   $                               3 |  $                              (116) |   $                              6,150 |
|  Mortgage-backed                and related securities                       |                  5,876                                                          |  14                                                                                                                  |  (66)                                                                                        | 5,824                                                                                                        |
|  Obligations                  of states and political subdivisions           |  6,758                                                                               |  63                                                                                                                  |  (74)                                                                                        |  6,747                                                                                                  |
|                      Total securities available for sale |  $                       18,897                             |  $                            80                                   |  $                            (256)        |  $                            18,721                  |

**Available        for Sale **

|                                                  | ** Amortized****Cost**                                                                                                              | ** Estimated****Fair                  Value**                                                     |
|-------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|
| Due                  in one year or less              | ** **$                                   1,350 |  $                              1,344 |
| Due                after one year through five years  |                      4,503      |                 4,464  |
| Due                after five years through ten years |  3,022                                                                                                                              |  3,025                                                                                            |
| Due                after ten years                    |  4,795                                                                                                                              |  4,798                                                                                            |
|                                                  |  13,670                                                                                                                             |  13,631                                                                                           |
| Mortgage-backed                and related securities |  6,596                                                                                                                              |  6,525                                                                                            |
|                                                  |  $                                 20,266                     |  $                             20,156           |

|                                                                                                      | **Less                Than 12 Months**                                                        | ** 12                Months or More**                                                                                       | ** Total**                                                                    |
|-----------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------|
| ** **                                                                                                | ** Fair****                     value    ** | ** Gross****Unrealized****losses**                                                                                          | ** Fair****value**                                                            | ** Gross****Unrealized****losses** | ** Fair****value** | ** Gross****Unrealized****losses** |
|  December              31, 2006:                                                                     |                                                                                          |                                                                                                                             |                                                                               |   |   |   |
|  Obligations              of U.S. government corporations and agencies                               |  $                      1,250                              |  $                                 (2) |  $                      4,945                   |  $                               (62) |  $                        5,940 |  $                                 (64) |
|  Mortgage-backed                and related securities                                               |  1,451                                                                                   |  (13)                                                                                                                       |  3,767                                                                        |  (76) |  5,218 |  (89) |
|  Obligations                of states and political                   subdivisions         |  758                                                                                |  (11)                                                                                                                       |  2,051                                                                        |  (21) |  2,809 |  (32) |
|                                                                                                      |                                                                                          |                                                                                                                             |                                                                               |   |   |   |
|  Total              temporarily impaired securities                                                  |  $                      3,459                              |  $                               (26)                 |  $                     10,763                             |  $                             (159) |  $                      13,967 |  $                                             (185) |
|                                                                                                      |                                                                                          |                                                                                                                             |                                                                               |   |   |   |
|  December              31, 2005:                                                                     |                                                                                          |                                                                                                                             |                                                                               |   |   |   |
|  Obligations                of U.S. government                   corporations and agencies |  $                      4,424                              |  $                               (74)                 |  $                       1,536             |  $                               (42) |  $                        5,960 |  $                              (116) |
|  Mortgage-backed              and related securities                                                 |                            3,271       |                              (28)                               |  1,270                                                                        |  (39) |  4,542 |  (66) |
|  Obligations                of states and political                   subdivisions         |  2,672                                                                                   |  (57)                                                                                                                       |  852                                                                          |  (16) |  3,523 |  (74) |
|                                                                                                      |                                                                                          |                                                                                                                             |                                                                               |   |   |   |
|  Total              temporarily impaired securities                                                  |  $                     10,367                                   |  $                             (159)                            |  $                         3,658 |  $                               (97) |  $                       14,025 |  $                              (256) |

----

**TENNESSEE          VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS**

**December          31, 2006 and 2005**

**NOTE      4 - LOANS AND ALLOWANCE FOR LOAN LOSSES**

|                                                                                               |  **2006**                                                                                                                  | ** 2005**                                                                                                   |
|----------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------|
|  Loans                secured by real estate:                                                 |  $                            15,788                           |  $                          15,209                        |
|                  Commercial properties                                              |                                36,561                |                               25,610       |
|     Construction                and land development                           |                                41,444                |                               36,143       |
|     Residential              and other properties                              |                 93,793                          |                 76,962           |
|                       Total loans secured by real estate   |                 23,308                          |                                18,510 |
|                  Commercial and industrial loans                                    |                                25,879                |                                14,407 |
|     Consumer              loans and other                                      |               142,980                                     |                               109,879      |
|                                                                                               |                                            |                             |
|  Less:                 Allowance for loan losses                                         |                     (1,577) |               (1,406)                      |
|                          Unearned loan fees |  (140)                                                                                                                     |     (                  127)                                                        |
|                                                                                               |  $                          141,263                                      |  $                        108,346                                   |

|                                          |  **2006**                                                                                          | ** 2005**                                                                                                      |
|-----------------------------------------------|---------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------|
|  Loans              at beginning of year |  $                        1,092                            |  $                          1,484                            |
|                 Disbursements       |                               493 |                                 811 |
|                 Repayments          |                           (1,304)                     |                             (1,203)                     |
|  Loans              at end of year       |  $                            281      |  $           1,092                                      |

----

**TENNESSEE          VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS**

**December          31, 2006 and 2005**

**NOTE      4 - LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)**

|                                               |  **2006**                                                                                                                                                                     | ** 2005**                                                                                                                                                                     |
|-----------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  Balance,              beginning of year |  $                        1,406                                                                                                       |  $                          1,271                                                                                           |
|  Charge-offs                        |                               (341)                                                                          |               (447)                                                                                          |
|  Recoveries                              |                           41                                                                                                     |                             31                                                                                         |
| Provision-charged              to expense     |                              471                                                                                  |  $           551                                                                                                       |
| Balance,              end of year             |                    $                       1,577 |                  $                         1,406 |

**NOTE        5 - PREMISES AND EQUIPMENT**

|                                                  |  2006                                                                               |  2005                                                                                                 |
|-------------------------------------------------------|------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|
|  Land                                            |  $                          1,198 |  $                             1,198 |
|  Buildings                                       |  3,461                                                                              |  3,470                                                                                                |
|  Leasehold              improvements             |  123                                                                                |  123                                                                                                  |
|  Furniture,              Fixtures, and Equipment |  1,575                                                                              |  1,336                                                                                                |
|  Construction              in Progress           |  196                                                                                |  0                                                                                                    |
|                                                  |                       6,553                                |  6,127                                                                                                |
|  Less              Accumulated Depreciation      |  (1,421)                                                                            |  (1,119)                                                                                              |
|                                                  |  $                          5,132 |  $                             5,008 |

**NOTE      6 - ACCRUED INTEREST RECEIVABLE**

|                   |  **2006**                                                                           | ** 2005**                                                                                           |
|-------------------|------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|  Securities  |  $                          171   |  $                             169 |
|  Loans       |  948                                                                                |  678                                                                                                |
|  Total  |  $                          1,119 |  $           847                             |

----

**Note      7 - Deposits **

|                                                                                                             |  **2006**                                                                                                                                                                                                                        | ** 2005**                                                                                                                                                                                                                       |
|------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  Noninterest-bearing                  demand accounts                                                       |  $                            13,944                                                                                                                                           |  $          11,864                                                                                                                                                            |
|  Interest-bearing                  accounts                                                                 |                                                                                                                                                                                                                                       |                                                                                                                                                                                                                                 |
|                      Demand accounts                                                    |  37,191                                                                                                                                                                                                                          |  42,064                                                                                                                                                                                                                         |
|                      Savings accounts                                                   |  3,729                                                                                                                                                                                                                           |  3,323                                                                                                                                                                                                                          |
|                      Term deposits:                                                     |                                                                                                                                                                                                                                  |                                                                                                                                                                                                                                 |
|                              Less than $100,000 |       56,555                                                                                                                                                                                            |  41,660                                                                                                                                                                                                                         |
|                              $100,000 or more   | 41,933                                                                                                                                                                                                                                |  25,922                                                                                                                                                                                                                         |
|                     Total interest-bearing accounts                                          |  139,408                                                                                                                                                                                                                         |  112,969                                                                                                                                                                                                                        |
|  Total                deposits                                                                              |                                            $        153,352 |                                             $      124,833 |

|  2007                             |  $                          86,621                             |
|----------------------------------------|-----------------------------------------------------------------------------------------------------------------------|
|  2008                             |                                6,463       |
|  2009                             |                                1,694       |
|  2010                             |                                 2,509 |
|  2011              and thereafter |      1,200                                                                                   |
|                                   | $98,487                                                                                                               |

**NOTE      8 - BORROWINGS**

----

**NOTE      8 - BORROWINGS (Continued)**

| ** Date                of Advance**                                                                      | ** Interest                Rate    ** | ** Next                Call/****                           Prepayment                             Date    ** | ** Final****Maturity                Date** | ** Amount                Outstanding****at                12/31/2006**                                                                                                             |
|---------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                           9/21/2000     |  6.22%                                                    |  3/22/07                                                                                                                                                                                                                                                 |  9/22/2010                                 |  $                               1,000                                                                  |
|                          12/27/2000          |  5.00%                                                    |  3/27/07                                                                                                                                                                                                                                                 |  12/27/2010                                |                                    1,000                                                 |
|  8/10/2001                                                                                               |  5.09%                                                    |  2/10/07                                                                                                                                                                                                                                                 |  8/10/2011                                 |                                    1,000                                                 |
|  6/25/2002                                                                                               |  4.82%                                                    |  None                                                                                                                                                                                                                                                    |  6/25/2007                                 |                        500                                           |
|  8/30/2002                                                                                               |  3.65%                                                    |  8/30/07                                                                                                                                                                                                                                                 |  8/30/2012                                 |                                     2,000                                           |
|  11/15/2005                                                                                              |  5.38%                                                    |  2/15/07                                                                                                                                                                                                                                                 |  8/15/2011                                 |                                     1,000                                           |
|  9/20/2006                                                                                               |  5.30%                                                    |  None                                                                                                                                                                                                                                                    |  12/19/2008                                |                         500                                     |
|  9/20/2006                                                                                               |  5.24%                                                    |  None                                                                                                                                                                                                                                                    |  9/18/2009                                 |                                        500                           |
|  9/20/2006                                                                                               |  5.45%                                                    |  None                                                                                                                                                                                                                                                    | 9/20/2007                                  |                                        500                           |
|  9/20/2006                                                                                               |  5.31%                                          |  None                                                                                                                                                                                                                                                    |  6/20/2008                                 |                                        500                           |
|  11/28/2006                                                                                              |  4.39%                                                    |  11/30/07                                                                                                                                                                                                                                                |  11/31/2011                                |                                     3,000                                           |
|  12/04/2006                                                                                              |  4.90%                                                    |  12/4/07                                                                                                                                                                                                                                                 |  12/4/2008                                 |                                     1,000                                           |
|                                                                                                          |                                                           |                                                                                                                                                                                                                                                          |                                            |                                 $         12,500 |

----

**TENNESSEE          VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS**

**December          31, 2006 and 2005**

**NOTE      8 - BORROWINGS (Continued)**

**NOTE      9 - INTEREST EXPENSE**

|                                                                                                                                                           | ** 2006**                                                                                                                                                                                                | ** 2005**                                             |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------|
|  Demand                deposits                                                                                                                      |  $         881                                                                                                                                              |  $        671 |
|  Term                deposits                                                                                                                        |                                              3,678 | 2,054                                                      |
|  FHLB              advances                                                                                                                          |  384                                                                                                                                                                                                     |  352                                                  |
|  Subordinated              debentures                                                                                                 | 135                                                                                                                                                                                                           | 95                                                         |
|  Capital              lease obligations                                                                                          | 7                                                                                                                                                                                                             | 8                                                          |
|  Repurchase              agreements and federal funds              purchased             |       8                                                                                                                                                                         |  9                                                    |
|                    Total interest expense                                                                                        | $      5,093                                                                                                                                                                    | $    3,189                             |

**NOTE      10 - INCOME TAXES**

|                                                               | ** 2006**                                                                                                                                                                                  | ** 2005**                                                                                                                                                        |
|--------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                               | ** Amount**                                                                                                                                                                                | ** Percent                of****Pretax****Income**                                                                                                               | **Amount** | **      Percent              of****Pretax****Income** |
|  Federal                income tax at statutory rate          |  $                                      388                                  |                                         34.0% |  $                                      483 |                                         34.0% |
|  Tax              exempt interest and dividends               |                                          (91)                      |                                         (8.0) |                                           (79) |                                          (5.5) |
|  State              income tax and other, net                 |                                           61                  |                                         5.4   |                                            83 |                                           5.8 |
|                                                               |  $                                      358                                  |                                      31.4%                   |  $                                      487 |                                     34.3% |
|  Income              taxes consist of:                        |                                                                                                                                                                                            |                                                                                                                                                                  |   |   |
|                    Current federal        |  $                                      286                                  |                                                                                                                                                                  |  $                                     348 |   |
|                    Current state          |                                            64            |                                                                                                                                                                  |                             87 |   |
|                     Deferred federal |                                              6 |                                                                                                                                                                  |                                            42 |   |
|                     Deferred state   |                                              2 |                                                                                                                                                                  |                                            10 |   |
|                                                               |  $                                      358                                       |                                                                                                                                                                  |  $                                                     487 |   |

----

**TENNESSEE          VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS**

**December          31, 2006 and 2005**

**NOTE      10 - INCOME TAXES (Continued)**

|                                                                                                        | ** 2006**                                                                                                                                                                                                                                                                 | ** 2**005                                                                                                                         |
|--------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|
|  Deferred                tax assets:                                                              |                                                                                                                                                                                                                                        |                                                                                                                                   |
|                      Allowance for loan losses                                |                                      $                   506 | $                                   467 |
|                    Deferred Loan Fees                                         | 57                                                                                                                                                                                                                                                                             |  52                                                                                                                               |
|                    Unrealized holding losses on securities available for sale | 43                                                                                                                                                                                                                                                                             | 65                                                                                                                                     |
|     Organizational              costs                                              | 1                                                                                                                                                                                                                                                                              | 5                                                                                                                                      |
|                         Total deferred tax assets    |       607                                                                                                                                                                                                                                        |  589                                                                                                                              |

| Deferred                  tax liabilities                                                                  |                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                             |
|------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                        Depreciation                                               |                                                                          166 | 152                                                                                                                                                                                                                                                         |
|       FHLB                  stock dividends                                  |                                  77                                                                                                                                                                                                                                                       | 62                                                                                                                                                                                                                                                          |
|                      Discount accretion                                           |                                                20                                                                         | 12                                                                                                                                                                                                                                                          |
|                      Capitalized lease                                            |                                                                                                                    32                              | 23                                                                                                                                                                                                                                                          |
|                      Prepaid items                                                |                                                                                  20                                                      | 15                                                                                                                                                                                                                                                          |
|                      State  tax                                              |                       14                                                                                                                                                                                                                                                                                                                         | 15                                                                                                                                                                                                                                                               |
|                           Total deferred tax liabilities | 329                                                                                                                                                                                                                                                                                                                                                                       | 279                                                                                                                                                                                                                                                              |
|                            Net deferred tax assets  |                               $                                                        278  |                                  $                                                 310 |

**NOTE      11 - PROFIT SHARING PLAN**

**NOTE        12 - REGULATORY MATTERS**

----

**NOTE      12 - REGULATORY MATTERS (Continued)**

*well      capitalized*
*well      capitalized*

|                                                          | ** Actual**                           | ** To                Comply With****Absolute****Minimum                Capital****Requirements**  | ** To                Be Well Capitalized****Under                Prompt                Corrective****Action                Provisions** |
|---------------------------------------------------------------|--------------------------------------------|--------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------|
|                                                          | **Amount    **         | ** Ratio**                                                                                        | **                 Amount **                                                                                                       | ** Ratio** | ** Amount** | ** Ratio** |
|  As              of December 31, 2006                    |         |                   |                                                              |                  |               |                    |
|  Total              Capital (to Risk-Weighted Assets)    |  $19,784                              |                    13.4%                                                                |                  $11,807                                                                                                                |                     8.0% |  $14,759 |  10.0% |
|  Tier                1 Capital (to Risk-Weighted Assets) |  $18,207                              |  12.3%                                                                                            |  $5,903                                                                                                                                 |  4.0% |  $8,855 |  6.0% |
|  Tier              1 Capial (to Average Assets)          |  $18,207                         |  10.1%                                                                                            |  7,233                                                                                                                                  |  4.0% |  $9,042 |  5.0% |
|  As              of December 31, 2005                    |                                       |                                                                                                   |                                                                                                                                         |   |   |   |
|  Total              Capital (to Risk-Weighted Assets)    | $13,340                                    |  11.9%                                                                                            |  9,005                                                                                                                                  |  8.0% |  $                11,256 |  10.0% |
|  Tier              1 Capital (to Risk-Weighted Assets)   |  $9,060                               |  10.6%                                                                                            |  4,502                                                                                                                                  |  4.0% |  $6,754 |  6.0% |
|  Tier              1 Capital (to Average Assets)         |  $                9,060               |  8.4%                                                                                             |  5,691                                                                                                                                  |  4.0% |  $7,114 |  5.0% |

**NOTE      13 - STOCK BASED COMPENSATION**

----

**TENNESSEE          VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS**

**December          31, 2006 and 2005**

**NOTE      13 - STOCK BASED COMPENSATION (Continued)**

|                                     | **Years                  ended December 31,** |
|------------------------------------------|-----------------------------------------------|
|                                     | **2006**                                      | **2005** |
| Dividend                  yield          | 1.37%                                         | 1.37% |
| Expected                  life           | 9                  years                      | 9                  years |
| Expected                  volatility     | 13.65%                                        | 13.65% |
| Risk-free                  interest rate | 4.24%                                         | 4.01% |

|                                                                                                                      | **Option**    | ** Price**                                                                                                                                | **  Option **                                                                           | ** Price**                                                                                                                                                                   |
|----------------------------------------------------------------------------------------------------------------------|---------------|------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  Outstanding              at beginning of year                                                                  | 107,960  |                 $                    11.84 |              31,000    |                          $       8.11                                                                       |
|  Granted                                                                                                        | 0             | 0.00                                                                                                                                           | 88,000                                                                                                 | 13.00                                                                                                                                                                        |
|  Exercised                                                                                                      | (760)    |  8.00                                                                                                                                     |  (4,040)                                                                                          | 8.00                                                                                                                                                                              |
|  Rescinded                                                                                                      | 0        |  0.00                                                                                                                                     |  (1,500)                                                                                          |  9.75                                                                                                                                                                        |
|  Forfeited                                                                                                      | (10,000)      | 13.00                                                                                                                                          | (5,500)                                                                                                | 12.70                                                                                                                                                                             |
|  Outstanding              at end of year                                                                        | 97,200        | $                   11.76                                                                                                       | 107,960                                                                                                | $                    11.85                                                                                                                                         |
|                                                                                                                 |          |                                                                                                                                           |                                                                                                   |                                                                                                                                                                              |
|  Options              exercisable at year end                                                                   | 67,200        | $                   11.20                                                                                                       | 56,960                                                                                            |                                      $    10.81 |
|  Weighted-average                fair value of options granted during                   the year |  0       |                                                                                                                                           | $1.43                                                                                                  |                                                                                                                                                                              |

----

**TENNESSEE          VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS**

**December          31, 2006 and 2005**

**NOTE      13 - STOCK BASED COMPENSATION (Continued)**

| ** Range                of****Exercise                Prices** | ** Number****Outstanding** | ** Weighted                Average****Remaining****Contractual                Life** | ** Weighted****Average****Exercise                Price** | ** Number****Exercisable** | ** Weighted****Average****Exercise                Price** |
|---------------------------------------------------------------------|---------------------------------|-------------------------------------------------------------------------------------------|----------------------------------------------------------------|---------------------------------|----------------------------------------------------------------|
|  $8.00                - $13.00                                 |  97,200               |  6.77                                                                                |  $11.76                                                   |  67,200                    |  $                 11.20                             |

**NOTE      14 - EARNINGS PER      SHARE**

| **Basic                  earnings per share**                                                                | **2006**                                 | **2005**                           |
|--------------------------------------------------------------------------------------------------------------|------------------------------------------|------------------------------------|
| Net                  income                                                                                  | $                     782 | $                    935 |
| Weighted                  average common shares outstanding                                                  | 1,214                                    | 1,070                              |
| Basic                  earnings per share                                                                    | $0.64                                    | $0.88                              |
|                                                                                                         |                                     |                               |
| **Diluted                  earnings per share**                                                              | **2006**                                 | **2005**                           |
| Net                  income                                                                                  | $                    782       | $                    935 |
| Weighted                  average common shares outstanding                                                  | 1,214                                    | 1,070                              |
| Add:                  Dilutive effects of assumed conversions and exercise of stock                  options | 13                                       | 3                                  |
| Weighted                  average common and dilutive potential common shares                  outstanding   | 1,227                                    | 1,073                              |
| Diluted                  earnings per share                                                                  | $0.63                                    | $0.87                              |

**NOTE      15 - LEASE COMMITMENTS**

|                                                                                                                    | ** Capital                Lease**                                                                                                                                                                                                                   | ** Operating                Leases**                                                                                                                                            | ** Total**                                                                                                                                            |
|-------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  2007                                                                                                              |  $                                30                                                                                                                                |  96                                                                                                                                                                             |  126                                                                                                                                                  |
|  2008                                                                                                              |                                     33                                                                                                               |  79                                                                                                                                                                             |  112                                                                                                                                                  |
|  2009                                                                                                              |                                     36                                                                                                               |   79                                                                                                                                                                       |  115                                                                                                                                                  |
|  2010                                                                                                              |                                      36                                                                                                         |   79                                                                                                                                                                       |  115                                                                                                                                                  |
|  2011                                                                                                              |                                      36                                                                                                         |                   79                                                                                                                                                  |                  115                                                                                                                             |
|  Thereafter                                                                                                        |                                      51                                                                                                         |  583                                                                                                                                                                            | 634                                                                                                                                                        |
|  Total              minimum              lease  payments         |                    222                                                                                                                                    |         $                                 995 |                       $                          1,217 |
|  Less              amount representing interest                                                                    |                                          27 |                                                                                                                                                                                 |                                                                                                                                                       |
| Present              value of minimum lease payments                                                                    |                                     $                           195                 |                                                                                                                                                                                 |                                                                                                                                                       |

**NOTE      16 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK**

----

**TENNESSEE          VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS**

**December          31, 2006 and 2005**

**NOTE      17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS**

*Disclosures      About Fair Value of Financial Instruments*

**Cash      and Cash Equivalents **

**Investment      Securities **

----

**TENNESSEE          VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS**

**December          31, 2006 and 2005**

**NOTE      17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS      (Continued)**

**Federal      Home Loan Bank Stock **

**Loans      Held for Sale **

**Net      Loans**

**Deposits      **

**Securities      Sold Under Agreements to Repurchase**

**Advances      From Federal Home Loan Bank**

**Obligation      Under Capital Lease**

**Subordinated      Debentures**

**Off-Balance-Sheet      Loan Commitments**

----

**TENNESSEE          VALLEY FINANCIAL HOLDINGS, INC. AND SUBSIDIARY**

**NOTES          TO CONSOLIDATED FINANCIAL STATEMENTS**

**December          31, 2006 and 2005**

**NOTE      17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS      (Continued)**

|                                                              | ** 2006**                                                                                                                             | ** 2005**                                                                                                                 |
|-------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------|
|                                                              | ** Recorded****Book                Value**                                                                                            | ** Estimated****Fair                Value**                                                                               | ** Recorded****Book                Value** | ** Estimated****Fair                Value** |
|  **FINANCIAL              ASSETS**:                          |                                                                                                                                       |                                                                                                                           |   |   |
|  Cash              and cash equivalents                      |  $                           15,167                                  |  $                          15,167                            |  $                         11,752 |  $                       11,752 |
|  Securities              available for sale                  |  $                           20,156                                  |  $                          20,156                            |  $                         18,721 |  $                       18,721 |
|  Loans              held for sale                            |  $                                788       |  $                               788 |  $                           1,048 |  $                         1,048  |
|  Net              loans                                      |  $                         141,263                                             |  $           143,270                                               |  $                       108,346 |  $        107,984 |
|                                                              |                                                                                                                                       |                                                                                                                           |   |   |
|  **FINANCIAL              LIABILITIES:**                     |                                                                                                                                       |                                                                                                                           |   |   |
|  Deposits                                                    |  $                         153,352                                             |  $                        154,231                                       |  $                       124,833 |  $                     124,879 |
|  Securities              sold under agreements to repurchase |  $                                303  |  $                              303       |  $                              274 |  $               274 |
|  Advances              from Federal Home Loan Bank           |  $                            12,500                            |  $            12,504                                          |  $                           8,500 |  $                         8,564 |
|  Subordinated              debentures                        |  $                              2,062                 |  $                           2,226                       |  $                           2,062 |  $                         2,227 |
|  Obligation              under capital lease                 |  $                                 195 |  $                              195       |  $                              217 |  $                            217 |

**NOTE      18 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY**

**CONDENSED      BALANCE SHEETS**

**         As of December 31,**

| ** **                                                                                             | ** 2006**                                                                                                                                                                                                                                                              | ** 2005**                                                                                                                                                                                                                                  |
|--------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  **Assets**                                                                                       |                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                            |
|  Cash in                bank                                                                 |  $                              264                                                                                                                                                                        |  $                              72                                                                                                                                             |
|  Investment                  in Common Stock of TnBank                                            |                                 18,114                                                                                                                                                                |                                  11,824                                                                                                                              |
|  Other                  Assets                                                                    | 184                                                                                                                                                                                                                                                                         | 172                                                                                                                                                                                                                                             |
| ** Total                Assets**                                                                  |                               $                       18,562                            |                                                 $     12,068     |
|                                                                                                   |                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                            |
|  Liabilities                  - Subordinated Debentures                                           |                                             $           2,062                 | $       2,062                                                                                                                                                                                           |
|                                                                                                   |                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                            |
|  Shareholders'                Equity:                                                             |                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                            |
|                      Common Stock                                             |                                                          1,501 | 539                                                                                                                                                                                                                                        |
|                      Capital in Excess of Par Value                           | 11,319                                                                                                                                                                                                                                                                 |                                6,610                                                                                                                                      |
|                      Retained Earnings                                        |                                                          3,680 |                        2,857                                                                                                                                                                                      |
|                           Total Shareholders' Equity | 16,500                                                                                                                                                                                                                                                                 | 10,006                                                                                                                                                                                                                                          |
| ** Total                Liabilities                and Shareholders' Equity**                     |                                                $      18,562                            |                                                 $    12,068 |

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**NOTE      18 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY      (Continued)**

**CONDENSED      STATEMENTS OF INCOME**

** For      the      Years Ended December      31**

|                                                                                                              | ** 2006**                                                                                                                                                                                                                                              | ** 2005**                                                                                                                                                                                                  |
|-------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  Income-Dividends              from TNBANK                                                                   |  $                                                   --       |  $                                       213                                  |
|  Operating              Expenses                                                                             |                                                      321 |                                           206                       |
|  Income              Before Income Tax Benefit and Equity in Undistributed Net Income of              TNBank |                                                    (321)           |                                               7 |
|  Income                Tax Benefit                                                                           |                                                     123       |                                             82            |
|  Equity              in Undistributed Net Income of TNBank                                                   |                                                     980       |                               846                         |
|  **Net              Income**                                                                                 |  $                                                782                        |  $                                        935                            |

**CONDENSED      STATEMENTS OF CASH FLOWS**

**                                                                                                                                                      **** For      the      Years Ended December 31**

|                                                                                                                                  | ** 2006**                                                                                                                                                                                                                                                   | ** 2005**                                                                                                                                                                                                                                                                                        |
|---------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  Cash                Flows From Operating Activities:                                                                            |                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                  |
|  Net                Income                                                                                                       |                     $                   782                   |         $                                   935                                                                                                                          |
|  Adjustments                to Reconcile Net Income to Net Cash                                                                  |                                                                         |                                                                                                                                       |
|                        Provided by (Used in) Operating Activities:                                           |                                                                    |                                                                                                                                                 |
|                      Equity in Undistributed Net Income of TNBank                                            |                                                         980        |                               846                                                                                                               |
|                      (Increase) Decrease in Other Assets                                                     |                                                          (12) |                                              (144)                                                                                                             |
|                      Stock Based Compensation                                                                |                                                         172        |                                                  24                                                                                        |
|                            Total Adjustments                                   |                                                        (820)            |                             (966)                                                                                                                         |
|                            Net Cash Provided by (Used in) Operating Activities |                                                         (38)       |                                                (31)                                                                                                  |
|                                                                                                                                  |                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                  |
|  Cash                Flows From Investing Activites:                                                                             |                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                  |
|  Capital                Investment in TNBank                                                                                     |                                                   (5,269)                                        |                                            (2,000)                                                                                                                            |
|                                                                                                                                  |                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                  |
|  Cash                Flows From Financing Activities:                                                                            |                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                  |
|  Purchase                and Retirement of Common Stock                                                                          | --                                                                                                                                                                                                                                                          | --                                                                                                                                                                                                                                                                                                    |
|  Proceeds                from Issuance of Common Stock                                                                           |  5,498                                                                                                                                                                                                                                                      |  32                                                                                                                                                                                                                                                                                              |
|  Proceeds                from Subordinated Debentures                                                                            | --                                                                                                                                                                                                                                                               |  2,062                                                                                                                                                                                                                                                                                           |
|  Cash                Dividends Paid                                                                                              |  --                                                                                                                                                                                                                                                         |  --                                                                                                                                                                                                                                                                                              |
|                       Net Cash Provided by (Used in) Financing Activities                               |  5,498                                                                                                                                                                                                                                                      |  2,012                                                                                                                                                                                                                                                                                           |
|                                                                                                                                  |                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                  |
|  **Net                Change in Cash and Cash Equivalents**                                                                      | ** **191                                                                                                                                                                                                                                                    |  (19)                                                                                                                                                                                                                                                                                            |
| ** Cash                and Cash Equivalents, Beginning of Year**                                                                 | ** **73                                                                                                                                                                                                                                                     | ** **91                                                                                                                                                                                                                                                                                          |
| ** Cash                  and Cash Equivalents, End of Year**                                                                     |  $                                 264                                                                                                                                                |                                                $                            72 |

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**ITEM      8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL      DISCLOSURE**

**ITEM      8A - CONTROLS AND PROCEDURES**

*Evaluation      of Disclosure Controls and Procedures*

*Changes      in Internal Controls*

**PART        III**

**ITEM      9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE      WITH SECTION 16(a) OF THE EXCHANGE ACT. **

**Audit      Committee Financial Expert**

**Code      of Ethics**

**ITEM      10 - EXECUTIVE COMPENSATION**

**ITEM      11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED      STOCKHOLDER MATTERS **

**ITEM      12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

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**ITEM      13 - EXHIBITS **

**ITEM      14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES**

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**SIGNATURES**

**Tennessee      Valley Financial Holdings, Inc. **

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