United States Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]Annual Report Pursuant To Section 13 or 15(d) of The Securities Exchange Act
               of 1934 For the Fiscal Year ended December 31, 2003

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
    Exchange Act of 1934
                       For the Transition Period From       To
                        Commission File Number 000-49863

                    Tennessee Valley Financial Holdings, Inc.
          (Exact name of small business issue as specified in charter)

           Tennessee                                            45-0471419
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               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

Securities  registered  pursuant to Section 12(g) of the Act:  Common Stock (par
value $1.00 per share)

The registrant  (1) has filed all reports  required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter  period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.

Disclosures  of delinquent  filers in response to items 405 of Regulation S-B is
not contained in this form, and no disclosure will be contained,  to the best of
the  registrant's  knowledge,  in  definitive  proxy or  information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ] Yes [X] No

The registrant's revenues for the most recent fiscal year were $7,782,084.

At March 17, 2004 the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $8,661,978.

As of February  20, 2004  registrant  had 534,130  shares of its $1.00 par value
common stock outstanding.

Documents  Incorporated  by Reference:  Proxy  Statement  related to 2004 Annual
Meeting of Shareholders.



<PAGE>


                                Table of Contents


Part I:
        Item 1:   Description of Business....................................3-8

        Item 2:   Description of Property......................................8

        Item 3:   Legal Proceedings............................................8
        Item 4:   Submission of Matters to a Vote of Security Holders..........8


Part II:
        Item 5:   Market for Common Stock and Related Stockholder Matters......9

        Item 6:   Management's Discussion and Analysis or Plan of
                  Operation................................................10-21

        Item 7:   Financial Statements.....................................22-44


Part III
         Item 8:  Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure.........................45

         Item 8A: Controls and Procedures.....................................45

         Item 9:  Directors, Executive Officers, Promoters and Control Persons;
                  Compliance with Section 16(a) of the Exchange Act...........45

         Item 10: Executive Compensation......................................45

         Item 11: Security Ownership of Certain Beneficial Owners and
                  Management..................................................46

         Item 12: Certain Relationships and Related Transactions..............46

         Item 13: Exhibits List and Reports on Form 8-K.......................46

         Item 14: Principal Accountant Fees and Services......................47

         Signatures...........................................................48


                                        2

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                                     PART I

ITEM 1.       DESCRIPTION OF BUSINESS


General

     Tennessee  Valley  Financial   Holdings,   Inc.  is  a  Tennessee  business
corporation  formed for the purpose of  acquiring  TNBank,  a Tennessee  banking
corporation,  which  we  refer to as the  "Bank,"  by means of a share  exchange
thereby  becoming a registered  bank holding  company under the Federal  Reserve
Act. On April 30, 2002,  the  shareholders  of the Bank approved a plan of share
exchange under which they  exchanged  their shares of the Bank, on a one for one
basis, for our common shares.  The exchange became effective on May 9, 2002. Our
only activity is owning the Bank.

     The Bank  commenced  operations as a state  chartered bank on May 30, 1995.
The Bank's deposit accounts are insured under the Federal Deposit  Insurance Act
("FDIA"), up to the maximum applicable limits thereof. The Bank is not currently
a member of the  Federal  Reserve  System.  The Bank has its main office and two
branch locations, one in Oak Ridge and one located in Knoxville.

     Our  customer  base  consists  of  small  to  medium  sized  businesses  in
industries like retail, manufacturing, distribution, and residential real estate
construction as well as professionals like doctors, lawyers and accountants.  We
also serve  consumers with our various  banking  services and products,  such as
residential  real estate  mortgages.  Our lending  activities  consist mainly of
residential  real estate loans,  commercial  loans and loans to  consumers.  The
majority of our loans are collateralized by real estate.  Additionally,  we will
secure  loans  with  automobiles,   commercial  equipment,  inventory,  accounts
receivable and other types of collateral. We will also make unsecured loans, but
typically  only on a limited  basis.  To mitigate the inherent  risk involved in
lending  activities,  we employ a risk management  program aimed at identifying,
recognizing and reducing these risks where possible.

     We offer long term,  fixed rate mortgage  loans to our  customers.  Through
relationships we have with secondary  market  investors,  we originate  mortgage
loans and  subsequently  sell them to secondary  market  investors  for which we
receive fee income. We do not retain any servicing rights on these loans sold.

     We offer a wide  variety  of  competitive  retail  and  commercial  banking
services.  We offer  deposit  services  including  various  types  of  checking,
savings,  money  market,   certificate  of  deposit  and  individual  retirement
accounts. Our lending services include consumer installment loans, various types
of mortgage  loans,  personal  lines of credit,  home equity  loans and lines of
credit,  credit cards, real estate  construction and various types of customized
commercial loans to small and medium sized businesses and professionals. We also
offer safe deposit box,  drive-thru and automated  teller machine (ATM) services
at the Oak Ridge  locations.  Our Knoxville office does not presently offer safe
deposit,  night deposit or drive-thru services,  but ATM services are offered at
this location.  We provide VISA and  MasterCard  credit cards and are a merchant
depository  for credit card  drafts  under both types of credit  cards.  We also
offer  banking  services for our customers on the internet at our World Wide Web
address, www.tnbank.net.  Customers enrolled in the internet banking product can
check balances and activity for their deposit and loan accounts,  transfer funds
between  accounts,  pay bills  electronically  and access other typical internet
banking  services.  We have has trust powers but do not have a trust  department
presently.   We  offer  retail  investment   services  through  a  broker/dealer
relationship with Tower Square Securities, Inc. These services include brokerage
transactions  in common  stocks,  mutual  funds and bonds,  as well as financial
planning services.

     The Bank is subject to the regulatory authority of the Tennessee Department
of  Financial  Institutions,  which we refer to as the  "TDFI"  and the  Federal
Deposit Insurance Corporation, which we refer to as the "FDIC."

                                       3
<PAGE>


Market Area

     Our primary service area  encompassing  Anderson,  Roane and Knox Counties,
includes  the cities of Oak Ridge in  Anderson  and Roane  Counties,  Clinton in
Anderson  County and Knoxville  and Farragut in Knox County.  Oak Ridge has long
been known for its intellectual  resources and strong  educational  system.  The
city has been long recognized as a research  center,  in a large part due to the
Oak  Ridge  National  Laboratory  and the  United  States  Department  of Energy
facilities that began during the Manhattan  Project.  Oak Ridge's population has
remained  at around  28,000  people  for  several  years.  Much of the Oak Ridge
economy is related to the federal  facilities  located here  associated with the
United States  Department of Energy.  This makes the Oak Ridge economy  somewhat
more  reliant  upon  federal  budget  appropriations,  political  decisions  and
international  events than typical  economic  factors.  During the early 1990's,
these  facilities  saw  reductions  in their  workforce  but  recently  have had
steadier levels of employment.  The Spellation Neutron Source project, currently
under way in Oak Ridge, is anticipated to add significant employment to the area
in future years.

Employees

     At December 31, 2003 we had 41 full-time  employees.  Our employees are not
represented by any union or other collective bargaining agreement and we believe
our employee relations are satisfactory.

Loan Activities

     General.  Our primary business emphasis is on making  commercial  business,
commercial real estate and consumer loans. As of December 31, 2003, the net loan
portfolio totaled $85.5 million, or 80% of total assets.

     Loan  Underwriting.  Loan activities are subject to underwriting  standards
and  loan  origination  procedures  prescribed  by the  board of  directors  and
management.  We obtain loan applications to determine the borrower's  ability to
repay, and we verify the more significant  items on these  applications  through
the use of credit  reports,  financial  statements and  confirmations.  Our loan
policy for real estate loans generally  requires that collateral be appraised by
an independent, outside appraiser approved by the board of directors.

     Loans are approved at various  management  levels up to and  including  the
board of directors, depending on the amount of the loan. Loan approvals are made
in  accordance  with  delegated  authority  approved by the board of  directors.
Generally, loans less than $200,000 are approved by certain authorized officers.
The President has  individual  loan authority up to $200,000.  Generally,  loans
over $200,000 require approval by a committee of the board of directors.

     General Loan Policies. For real estate loans, our policy is to have a valid
mortgage  lien on real  estate  securing a loan and to obtain a title  insurance
policy on loans in excess of $100,000,  which  insures the validity and priority
of the lien.  Borrowers  must also obtain  hazard  insurance  policies  prior to
closing,  and when the  property  is in a flood  prone  area,  we require  flood
insurance.  Some real estate loans also require the borrower to advance funds on
a monthly  basis,  together with each payment of principal  and  interest,  to a
mortgage  escrow  account from which we make  disbursements  for items like real
estate taxes and property insurance.

     We are  permitted  to lend up to 90% of the  appraised  value  of the  real
property securing a mortgage loan. The loan-to-value  ratio on a home secured by
a junior lien  generally  does not exceed 80% of the  collateral,  including the
amount  of  the  first  mortgage.   With  respect  to  home  loans  granted  for
construction or combination construction/permanent financing, we will lend up to
80% of the  appraised  value of the  property on an "as  completed"  basis.  The
loan-to-value ratio on multi-family residential and commercial real estate loans
is generally limited to 80% of value.  Consumer loans are considered to be loans
to natural persons for personal,  family or household purposes,  and these loans
may be unsecured or secured by real or personal property.

     The  maximum  amount  which we could have  loaned to one  borrower  and the
borrower's  related  entities as of December 31, 2003,  was  approximately  $2.4
million.  Our largest loan  relationship  is $2.2 million  consisting of several
loans secured by commercial real estate and residential real estate,  which were
made prior to December 31, 2003.

                                       4

<PAGE>


     Interest  rates charged on loans are affected  principally  by  competitive
factors,  the  demand for loans and the supply of funds  available  for  lending
purposes.  These factors are, in turn, affected by general economic  conditions,
monetary  policies  of the federal  government,  including  the Federal  Reserve
Board, legislative tax policies and government budgetary matters.

     Residential   Real  Estate  Loans.   We  currently   originate   fixed-rate
residential mortgage loans and adjustable rate mortgage loans for terms of up to
30 years.  As of  December  31,  2003,  $38.7  million  or 44% of the total loan
portfolio  consisted of one-to-four  family residential real estate loans. As of
this date, approximately $1.7 million, or 4% of these loans were adjustable rate
mortgage loans.

     Consumer  Loans.  We  make  various  types  of  consumer  loans,  including
automobile  and boat loans,  but  primarily  home  equity  loans.  We  originate
consumer loans to provide a range of financial  services to customers and create
stronger  ties to our  customers.  In  addition,  the shorter  term and normally
higher  interest rates on these loans help maintain a profitable  spread between
our  average  loan  yield and our cost of funds.  The  terms of  consumer  loans
generally  range from one to five years.  Underwriting  standards  for  consumer
loans include an assessment of the applicant's  repayment history on other debts
and ability to meet  existing  obligations  and payments on the proposed  loans.
Although  the  applicant's  creditworthiness  is a  primary  consideration,  the
underwriting process also includes a comparison of the value of the security, if
any, to the proposed loan amount.  Consumer loans generally  involve more credit
risks than mortgage  loans  because of the type and nature of the  collateral or
absence of collateral.  Consumer loan repayments are dependent on the borrower's
continuing financial  stability,  and are likely to be adversely affected by job
loss, divorce and illness.  Furthermore,  the application of various federal and
state laws,  including  federal and state  bankruptcy and  insolvency  laws, may
limit the amount  which can be  recovered  on such  loans.  In most  cases,  any
repossessed  collateral  will not provide an adequate source of repayment of the
outstanding  loan balance.  As of December 31, 2003,  consumer loans amounted to
$9.0 million or 10% of the total loan portfolio.

     Commercial Business Loans. Commercial loans are business loans that are not
secured by real estate and are dependent on business  cash flows for  repayment.
At December  31,  2003,  the largest  commercial  loan was  $598,000  secured by
inventory and accounts receivable. As of December 31, 2003, we had $11.4 million
in commercial loans or 13% of the total loan portfolio.

     Commercial  Real Estate  Loans.  Commercial  real estate  loans are secured
primarily by office, medical and retail business properties located in Anderson,
Knox and Roane  Counties.  These types of loans amounted to $15.5 million or 18%
of the total loan  portfolio  as of December 31,  2003.  Commercial  real estate
loans may be amortized for up to 25 years, but frequently mature in three to six
years.  We  generally  do  not  offer  fixed-rate   commercial  real  estate  or
multi-family real estate loans.

     Income  from  Loan  Activities.  We  earn  fees  in  connection  with  loan
commitments and  originations,  loan  modifications,  late payments,  changes of
property ownership and for miscellaneous  services related to loans. Income from
these activities  varies from period to period with the volume and type of loans
originated,  sold and  purchased,  which in turn is  dependent  upon  prevailing
interest  rates and their effect on the demand for loans in our primary  service
area.

     We typically charge loan fees at the time of loan origination  which may be
a flat fee or a percentage of the amount of the loan.  Under current  accounting
standards,  the  total  amount of fees for long  term  mortgage  loans we retain
cannot typically be recognized as income immediately; rather, we defer a portion
of the fees and take these fees into  income  over the  contractual  life of the
loan,  using a level yield method.  If loans are prepaid or refinanced,  we take
all remaining deferred fees into income at that time.

     Nonperforming  Loans and Real Estate Owned. When a borrower fails to make a
required payment on a loan, our loan officers and collection  department attempt
to collect the payment by contacting  the  borrower.  If a payment on a loan has
not been received by the end of a grace period (usually 10 days from the payment
due  date),  notices  are  sent at  that  time,  with  follow-up  contacts  made
thereafter. In most cases,  delinquencies are cured promptly. If the delinquency
exceeds 29 days and is not cured  through  normal  collection  procedures,  more
formal  measures are  instituted to remedy the default.  We will then attempt to
negotiate  with the  delinquent  borrower to  establish a  satisfactory  payment
schedule.  We take steps ranging from working out a reasonable payment agreement
to foreclosure.

                                       5

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     We generally place a loan on nonaccrual  status and cease accruing interest
when we deem loan payment performance is unsatisfactory. We place all loans past
due 90 days,  however,  on  nonaccrual  status,  unless  the  loan is both  well
collateralized and in the process of collection.  Cash payments received while a
loan is  classified  as  nonaccrual  are recorded as a reduction of principal as
long as doubt exists as to collection.

     If  foreclosure  is  required,  when  completed,  the property is sold at a
public auction in which we will generally participate as a bidder. If we are the
successful  bidder,  we then  include the acquired  real estate  property in the
other real  estate  owned  "OREO"  account  until we sell the  property.  We are
permitted  under  federal  regulations  to finance sales of real estate owned by
"loans to facilitate," which may involve more favorable interest rates and terms
than generally would be granted under normal underwriting guidelines.

Competition

     We compete with six commercial  banks and four credit unions in our primary
market area of Oak Ridge.  In addition  to these local  competitors,  banks from
other market areas also  compete with us. In addition to  traditional  providers
(i.e. banks,  credit unions,  thrifts),  other financial services companies like
insurance  companies,  brokerages  and  finance  companies  compete  with us. We
anticipate that competition from providers of financial  services over the World
Wide  Web  will  intensify  in the  future.  One of the  results  of  increasing
competition is the lowering of our net interest  margin,  as consumers have more
choices for deposits (thus increasing the cost) and loans (lowering the income).
We attempt to mitigate these factors by emphasizing our service and relationship
style of banking services.

     We  contemplate  that we may seek to enter  businesses  closely  related to
banking or to acquire existing  businesses  already engaged in these activities.
Some of the activities  that the Federal Reserve has determined by regulation to
be so closely  related to the  business of banking  include  making or servicing
loans and certain  types of leases,  engaging in certain  insurance and discount
brokerage  activities,  performing certain data processing  services,  acting in
certain circumstances as a fiduciary or investment or financial advisor,  owning
savings  associations and making investments in certain corporations for project
designed  primarily to promote  community  welfare.  Any  acquisition by us will
require  prior  approval of the Federal  Reserve  Board and, in some  instances,
other  regulatory  agencies.  In addition,  we will be competing with other bank
holding companies, many of which have far greater assets and financial resources
than we and whose common stock may be more widely traded than ours in attempting
to acquire  other  permissible  entities,  and  engaging in  activities  closely
related  to  banking.  Currently  there  are no  definitive  agreements  for the
acquisition  of any entities  and we cannot  assure you that we will acquire any
entity in the future.

Supervision and Regulation

     As mentioned  previously,  the Bank is regulated  primarily by the TDFI and
FDIC. The Bank is also subject to various  requirements and  restrictions  under
federal  and state law,  including  requirements  to maintain  reserves  against
deposits, restrictions on the types and amounts of loans that may be granted and
the  interest  that may be  charged  thereon  and  limitations  on the  types of
investment  securities  that  may  be  purchased.   Various  consumer  laws  and
regulations also affect the operations of the Bank. In addition to the impact of
regulation,  commercial banks are also affected  significantly by the actions of
the  Federal  Open  Market  Committee,  which we refer to as the  "FOMC," of the
Federal  Reserve as a  differentiating  factor.  The FOMC's  actions on interest
rates  significantly  impacts the net  interest  margin and  interest  rate risk
management activities of the Bank.

     We, as a bank holding  company,  are regulated by the Federal Reserve Board
under the Bank Holding  Company Act of 1956,  which  requires every bank holding
company to obtain the prior  approval of the Federal  Reserve  Board  before:

     o    acquiring more than 5% of the voting shares of any bank, or
     o    acquiring all or substantially all of the assets of a bank, and
     o    before merging or consolidating with another bank holding company.

     The Federal  Reserve Board has maintained  that a bank holding company must
serve as a source of financial  strength to its subsidiary banks. In adhering to
the Federal  Reserve  Board  policy,  we may be  required  to provide  financial
support for a subsidiary  bank, such as the Bank, at a time when, in the absence
of such Federal  Reserve Board  policy,  we may not deem it advisable to provide
such assistance.

                                       6

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     A bank holding company is generally  prohibited  from acquiring  control of
any company which is not a bank and from engaging in any business other than the
business  of banking or  managing  and  controlling  banks.  However,  there are
certain activities which have been identified by the Federal Reserve Board to be
so  closely  related  to banking  as to be a proper  incident  thereto  and thus
permissible for bank holding companies.

     As a bank holding company, we are required to file with the Federal Reserve
Board an annual report of our  operations at the end of each fiscal year and any
additional  information as the Federal Reserve Board may require pursuant to the
Bank Holding Company Act. The Federal  Reserve Board may also make  examinations
of the us and each of our subsidiaries.

     From  time  to  time,  legislation  is  enacted  which  has the  effect  of
increasing  the  cost of  doing  business,  limiting  or  expanding  permissible
activities  or  affecting  the  competitive  balance  between  banks  and  other
financial  services  providers.  Proposals  to change  the laws and  regulations
governing the operations and taxation of banks, bank holding companies and other
financial  service  providers  are  frequently  made  in  Congress,  before  the
Tennessee  legislature  and the other  various  bank  regulatory  agencies.  The
likelihood of these changes occurring and the effect they may have on the Bank's
and our operations are difficult to predict.

Financial Modernization Legislation

     The  Gramm-Leach-Bliley   ("G-L-B")  Act  authorizes  affiliations  between
banking,  securities and insurance firms and authorizes  bank holding  companies
and national banks to engage in a variety of new financial activities. Among the
new activities  that will be permitted to bank holding  companies are securities
and insurance brokerage,  securities  underwriting,  insurance  underwriting and
merchant   banking.   The  G-L-B  Act  imposes  new  requirements  on  financial
institutions with respect to customer privacy. The G-L-B Act generally prohibits
disclosure of customer  information to  non-affiliated  third parties unless the
customer has been given the  opportunity  to object and has not objected to such
disclosure.  Financial  institutions  are further  required  to  disclose  their
privacy policies to customers annually.

     The  G-L-B  Act  contains  significant  revisions  to the FHLB  System.  In
addition to other provisions, the G-L-B Act expands the permissible uses of FHLB
advances by community  financial  institutions (under $500 million in assets) to
include   funding   loans  to  small   businesses,   small   farms   and   small
agri-businesses.  The G-L-B Act contains a variety of other provisions including
a prohibition against ATM surcharges unless the customer has first been provided
notice of the  imposition  and  amount  of the fee.  We have not  experienced  a
material impact on our operation by this legislation.

General

     The Bank,  as a  Tennessee  state  chartered  bank,  is  subject to primary
supervision, periodic examination and regulation by the TDFI and the FDIC. If as
a result of an examination  of a bank,  the FDIC should  determine the financial
condition,  capital resources,  asset quality,  earnings prospects,  management,
liquidity or other aspects of the Bank's  operations are  unsatisfactory or that
the Bank or its  management is violating or has violated any law or  regulation,
various  remedies are available to the FDIC. Such remedies  include the power to
enjoin "unsafe or unsound"  practices,  to require affirmative action to correct
any  conditions   resulting  from  any  violation  or  practice,   to  issue  an
administrative order that can be judicially  enforced,  to direct an increase in
capital, to restrict the growth of the Bank, to assess civil money penalties, to
remove  officers and  directors  and  ultimately  to terminate a bank's  deposit
insurance.  The  Commissioner of the TDFI has many of the same remedial  powers,
including the power to take possession of a bank whose capital becomes impaired.
As of December 31,  2003,  the Bank is not the subject of any action by the FDIC
or the TDFI.

     The  deposits  of the Bank are insured by the FDIC in the manner and to the
extent  provided  by law.  For  this  protection,  the Bank  pays a  semi-annual
statutory assessment.  The Bank is subject to certain regulations of the Federal
Reserve Board.

     Various  requirements  and  restrictions  under  the  laws of the  State of
Tennessee  and the United States  affect the  operations of the Bank.  State and
federal  statutes  and  regulations   relate  to  many  aspects  of  the  Bank's

                                       7

<PAGE>

operations,  including  reserves  against  deposits,  interest  rates payable on
deposits, loans, investments, mergers and acquisitions,  borrowings,  dividends,
locations  of branch  offices and  capital  requirements.  Further,  the Bank is
required to maintain certain levels of capital.

Payment of Dividends

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

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

     Our payment of dividends may also be affected or limited by other  factors.
For example,  the Bank is required to maintain adequate capital above regulatory
guidelines.


ITEM 2.       DESCRIPTION OF PROPERTY

     We operate three facilities for our banking operations.  We own our two Oak
Ridge branch facilities and we lease the Knoxville branch from a third party. We
own our Main Office which is located at 401 South Illinois  Avenue in Oak Ridge.
The 15,000  square foot facility  sits on  approximately  three acres and offers
full service  banking  including ATM, safe deposit,  night  depository and drive
thru  services.  The Main  Office  also houses the  operations  and  bookkeeping
departments,  credit administration and most other administrative  functions. We
own our Jackson  Square branch which is located at 900 Oak Ridge Turnpike in Oak
Ridge.  This 2,000 square foot facility  offers full service  banking  including
ATM, safe deposit,  night  depository and drive thru  services.  Our Pointe West
branch is located at 118 Mabry Hood Road, Suite 300 in Knoxville, TN. The Pointe
West branch offers ATM and teller  services.  All of our branch  facilities  are
staffed with experienced retail and lending personnel.  We lease the Pointe West
branch for an annual  rent of  $28,056.  The lease on the Pointe West branch has
been  extended  until  June 2004.  In  September  2002 we  entered  into a lease
agreement for a branch facility  located at 11200 Kingston Pike,  Knoxville,  TN
37922.  The lease has a term of 10 years with two 5 year  renewal  options and a
purchase  option after the initial ten year term. We anticipate that this branch
will replace the Pointe West branch.  The facility is currently under renovation
and we believe we will begin  operation in the facility  sometime  during Spring
2004.

ITEM 3.       LEGAL PROCEEDINGS

     From time to time in the  normal  course of  business,  we are  subject  to
various  regulatory  proceedings,  lawsuits,  claims and other matters.  At this
time, we do not believe any of these  matters will result in a material  adverse
effect on our business or financial condition.

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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of fiscal 2003.

                                       8

<PAGE>


                                     PART II

ITEM 5. MARKET PRICE OF AND  DIVIDENDS  ON THE  REGISTRANT'S  COMMON  EQUITY AND
OTHER SHAREHOLDER MATTERS

     There  is  no  established  market  for  our  common  stock.  There  is  no
significant  likelihood  that any market will  develop in the future.  There has
been isolated trading of the common stock where shareholders wishing to transfer
shares would do so in individually negotiated transactions.  The following table
shows a  range  of  high  and low  sales  prices,  to the  best of  management's
knowledge, for our common stock.

                                                   High              Low
                                                   ----              ---
2002:
         First Quarter.........................  $17.00            $17.00
         Second Quarter........................   17.00             17.00
         Third Quarter.........................   17.00             17.00
         Fourth Quarter........................   17.00             17.00
2003:
         First Quarter.........................  $17.00            $17.00
         Second Quarter........................   19.50             19.50
         Third Quarter.........................   19.50             19.50
         Fourth Quarter........................   19.50             19.50


     The payment of cash  dividends is subject to the discretion of our board of
directors.  Our ability to pay dividends is dependent on cash  dividends paid to
us by the Bank.  The ability of the Bank to pay dividends to us is restricted by
applicable  regulatory  requirements.  See ITEM 1  "Description  of  Business  -
Payment of  Dividends".  We paid a cash  dividend of $0.35 per share  during the
fourth  quarter of 2003.  Prior to that,  we had never paid cash  dividends.  We
cannot  assure you that we will declare  additional  dividends  or, if declared,
what the amount of the dividends would be or whether dividends would continue in
future periods.

     Options  convertible into 14,500 shares of common stock were outstanding as
of December  31,  2003.  As of December 31,  2003,  our  executive  officers and
directors  beneficially  owned 102,826 shares of common stock,  including shares
issuable upon the exercise of options.  We are not presently  publicly  offering
shares of common stock and have not proposed to publicly  offer shares of common
stock  which  could  have a material  effect on the  market  price of our common
stock. As of December 31, 2003, we had  approximately 753 shareholders of record
and 534,130 shares of common stock outstanding.

     The following  table  provides  information  about our equity  compensation
plans as of December 31, 2003.
<TABLE>
<CAPTION>
                                    EQUITY COMPENSATION PLAN INFORMATION

                                                                                     Number of securities
                              Number of securities to       Weighted-average       remaining available for
                              be issued upon exercise      exercise price of        future issuance under
                              of outstanding options,     outstanding options,     equity compensation plan
       Plan Category            warrants and rights       warrants and rights
---------------------------- -------------------------- ------------------------- ---------------------------
<S>                                        <C>                    <C>                          <C>

Equity compensation
    plans approved by                      14,500                 $16.00                      112,203
    shareholders
Equity compensation
    plans not approved
    by shareholders                             0                     NA                            0
                                           ------                -------                      -------
 Total                                     14,500                 $16.00                      112,203
</TABLE>


                                       9

<PAGE>

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

Forward Looking Statements

     This  report  contains   forward-looking   statements   under  the  Private
Securities  Litigation Reform Act of 1995 that involve risks and  uncertainties.
When   used  in  this   discussion,   the   words   "believes",   "anticipates",
"contemplates",  "expects",  and similar  expressions  are  intended to identify
forward-looking  statements.  Such  statements  are subject to certain risks and
uncertainties  which could cause actual results to differ  materially from those
projected.   Although   we  believe   that  the   assumptions   underlying   the
forward-looking  statements  are  reasonable,  any of the  assumptions  could be
inaccurate,  and  therefore,  we  cannot  assure  you that  the  forward-looking
statements set out in this report will prove to be accurate.

     Factors  that  could  cause  actual  results  to  differ  from the  results
discussed in the forward-looking statements include, but are not limited to:

     o    Economic  conditions  (both  generally  and more  specifically  in the
          markets in which we operate);
     o    Competition  for our  customers  from  other  providers  of  financial
          services;
     o    Government legislation and regulation (which changes from time to time
          and over which we have no control);
     o    Changes in interest rates; and
     o    Material  unforeseen changes in liquidity,  results of operations,  or
          financial condition of our customers.

These risks are difficult to predict and many of them are beyond our control.









                                       10


<PAGE>


Results of Operations for the Years Ended December 31, 2003 and 2002

General

     We are a Tennessee  bank holding  company which acquired the Bank through a
share exchange in May 2002. We are a registered  bank holding  company under the
Federal  Reserve  Act.  Our only  activity  is owning the Bank  which  commenced
operations on May 30, 1995.

We achieved net income of $1,078,182  for 2003 compared to $716,641 for 2002, an
increase of 50%. On a per share basis,  we earned $2.02 per common share in 2003
compared to $1.34 per common share in 2002.  The increase in net income for 2003
can primarily be attributed to increases in net interest income and non-interest
income offsetting  increases in non-interest  expense,  along with a decrease in
provision for loan losses. Net interest income increased $545,000 or 14% in 2003
as  compared  to 2002,  primarily  as a result  of growth  in  earnings  assets,
particularly  loans and an improvement in our net interest margin.  Non-interest
income  increased  $547,000 or 66% in 2003 as compared to 2002 due  primarily to
growth in fees on loans sold, gains on sales of investment  securities available
for sale,  and  increases in service  charges on deposits.  Loan loss  provision
decreased  $195,000 to $290,000 in 2003  compared to 2002 due primarily to lower
net charge off loans in 2003 as compared  to 2002,  offset  partly by  increased
loan volume, and the payoff of certain classified assets, which were reserved at
a higher  allocation than loans which are not classified.  Non-interest  expense
increased  $671,000  or 22% in  2003 as  compared  to  2002.  The  increases  in
non-interest expense primarily relate to growth in overhead.

The table below presents certain key ratios.

                                   Schedule I
                           Return on Assets and Equity
                                                          2003          2002
                                                      -------------------------
Return on Average Assets                                  1.00%         0.73%
Return on Average Equity                                 13.15%         9.85%
Dividend Payout Ratio                                    17.34%         0.00%
Average Equity to Average Assets                          7.60%         7.37%




                                       11

<PAGE>
Earning Assets, Sources of Funds and Net Interest Income

     Schedule II presents an analysis of interest  earning  assets and  interest
bearing liabilities for the years ended December 31, 2003 and 2002.

<TABLE>
<CAPTION>
                                                    Schedule II
                                      Average Balances, Interest and Rate/Yield
                                                                         2003                                   2002
                                                    ------------------------------------------------------------------------------
                                                                                      Average     Average                Average
                                                    Average Balance(1) Interest (2)  Yield/Rate  Balance(1) Interest(2) Yield/Rate
                                                    ------------------------------------------------------------------------------
<S>                                                 <C>              <C>                <C>      <C>        <C>           <C>
Assets
------
Federal funds sold                                  $   1,901        $       21         1.10%    $  1,847   $    30       1.62%

Investment securities:

Available for sale:

Taxable                                                 9,167               368         4.01%      10,036       523       5.21%

Tax exempt                                              4,104               239         5.82%       3,377       199       5.89%

FHLB Stock                                                541                21         3.88%         425        20       4.71%

Gross loans, including fees                            83,518             5,815         6.96%      75,970   $ 5,624       7.40%
                                                    ------------------------------------------------------------------------------
Total interest earning assets                       $  99,231        $    6,464         6.51%    $ 91,655   $ 6,396       6.98%
                                                                     ========================               ===================

Cash and due from banks                                 1,787                                       1,576

All other assets                                        8,161                                       6,397

Less:

Reserve for loan losses                                 1,167                                         859

Unearned fees and interest                                110                                          98
                                                    ---------                                    --------

Total Assets                                        $ 107,902                                    $ 98,671
                                                    =========                                    ========
Liabilities and Shareholders' Equity
------------------------------------
Interest bearing deposits:

Time deposits                                       $  44,002        $    1,350         3.07%    $ 45,321   $ 1,812       4.00%

Other deposits                                         38,176               395         1.03%      31,889       467       1.46%

FHLB advances and repurchase agreements and other       8,550               341         3.99%       6,412       293       4.57%
                                                    -------------------------------------------------------------------------------
Total interest-bearing liabilities                  $  90,728             2,086         2.30%      83,622     2,572       3.08%
                                                    ===============================================================================
Non-interest bearing deposits                           8,172                                       7,027
                                                                                  -----------                           -------
Cost of funds                                                                           2.11%                             2.84%
                                                                                  ===========                           =======
All other liabilities                                     804                                         747

Shareholders' equity                                    8,000                                       7,110

Unrealized gain (loss)on available for sale securities    198                                         165
                                                    ---------                                    --------
Total Liabilities and Shareholders' Equity          $ 107,902                                    $ 98,671
                                                    =========                                    ========

                                                                                  -----------                           -------
Net interest spread                                                                     4.40%                             4.14%
                                                                                  ===========                           =======

                                                                                  -----------                           -------
Net interest margin                                                                     4.41%                             4.17%
                                                                                  ===========                           =======

</TABLE>

(1)  Average  Balances  were  computed  averaging  daily  balances  for the time
specified.
(2)  Interest  is  computed  based  on a tax  equivalent  basis  for tax  exempt
securities.


                                       12

<PAGE>

     As seen from Schedule II, average interest earning assets grew $7.6 million
or 8% during 2003 as compared to 2002.  Average  interest earning assets include
loans,  investment  securities and federal funds sold. The primary  component of
growth in average interest earning assets was loans,  which grew $7.5 million or
10% in 2003 as compared to 2002. Average  investment  securities (which includes
average  available for sale taxable and  tax-exempt  securities and Federal Home
Loan Bank  Stock)  declined  approximately  $26,000 in 2003 as compared to 2002,
while average federal funds sold grew approximately  $54,000 in 2003 as compared
to 2002.

     Average  interest  bearing  liabilities  grew $7.1 million or 8% in 2003 as
compared  to  2002.  Average  interest  bearing  liabilities  include  deposits,
advances  from the Federal Home Loan Bank,  which we refer to as the "FHLB." and
other borrowings. During 2003, average total deposits grew $8.3 million or 9% as
compared to 2002.  The majority of the average  deposit  growth during 2003 came
from other  deposits,  which  include money  market,  NOW and savings  accounts.
Management attributes this increase to additional marketing and management focus
on attracting more deposit  relationships of this type in an effort to lower our
net interest margin.

     The yield on average  interest  earning  assets  decreased  47 basis points
during 2003 to 6.51%.  The primary  reason for this  decline is a decline in the
general interest rate environment, which began in 2001. During 2001, the Federal
Reserve lowered key interest rates 475 basis points in a series of rate cuts and
lowered  rates again 50 basis points  during  November  2002.  While some of our
interest  earning  assets  reprice  immediately,  others  reprice at contractual
maturities  or other agreed upon  repricing  dates.  Additionally,  when earning
assets grow during  periods of falling  interest  rates,  yields will  typically
decline as new earning assets are added at yields lower than those  presently in
the earning asset portfolio.

     The yield on loans for 2003 was  6.96%,  a  decline  of 44 basis  points as
compared  to 2002.  The  decline in loan  yields  during  2003 can be  primarily
attributed to the decline in interest rates discussed previously. New loans made
during 2003 generally carried lower yields than those previously  carried in the
loan portfolio,  lowering loan yields.  Yields on taxable investment  securities
declined 120 basis  points and yields on  tax-exempt  securities  (computed on a
tax-equivalent  basis)  declined 7 basis points during 2003 as compared to 2002,
again due to the decline in the general interest rate  environment.  The decline
in  yields  was  particularly  prevalent  in  mortgage-backed  securities,  U.S.
Government  Agency  securities  and corporate  debt  securities.  The decline in
mortgage-backed securities was primarily due to accelerated premium amortization
brought on by higher mortgage  prepayments  during 2003 as compared to 2002. The
decline in the yield on U.S.  Government  Agency  securities is due primarily to
higher  yielding  bonds  either  being  called or maturing  and bonds  purchased
carrying lower yields.  The decline in yield on corporate debt securities is due
primarily  to the  selling  of the  prior  held  corporate  debt and  purchasing
different corporate debt carrying a lower yield. The yield on federal funds sold
declined 52 basis points in 2003  compared to 2002 due to the decline in general
interest rates.

     Our cost of funds  declined  73 basis  points  during  2003 to 2.11%.  This
decline can be attributed to the decline in general  interest rates during 2001,
2002 and 2003 and a change in deposit mix to more  lower-cost  deposits  such as
checking,  NOW,  savings  and  money  market  accounts.  Rates on time  deposits
declined  93  basis  points  to  3.07%  in  2003  as  compared  to  2002.  Other
interest-bearing  deposits  saw rates  decline 43 basis  points  during  2003 to
1.03%.  Declines  for both of these  categories  of deposits  during 2002 can be
attributed  to the decline in general  interest  rates.  Rates on time  deposits
declined as higher  yielding time  deposits  matured and were replaced with time
deposits  carrying  lower rates.  Other  interest  bearing  deposits do not have
contractual  maturities;  rates on those deposits can be changed at management's
discretion but are subject to competitive  pressures and our need for liquidity.
Rates on FHLB  Advances,  repurchase  agreements  and capital lease  obligations
declined  58 basis  points  during  2003 to 3.99% due to declines in the general
interest  rate  environment  and our use of a higher  proportion  of short  term
borrowings  during 2003. We have a Cash  Management Line of Credit with the FHLB
which is priced at an overnight  interest  rate. We utilized this line of credit
more during 2003 than in 2002 due to lower deposits.

     Our net interest margin improved 24 basis points during 2003 as compared to
2002. During 2003, our cost of funds declined to a greater degree than our yield
on earning  assets.  The  improvement  is the  result of a variety  of  factors,
including more focus by management,  more success in attracting  demand deposits
(which typically carry lower rates), a decline in time deposits (which typically
carry higher rates),  improved loan fee income and continued sound loan pricing,
and the lower interest rate environment.

                                       13

<PAGE>





                                  Schedule III
                       Rate Volume Analysis (in thousands)
                                   -----------------------------------------
                                                   2003 vs. 2002
                                   -----------------------------------------
                                     Increase (decrease) due to change in:
                                   -----------------------------------------
                                   Average Balance   Rate/Yield      Total
                                   -----------------------------------------
Interest Income
Federal funds sold                        1             (10)           (9)
Securities available for sale            (1)           (114)         (115)
FHLB stock                                5              (4)            1

Loans, including fees                   477            (286)          191

                                   -----------------------------------------
Total interest income                   482            (414)           68
                                   -----------------------------------------

Interest Expense
Interest-bearing deposits               160           (694)          (534)
FHLB advances, Repurchase Agreements
and other                                77            (29)            48
                                   -----------------------------------------
Total interest expense
                                        237           (723)          (486)
                                   -----------------------------------------

                                   -----------------------------------------
Net change in net interest income
                                        245            309            554
                                   =========================================


Non-Interest Income

     Non-interest  income  increased  approximately  $547,000  or 66% in 2003 as
compared to 2002 due primarily to increases in fees on loans sold,  net gains on
sales of investment securities available for sale, and service charges on demand
deposits.  We offer  traditional  residential  mortgage  financing  through  the
secondary market.  Under this program, we originate  residential mortgage loans,
which are in turn funded and serviced by secondary market lenders and we receive
fees  for our  loan  origination.  Fees on loans  sold  increased  approximately
$454,000  during  2003 as compared to 2002.  The  increase  was the result of an
increase  in the  volume of loans  sold and hence the fees on loans  sold can be
primarily  attributed to continued low interest rates during 2003. Many of these
loans were the rsult of customers  refinancing  their mortages to take advantage
of the lower interest rate environment. Management does not expect the volume of
this type of mortgage  business in 2004 and  accordingly we anticipate a decline
in fees on loans sold in 2004. Gains on sales of investment securities available
for sale were the result of sales to take advantage of routine  fluctuations  in
the bond markets.  Service  charges on demand deposits  increased  approximately
$38,000  during  2003 as compared  to 2002 due  primarily  to an increase in the
volume of our deposit  accounts.  Other income increased  approximately  $11,000
during 2003 as compared to 2002 due primarily to investment fee income.

     Non-interest income increased approximately $266,000 in 2002 as compared to
2001 due  primarily to  increases  in fees on loans sold and service  charges on
demand  deposits.  The  increase  in fees on loans sold during 2002 again can be
attributed  to an  increase  in the volume of loans  sold due to lower  interest
rates.  Fees on loans  sold  increased  approximately  $208,000  during  2002 as
compared to 2001.  Service  charges on demand deposits  increased  approximately
$55,000  during 2002 as compared to 2001,  again due primarily to an increase in
the volume of our deposit accounts. Other income increased approximately $13,000
during 2002 as compared to 2001 due chiefly to increases in gains on the sale of
other assets, primarily repossessed automobiles.

Non-Interest Expense

     Non-interest expense increased approximately $671,000 or 22% during 2003 as
compared  to 2002.  The  increase in  non-interest  expense is the result of the
growth in earning assets which  necessitates  growth in non-interest  expense to
support safe and sound asset growth.  The primary  categories of increase during
2003 were salaries and employee benefits (increase of approximately  $373,000 or
25% during 2003 as compared to 2002),

                                       14

<PAGE>

other  expense  (an  increase  of  approximately  $149,000 or 27% during 2003 as
compared to 2002),  and  occupancy  costs (an  increase of $68,000 or 22% during
2003 as compared to 2002).  The increase in salaries  and  employee  benefits is
primarily due to  additional  personnel to support asset growth and increases in
commissions  to employees  for loans sold.  The increase in other expense is due
primarily to the growth in volume we experienced during 2003; one of the largest
increases  in other  expense  was loan  expense  which  increased  approximately
$96,000  to  $296,364  during  2003,  due  primarily  to  an  increase  in  loan
origination  volume.  The increase in occupancy costs is primarily due to higher
building  repair and  maintenance  costs,  and increased lease expense (due to a
full  year's  expense  on the lease on the  Kingston  Pike  location  in 2003 as
compared to seven months' expense in 2002).

     Non-interest expense increased  approximately  $616,000 in 2002 as compared
to 2001.  The  increase  was  primarily  the result of the growth in our assets,
which resulted in increases in such categories as salaries and employee benefits
(increase of  approximately  $323,000 during 2002 as compared to 2001) and other
expense (an increase of approximately $208,000 or 61% during 2002 as compared to
2001).  One of the largest  increases in other  expense was loan  expense  which
increased  approximately $117,000 to $200,597 during 2002; that increase in loan
expense was due primarily to an increase in loan volume during 2002.

Income Taxes

     We recognize income taxes under the asset and liability method  established
in Statement of Financial  Accounting  Standards No. 109,  Accounting for Income
Taxes.  Under this method,  deferred tax assets and  liabilities are established
for the temporary  differences between the accounting basis and the tax basis of
our assets and  liabilities  at enacted tax rates  expected to be in effect when
the amounts related to such temporary  differences are realized or settled.  Our
deferred tax assets are reviewed  quarterly and  adjustments  to such assets are
recognized  as  deferred  income tax  expense or benefit  based on  management's
judgment relating to the realizability of such assets.

     We  recognized  income  tax  expense  of  approximately  $584,000  for 2003
compared to approximately $329,000 in 2002 and $270,000 in 2001.

Loan Losses and Credit Risk

     The  allowance  for loan losses is  established  by charging  expense at an
amount which will maintain the  allowance for loan losses at a level  sufficient
to provide for  potential  loan  losses.  We charge loan losses  directly to the
allowance when incurred and we credit recoveries to the allowance when realized.
We base the amount of provision on past loss experience, management's evaluation
of the loan portfolio under current economic conditions, and other factors as in
management's  best judgment  deserve  current  recognition  in  estimating  loan
losses.  The balance of the allowance for loan losses was $1,283,465 or 1.48% of
gross loans  outstanding  at  December  31,  2003.  During  2003,  the loan loss
provision totaled $290,000, an decrease of approximately $195,000 as compared to
2002. The decrease in loan loss provision during 2003 as compared to 2002 is due
primarily to lower net charge off ratios in 2003 as compared to 2002,  partially
offset by increased loan volume and newly  classified  assets,  which  typically
require a higher reserve  allocation than loans which are not classified.  As of
December  31,  2003,  management's  review  of the  allowance  for  loan  losses
concluded  that the balance was adequate to provide for  potential  losses based
upon an evaluation of risk in the loan portfolio.  Despite our credit standards,
internal controls,  and continuous loan review process, the inherent risk in the
lending process results in periodic charge-offs.

     Through  the  provision  for loan  losses,  we  maintain a reserve for loan
losses that  management  believes is adequate to absorb  losses  within the loan
portfolio.  In addition,  various  regulatory  agencies,  as an integral part of
their examination  procedures,  periodically review our reserve for loan losses,
and based on their judgment may require us to recognize additions to the reserve
for loan losses.  Management completes a formal analysis of the reserve for loan
losses  adequacy on a monthly basis.  This formal  analysis of the allowance for
loan loss reserve  segregates the loan  portfolio into general and  specifically
classified  categories.  Management  employs a loan grading system for all loans
based on credit  quality.  Loans in the four lowest  categories  are  considered
specifically classified and allocated a higher percentage of potential loan loss
than the general loan  population.  The general loan population is segregated by
collateral  type and a reserve amount is assigned  based on the historical  loss
ratio and expected  future loss potential for that particular  collateral  type.
For specifically  classified loans,  reserve amounts are assigned based on rates
defined in the Bank's loan policy and  consistent  with  industry  standards and
regulatory  guidance.  The rates defined by our loan policy are determined based
on a variety of factors including our historical

                                       15

<PAGE>

loss experience, industry loss rates, guidance received from previous regulatory
examinations, and other factors such as the borrower's ability to repay the loan
and the  availability of the collateral.  As of December 31, 2003  approximately
$2.9 million of the loan portfolio was considered  specifically  classified with
approximately  37% of the allowance for loan losses  related to these loans.  We
assigned  the  remaining  63% of the  allowance  for loan  losses to the general
population of loans.

     Included in  management's  formal analysis of the allowance for loan losses
are loans considered  impaired as provided in Statement of Financial  Accounting
Standards No. 114  "Accounting by Creditors for Impairment of a Loan." A loan is
considered  impaired  when,  based on  current  information  and  events,  it is
probable  that we will be unable to collect  all amounts  due  according  to the
contractual terms of the loan agreement. Impairment losses are measured based on
the  present  value of  expected  future  cash  flows  discounted  at the loan's
effective interest rate or the fair value of the underlying collateral. Loans in
our lowest three adversely classified  categories are considered for impairment.
Due to the relatively  small size of our loan  portfolio,  management  considers
each individual loan specifically for impairment.  The allowance for loan losses
related to impaired loans amounted to approximately  $338,000 as of December 31,
2003 and $164,000 as of December 31, 2002.  Schedules IV and V present a summary
of our loan loss experience and reserve analysis during 2003 and 2002.

                                       Schedule IV
                      Analysis of Loan Loss Reserve (in thousands)
                                                    The year ended December 31,
                                             -----------------------------------
                                                    2003             2002
                                             -----------------------------------
Balance at Beginning of Period               $     1,047          $   811
Charge-Offs:
Commercial, financial and agricultural                12              104
Real Estate - construction                                              -
Real estate - mortgage                                14               21
Installment - consumer                                54              151
Other                                                  -                -
                                             -----------------------------------
Total charge-offs                                     80              276
                                             -----------------------------------

Recoveries:
Commercial, financial and agricultural                 -                -
Real Estate - construction                             -                -
Real estate - mortgage                                 -                -
Installment - consumer                                26               27
Other                                                  -                -
                                             -----------------------------------
Total recoveries                                      26               27
                                             -----------------------------------
Net charge-offs                                       54              249
Provision for loan losses                            290              485
                                             -----------------------------------
Balance at the End of Period                 $     1,283          $ 1,047
                                             ===================================

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

Ratio of net charge-offs to average
loans outstanding                                   0.06%            0.33%
                                             ===================================



                                       16

<PAGE>

<TABLE>
<CAPTION>

                                          Schedule V
                            Allocation of Loan Loss Reserve (In thousands)
                                                        For the year ended December 31,
                                          -----------------------------------------------------------
                                                        2003                         2002
                                          -----------------------------------------------------------
                                            $ Allocation   %Allocation    $ Allocation    %Allocation
                                          -----------------------------------------------------------
<S>                                         <C>                <C>        <C>                 <C>

Commercial, financial and agricultural          581           45%               400           38%
Real Estate - construction                       15            1%               148           14%
Real estate - mortgage                          502           39%               284           27%
Installment - consumer                          185           15%               215           21%
Other                                            -             0%                 -            0%

                                            -------                        --------
Total                                       $ 1,283                        $  1,047
                                            =======                        ========
</TABLE>

Summary of Loans and Non-Performing Assets

     Non-performing assets consist of
          (a)  loans no longer  accruing  interest  due to doubts  about  future
               collectibility;
          (b)  loans  more  than 90 days  past  due for the  last  principal  or
               interest payment;
          (c)  loans  restructured  due to the  borrower's  inability  meet  the
               contractual loan terms; and
          (d)  other  real  estate  owned  by  us,  taken   originally  as  loan
               collateral.
Schedule VI presents the amounts of  non-performing  assets at December 31, 2003
and 2002.


                                   Schedule VI
                      Non-Performing Assets (in thousands)
                                                      December 31,
                                                 2003            2002
                                           --------------------------------
Non-accrual loans (1) (3)                  $     962           $   318
Loans past due greater than 90 days and
still accruing interest (2) (3)                   21                28
Restructured loans (3)                           155               169
Other real estate owned                           20                 -
                                           --------------------------------
Total Non-Performing Assets                $   1,158           $   515
                                           ================================

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

(1)  Included in non-accrual  loans are  approximately  $962,000 and $132,000 of
     loans considered impaired as of December 31, 2003 and 2002, respectively.
(2)  Included in loans past due 90 days or more and still accruing  interest are
     approximately  $0 and $28,000  considered  impaired as of December 31, 2003
     and 2002, respectively. At December 31, 2003 approximately $64,000 of loans
     considered restructured were also considered impaired.
(3)  Footnotes  (1) and  (2)  disclose  the  amount  of  impaired  loans  in the
     categories  presented  in  Schedule  VI.  At  December  31,  2003  and 2002
     respectively, there were $630,000 and $471,000 in loans considered impaired
     which were not in  non-accrual  status or were not past due 90 days or more
     and still  accruing  interest or were not  considered  restructured.  These
     loans were  considered  impaired due to factors known to  management  which
     raised  concerns  about  our  ability  to  collect  amounts  due  under the
     applicable loan  agreement.  Factors such as a known  deterioration  in the
     borrower's financial condition or collateral position are considered in the
     decision to evaluate and recognize loans as being impaired.

     We determine loans to be non-accruing when we determine that our ability to
collect  the  unpaid  balance  of these  loans  is  highly  unlikely  due to the
financial position of the borrower and general economic  conditions.  Management
makes this  determination of  classification on a case by case basis for problem
loans.  Generally,  we review  each loan 90 days or more past due monthly and we
place on  non-accrual  status  the loans for which we  determine  collection  is
doubtful.  During 2003, we would have earned  approximately  $50,000 on loans in
non-accrual status had these loans been current in accordance with their terms.

     Loans are  determined to be 90 days  delinquent  when such a period of time
has elapsed since the last  required  payment of principal or interest was made.
At such  time,  we  consider  whether to place the loan on  non-accrual  status.
However, until we make this classification, interest will continue to accrue.

                                       17

<PAGE>

     Non-accrual  loans increased to  approximately  $962,000 as of December 31,
2003 compared to $318,000 as of December 31, 2002.  The increase in  non-accrual
loans is due  primarily  to the  addition of loan  relationships  to this status
during 2003. Of the loans in  non-accrual  status as of December 31, 2002,  none
were charged off during 2003,  $47,000 were taken off non-accrual  status due to
an improvement in performance and $169,000 remained in non-accrual  status as of
December 31, 2003,  although  these loans had paid down  balances  approximately
$140,000 during 2003. Therefore,  the loans in non-accrual status as of December
31, 2003 include  approximately  $140,000 in loans which were  non-accrual as of
December  31, 2002 and  approximately  $822,000  in loans  added to  non-accrual
status during 2003.  Management  does not attribute this increase in non-accrual
loans to a  discernible  trend,  but  instead  attributes  it  primarily  to the
inclusion of a relatively  few,  larger balance  credits on loans in non-accrual
status  in 2003 as  compared  to 2002.  Loans  past  due over 90 days and  still
accruing interest declined to $21,000 as of December 31, 2003 from $28,000 as of
December 31, 2002. The decline in loans past due over 90 days and still accruing
interest  relates  primarily to a continued  emphasis by  management  in placing
loans on non-accrual after they reach 90 days past due.

     Net charge-offs decreased to $54,000 during 2003 as compared to $249,000 in
2002. The ratio of net charge-offs to average loans was 0.06% for 2003 and 0.33%
for 2002.  Management  attributes this decrease in net charge-offs to a moderate
improvement  in the local economy in which we operate and  continued  successful
resolution of problem loans.

     Loans  increased  $4.3 million to $85.5  million as of December 31, 2003 as
compared to December 31, 2002.  Management  attributes  this growth to continued
low interest rates,  growth in the Knoxville market and the strong effort of our
lending  personnel.  The  primary  categories  of  growth  were  commercial  and
industrial and residential real estate loans.

                                   Schedule VII
                           Loans by Type (in thousands)
                                                        December 31,
                                                   2003              2002
                                          --------------------------------------
Loans secured by real estate:
Commercial properties                     $      15,458        $     15,014
Construction and land development                12,363              12,983
Residential and other properties                 38,669              37,694
                                          --------------------------------------
Total loans secured by real estate               64,490              65,691

Commercial and industrial loans                  11,439               8,433
Consumer loans and other                          8,981               8,214
                                          --------------------------------------
                                                 86,910              82,338
Less: Allowance for loan losses                  (1,283)             (1,047)
      Unearned loan fees                           (129)                (85)
                                          --------------------------------------
                                          $      85,498        $     81,206
                                          ======================================




                                       18

<PAGE>


Investment Securities

     Investment  securities  were $14.5 million as of December 31, 2003 compared
to $13.8 million as of December 31, 2002. At December 31, 2003 and 2002,  all of
our investment  securities were classified available for sale. During 2003, $7.4
million in  available  for sale  securities  were  purchased as compared to $5.7
million in purchases of available for sale securities in 2002. Maturities, calls
and principal  payments received from  mortgage-backed  securities  totaled $4.7
million in 2003 and $3.9  million in 2002.  Proceeds  from the sale of available
for sale  securities  totaled $1.9  million,  with gross gains on these sales of
$48,301  and no gross  losses.  Proceeds  from the  sale of  available  for sale
securities in 2002 totaled $2.2 million, with gross gains on the sales of $8,856
and gross  losses of $5,156.  These  sales were used to fund loan  demand and to
reinvest funds in higher yielding  investment  securities.  The gross unrealized
gain on available for sale securities was $174,512 at December 31, 2003 compared
to $366,227 at December 31, 2002. The fair value of debt  securities  fluctuates
with the  movement of interest  rates.  Generally,  during  periods of declining
interest rates, the fair value of debt securities increases whereas the opposite
may hold true in a rising interest rate environment.

     The  investment  portfolio is primarily  comprised of U.S.  Government  and
federal agency obligations and mortgage-backed  securities issued by the Federal
Home Loan  Mortgage  Corporation,  the FHLB,  the Federal Farm Credit Bank , the
Government National Mortgage Association , Small Business Administration and the
Federal National Mortgage Association;  bank-qualified,  investment-grade state,
county and municipal bonds; and corporate debt securities. Our investment policy
prohibits us from  investing in state,  county and municipal  bonds rated Baa or
lower by  Moody's or BBB by S&P.  Mortgage-backed  issues  comprised  35% of the
portfolio at December 31, 2003 and 38% at December 31, 2002.  Schedule VIII sets
forth the  maturity of the  securities  held in the  investment  portfolio as of
December 31, 2003:


<TABLE>
<CAPTION>

                                                Schedule VIII
                                Maturities of Securities at December 31, 2003

                                                                             Due After One Year     Due After Five Years
($ in thousands)                              Due in One Year or Less        Through Five Years       Through Ten Years
Securities available for sale:                   Amount        Yield          Amount     Yield         Amount     Yield
                                              --------------------------------------------------------------------------
<S>                                           <C>           <C>            <C>            <C>       <C>            <C>

U.S. Treasury Securities and Obligations of
U.S. Government Corporations and Agencies     $       -                    $   1,810      4.83%     $   1,608      3.47%
Mortgage-Backed and Related Securities                -                          285      5.59%         1,404      4.18%
Obligations of State and Political Subdivisions       -                          436      6.71%         1,030      6.87%
Corporate Debt Securities                             -                          269      4.00%             -
                                              --------------------------------------------------------------------------
Total Debt Securities                         $       -                    $   2,800      5.12%     $   4,042      4.59%
                                              ==========================================================================

($ in thousands)                              Due After Ten Years                   Total
Securities available for sale:                   Amount        Yield          Amount     Yield
                                              -------------------------------------------------
U.S. Treasury Securities and Obligations of
U.S. Government Corporations and Agencies     $   208       2.01%          $  3,626       4.03%
Mortgage-Backed and Related Securities          3,397       3.75%             5,086       3.97%
Obligations of State and Political Subdivisions 3,506       5.89%             4,972       6.17%
Corporate Debt Securities                           -                           269       4.03%
                                              -------------------------------------------------
Total Debt Securities                         $ 7,111       4.76%         $  13,953       4.77%
                                              =================================================
</TABLE>




                                       19



<PAGE>


Asset/Liability Management and Interest Rate Risk Management

     Asset/liability  management  is the process of planning,  implementing  and
controlling  the mix and maturity  features of our interest  bearing  assets and
liabilities  to maximize net  interest  margin and minimize the risk of negative
effects on net interest  margin by changes in market  interest  rates.  One tool
utilized  in  our  asset  liability  management  process  is the  Interest  Rate
Sensitivity  Analysis  presented in Schedule IX. The Interest  Rate  Sensitivity
Analysis  evaluates gaps between  repricing  frequencies of our interest earning
assets and interest bearing liabilities. As seen from this analysis, we are in a
negative gap position in both repricing  categories  through three months to one
year.  This could  result in a decline in net  interest  should  interest  rates
decline.  Management continually monitors the asset liability position and takes
corrective measures where possible.


<TABLE>
<CAPTION>


                                                     Schedule IX
                                  Interest Rate Sensitivity Analysis (in thousands)
                                             As of December 31, 2003

                                      Within 3 months    3 months to 1 year    1 to 5 years   After 5 years    Total
                                      --------------------------------------------------------------------------------
<S>                                   <C>                 <C>                  <C>              <C>         <C>

Earning Assets:
Loans                                 $    39,708         $  11,673            $   35,149       $    381    $  86,911
Investment securities                       1,427             1,277                 3,114          8,684       14,502
Federal funds sold                             72                                                                  72
                                      --------------------------------------------------------------------------------
Total earning assets                       41,207            12,950                38,263          9,065      101,485
                                      --------------------------------------------------------------------------------

Interest Bearing Liabilities:
Interest bearing deposits                  48,036           11,957                 20,310              -       80,303
FHLB advances                               1,150            4,000                  3,500              -        8,650
                                      --------------------------------------------------------------------------------
Total interest bearing liabilities         49,186           15,957                 23,810              -       88,953
                                      --------------------------------------------------------------------------------
Repricing Gap                              (7,979)          (3,007)                14,453          9,065        9,065
Repricing Gap as a percentage of
earning assets                               -7.9%            -3.0%                  14.2%           8.9%
Cumulative repricing gap                   (7,979)         (10,986)                 3,467         12,532       12,532
Cumulative repricing gap as a
percentage of earning assets                 -7.9%           -10.8%                   3.4%          12.3%
</TABLE>

Management has made the following  assumptions in this interest rate sensitivity
analysis:
     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

     Our primary sources of liquidity are deposit  balances,  available-for-sale
securities,  principal and interest payments on loans and investment securities,
Fed Fund lines, and FHLB advances.

     At  December  31,  2003,  we  held  $14.5  million  in   available-for-sale
securities.  Deposits decreased $3.3 million during 2003. We had $3.0 million in
available  federal funds lines and  approximately  $5.85 million in  potentially
available borrowings from the FHLB as of December 31, 2003.

     We utilize  various  types of other  borrowings  to help fund balance sheet
growth  and  mitigate  our  interest  rate  risk.  The  primary  source of other
borrowings  is through  the FHLB  which has many  different  types of  borrowing
structures  available  to member  banks.  As of  December  31, 2003 we had $8.65
million in outstanding advances with the

                                       20

<PAGE>

FHLB. We had $500,000 in fixed rate advances which offer fixed interest rates on
balances that are due at maturity. We had $8.0 million in Convertible Fixed Rate
Advances,  which we refer to as "CFR,"  outstanding.  CFR  advances  offer fixed
rates of interest for an initial term, then may convert, at the FHLB's option to
a floating rate. Due to the  optionality of these  advances,  they do inherently
carry more interest rate risk than fixed rate advances.  We also maintain a Cash
Management Advance, which we refer to as "CMA," with the FHLB to meet short term
liquidity needs.  The CMA line of credit,  which was established in 2001, is for
amounts up to $6.0 million and expires annually.  As of December 31, 2003 we had
$150,000 outstanding under our CMA line of credit.

     We can also enter into repurchase  agreement  transactions  should the need
for  additional  liquidity  arise.  At December  31,  2003,  we had  $339,000 in
repurchase agreements outstanding.

     At December 31, 2003, we had qualifying  capital of $9.3 million,  or 11.1%
of total risk-based assets as compared to $8.5 million, or 10.3% at December 31,
2002.  Tennessee  chartered  banks that are  insured by the FDIC are  subject to
minimum  capital  maintenance  requirements.  Regulatory  guidelines  define the
minimum  amount  of  qualifying  capital  an  institution  must  maintain  as  a
percentage of risk-weighted assets and average total assets.

     The footnotes to the audited financial  statements enclosed contain further
discussion of regulatory capital requirements.  For further information,  please
refer to Note 13 of those audited financial statements.

Impact of New Accounting Standards

     In June 2001, the Financial  Accounting Standards Board issued Statement of
Financial   Accounting   Standard  No.  143,  Accounting  for  Asset  Retirement
Obligations.  SFAS No. 143  applies  to legal  obligations  associated  with the
retirement of long-lived assets that result from the acquisition,  construction,
development  and/or the  normal  operation  of a  long-lived  asset,  except for
certain  obligations  of  lessees.  SFAS  No.  143 is  effective  for  financial
statements  issued for fiscal years beginning  after June 15, 2002.  Since we do
not have any  legal  obligations  as  described  above,  we do not  expect  this
statement to have any impact on our consolidated  financial  position or results
of operations.

     In October 2002, the Financial  Accounting Standards Board issued Statement
of Financial  Accounting  Standard  No. 147,  Accounting  for Certain  Financial
Institutions. This statement removes acquisitions of financial institutions from
the scope of FASB  Statement  No. 72,  Accounting  for Certain  Acquisitions  of
Banking or Thrift  Institutions,  and FASB  Interpretation  No. 9,  Applying APB
Opinions  No.  16 and 17  When a  Savings  and  Loan  Association  or a  Similar
Institution Is Acquired in a Business Combination  Accounted for by the Purchase
Method.  In addition,  this statement amends FASB Statement No. 144,  Accounting
for the  Impairment  or Disposal of Long-Lived  Assets,  to include in its scope
long-term customer relationship intangible assets of financial institutions such
as depositor- and borrower-relationship  intangible assets and credit cardholder
intangible  assets.  This  statement  intends to improve  the  comparability  of
financial reporting by requiring  institutions to follow FASB Statement No. 141,
Business Combinations.  SFAS No. 147 is effective for acquisitions for which the
date of acquisition is on or after October 1, 2002.  Management  does not expect
this  statement  to have a  significant  impact  on our  consolidated  financial
position or results of operations.

     In December 2002, the Financial Accounting Standards Board issued Statement
of  Financial   Accounting   Standard  No.  148,   Accounting  for   Stock-Based
Compensation  - Transition  and  Disclosure - an amendment of FASB Statement No.
123. This statement provides  alternative  methods of transition for a voluntary
change to the fair value based method of  accounting  for  stock-based  employee
compensation.  In addition, this statement amends the disclosure requirements of
Statement  123 to require  prominent  disclosures  in both  annual  and  interim
financial  statements  about the method of accounting for  stock-based  employee
compensation  and the effect of the method used on reported  results.  Statement
No. 148 is  effective  for  financial  statements  for fiscal years ending after
December 15, 2002 and for interim periods  beginning after December 15, 2002. We
apply the intrinsic  value based method of accounting  prescribed by APB Opinion
No. 25, Accounting for Stock Issued to Employees,  in accounting for their stock
option  plans and have not  elected a  voluntary  change to the fair value based
method  prescribed  in Statement  No. 123.  Our  consolidated  annual  financial
statements  beginning  in 2002 and  consolidated  interim  financial  statements
beginning in 2003 include the additional  disclosures  required by SFAS No. 148,
but management  does not anticipate  that this statement will have a significant
impact on our consolidated financial position or results of operations.

                                       21

<PAGE>


     In April 2003, the Financial Accounting Standards Board issued Statement of
Financial  Accounting Standard No. 149, Amendment of Statement 133 on Derivative
Instruments  and Hedging  Activities.  This statement  amends  Statement 133 for
decisions made as part of the Derivatives Implementation Group process and other
board projects and in conjunction with other implementation  issues. Since we do
not invest in derivatives or engage in hedging  activities,  management does not
expect this statement to have any impact on our consolidated  financial position
or results of operations.

     In May 2003, the Financial  Accounting  Standards Board issued Statement of
Financial   Accounting  Standard  No.  150,  Accounting  for  Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity. This statement
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial instruments with characteristics of both liabilities and equity. Since
we have not yet issued any  instruments  of the type discussed in the statement,
management  does not expect this  statement to have a significant  impact on our
consolidated financial position or results of operations.

















                                       22


<PAGE>

ITEM 7. FINANCIAL STATEMENTS


                          Index to Financial Statements


Independent Auditor's Report..................................................24

Consolidated Balance Sheets as of December 31, 2003 and 2002..................25

Consolidated Statements of Income for the Years ended December 31, 2003,
2002 and 2001.................................................................26

Consolidated Statements of Comprehensive Income for the Years ended
December 31, 2003, 2002 and 2001..............................................27

Consolidated Statements of Changes in Shareholders' Equity for the Three
Years ended December 31, 2003.................................................28

Consolidated  Statements  of  Cash  Flows for the Years ended December 31,
2003, 2002 and 2001........................................................29-30

Notes to Financial Statements..............................................31-45











                                       23

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT



Board of Directors
Tennessee Valley Financial Holdings, Inc.
Oak Ridge, Tennessee


We have audited the accompanying consolidated balance sheets of Tennessee Valley
Financial Holdings, Inc. and subsidiary as of December 31, 2003 and 2002 and the
related  consolidated  statements of income,  comprehensive  income,  changes in
shareholders'  equity,  and cash flows for the years ended  December  31,  2003,
2002, and 2001. These consolidated  financial  statements are the responsibility
of the Bank's  management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Tennessee Valley
Financial  Holdings,  Inc. and  subsidiary as of December 31, 2003 and 2002, and
the  results  of their  operations  and their  cash  flows  for the years  ended
December 31, 2003,  2002,  and 2001, in conformity  with  accounting  principles
generally accepted in the United States of America.

                                              /s/ Pugh & Company, P.C.

                                              Pugh & Company, P.C.
                                              Certified Public Accountants
                                              Knoxville, Tennessee
                                              January 30, 2004











                                       24

<PAGE>


<TABLE>
<CAPTION>

                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.

                           CONSOLIDATED BALANCE SHEETS



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

                             ASSETS
Cash and Due From Banks                                             $             2,073,710   $             2,018,197
Federal Funds Sold                                                                   71,664                   127,514
                                                                       ---------------------     ---------------------
   Total Cash and Cash Equivalents                                                2,145,374                 2,145,711

Investment Securities Available for Sale, at Fair Value                          14,502,488                13,853,233
Loans Held for Sale, at Fair Value                                                  273,500                 5,942,350
Loans, Net                                                                       85,498,056                81,205,940
Premises and Equipment, Net                                                       3,713,642                 3,368,925
Accrued Interest Receivable                                                         554,840                   568,350
Deferred Income Tax Benefit                                                         301,960                   167,014
Prepaid Expenses and Other                                                           93,550                   106,005
                                                                       ---------------------     ---------------------

TOTAL ASSETS                                                        $           107,083,410   $           107,357,528
                                                                       =====================     =====================

                     LIABILITIES AND EQUITY
LIABILITIES
 Deposits:
  Demand                                                            $            47,005,402   $           $45,756,562
  Term                                                                           41,112,536                45,704,783
                                                                       ---------------------     ---------------------
   Total Deposits                                                                88,117,938                91,461,345

 Securities Sold Under Agreements to Repurchase                                     339,308                   282,398
 Federal Funds Purchased                                                            370,000                         0
 Advances From Federal Home Loan Bank                                             8,650,000                 7,270,700
 Obligation Under Capital Lease                                                     260,957                         0
 Accrued Interest Payable                                                           282,158                   346,995
 Accrued Income Taxes                                                               334,383                    58,821
 Other                                                                              231,410                   210,535
                                                                       ---------------------     ---------------------
   Total Liabilities                                                             98,586,154                99,630,794
                                                                       ---------------------     ---------------------

SHAREHOLDERS' EQUITY
 Common Stock, Par Value $1, Authorized 2,000,000
  Shares; Issued and Outstanding 534,130 Shares                                     534,130                   534,130
 Capital in Excess of Par Value                                                   6,487,427                 6,487,427
 Retained Earnings                                                                1,363,212                   471,975
                                                                       ---------------------     ---------------------
                                                                                  8,384,769                 7,493,532
 Accumulated Other Comprehensive Income                                             112,487                   233,202
                                                                       ---------------------     ---------------------
   Total Shareholders' Equity                                                     8,497,256                 7,726,734
                                                                       ---------------------     ---------------------

TOTAL LIABILITIES AND EQUITY                                        $           107,083,410   $           107,357,528
                                                                       =====================     =====================
</TABLE>



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



                                       25


<PAGE>

<TABLE>
<CAPTION>

                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.
                        CONSOLIDATED STATEMENTS OF INCOME

                                For the Years Ended December 31,            2003                   2002                   2001
                                                                      -----------------     -------------------     ----------------
<S>                                                                  <C>                   <C>
INTEREST INCOME
 Loans (Including Fees)                                              $       5,814,501     $         5,623,920   $         5,183,424
 Investment Securities                                                         574,607                 699,255               893,544
 Federal Funds Sold                                                             21,367                  29,398               100,675
                                                                      -----------------     -------------------     ----------------
  Total Interest Income                                                      6,410,475               6,352,573             6,177,643
                                                                      -----------------     -------------------     ----------------

INTEREST EXPENSE
 Deposits                                                                    1,745,106               2,279,720             3,046,304
 Advances From Federal Home Loan Bank                                          332,763                 291,015               239,599
 Other                                                                           8,204                   2,095                31,874
                                                                      -----------------     -------------------     ----------------
  Total Interest Expense                                                     2,086,073               2,572,830             3,317,777
                                                                      -----------------     -------------------     ----------------
NET INTEREST INCOME                                                          4,324,402               3,779,743             2,859,866

PROVISION FOR LOAN LOSSES                                                      290,000                 485,000               163,500
                                                                      -----------------     -------------------     ----------------
NET INTEREST INCOME AFTER PROVISION
  FOR LOAN LOSSES                                                            4,034,402               3,294,743             2,696,366
                                                                      -----------------     -------------------     ----------------
NONINTEREST INCOME
 Service Charges on Demand Deposits                                            345,548                 307,648               253,070
 Fees on Loans Sold                                                            906,092                 451,996               243,775
 Net Gain on Sales of Investment Securities
  Available for Sale                                                            48,301                   3,700                12,827
 Other                                                                          71,668                  60,905                48,279
                                                                      -----------------     -------------------     ----------------
  Total Noninterest Income                                                   1,371,609                 824,249               557,951
                                                                      -----------------     -------------------     ----------------
NONINTEREST EXPENSE
 Salaries and Employee Benefits                                              1,883,229               1,509,933             1,186,585
 Occupancy Costs                                                               378,005                 309,884               296,357
 Furniture and Equipment Depreciation and Maintenance                          160,856                 144,519               126,956
 Data Processing Fees                                                          252,193                 234,154               204,002
 Office Supplies and Postage                                                   187,100                 160,225               137,740
 Advertising and Promotion                                                      94,712                 100,567               102,491
 Legal and Professional                                                         92,015                  66,697                64,083
 Other                                                                         696,118                 547,032               339,161
                                                                      -----------------     -------------------     ----------------
   Total Noninterest Expense                                                 3,744,228               3,073,011             2,457,375
                                                                      -----------------     -------------------     ----------------
INCOME BEFORE INCOME TAXES                                                   1,661,783               1,045,981               796,942
INCOME TAXES                                                                   583,601                 329,340               269,767
                                                                      -----------------     -------------------     ----------------
NET INCOME                                                           $       1,078,182     $           716,641   $           527,175
                                                                      =================     ===================     ================
EARNINGS PER SHARE:
 Basic                                                               $            2.02     $              1.34   $              0.99
                                                                      =================     ===================     ================
 Assuming Dilution                                                   $            2.01     $              1.34   $              0.99
                                                                      =================     ===================     ================
</TABLE>

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


                                       26

<PAGE>



                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME







<TABLE>
<CAPTION>


                             For the Years Ended December 31,          2003              2002               2001
                                                                   -------------     --------------     --------------
<S>                                                             <C>               <C>                <C>
NET INCOME                                                      $    1,078,182    $       716,641    $       527,175
                                                                   -------------     --------------     --------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
 Unrealized Gains (Losses) on Investment Securities
  Available for Sale                                                  (143,414)           194,413            152,238

 Reclassification Adjustment for Net (Gains) Losses Included
  in Net Income                                                        (48,301)            (3,700)           (12,827)

 Income Taxes Associated With Unrealized Gains/Losses on
  Investment Securities Available for Sale                              71,000            (67,723)           (51,582)
                                                                   -------------     --------------     --------------
   Other Comprehensive Income (Loss), Net of Tax                      (120,715)           122,990             87,829
                                                                   -------------     --------------     --------------
COMPREHENSIVE INCOME                                            $      957,467            839,631    $       615,004
                                                                   =============     ==============     ==============
</TABLE>

























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


                                       27

<PAGE>


                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                   For the Three Years Ended December 31, 2003





<TABLE>
<CAPTION>
                                                                                                    Accumulated
                                                              Capital in                               Other              Total
                                                Common         Excess of          Retained         Comprehensive      Shareholders'
                                                 Stock         Par Value          Earnings            Income             Equity
                                             -------------    ------------     -------------    -----------------   ----------------
<S>                                          <C>              <C>              <C>              <C>
BALANCES, JANUARY 1, 2001                    $     534,030    $  5,242,917     $    471,169     $          22,383   $     6,270,499

Net Income                                               0               0          527,175                     0           527,175

Other Comprehensive Income                               0               0                0                87,829            87,829
                                             -------------    ------------     ------------     -----------------    ---------------

BALANCES, DECEMBER 31, 2001                        534,030       5,242,917          998,344               110,212         6,885,503

Effect of Share Exchange and
 Conversion of Bank Stock
 to Holding Company Stock                                0       1,243,010       (1,243,010)                    0                 0
Common Stock Options Exercised                         100           1,500                0                     0             1,600
 (100 Shares at $16 Per Share)

Net Income                                               0               0          716,641                     0           716,641
Other Comprehensive Income                               0               0                0               122,990           122,990
                                             -------------    ------------     ------------     -----------------    ---------------

BALANCES, DECEMBER 31, 2002                        534,130       6,487,427          471,975               233,202         7,726,734

Net Income                                               0               0        1,078,182                     0         1,078,182

Other Comprehensive Loss                                 0               0                0              (120,715)         (120,715)
Cash Dividends Paid                                      0               0         (186,945)                    0          (186,945)
                                             --------------   ------------     ------------     -----------------    ---------------

BALANCES, DECEMBER 31, 2003                  $     534,130    $  6,487,427     $  1,363,212     $         112,487   $     8,497,256
                                             ==============   ==============   ============     =================    ===============

</TABLE>







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

                                       28


<PAGE>




                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>


                        For the Years Ended December 31,           2003                 2002                2001
                                                              ----------------     ---------------     ---------------
<S>                                                        <C>                  <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net Income                                                $       1,078,182    $        716,641    $        527,175
                                                              ----------------     ---------------     ---------------

 Adjustments to Reconcile Net Income to Net Cash
  Provided by Operating Activities:
   Provision for Loan Losses                                         290,000             485,000             163,500
   Depreciation                                                      166,747             158,357             123,181
   Loss on Sales of Premises and Equipment                                 0                 999               2,514
   Deferred Income Tax Benefit                                       (63,946)            (66,126)            (75,744)
   Increase (Decrease) in Unearned Loan Fees                          43,995              (5,034)             44,324
   Net Amortization of Premiums and Discounts on                      92,274              56,696             (24,211)
Investment Securities
   FHLB Stock Dividends                                              (21,100)            (19,800)            (19,900)
   Net Gain on Sales of Investment Securities Available
    for Sale                                                         (48,301)             (3,700)            (12,827)
   Fees on Loans Sold                                               (906,092)           (430,000)           (230,930)
   Gain on Sales of Foreclosed Real Estate                                 0                (188)                  0
   (Increase) Decrease in Accrued Interest Receivable                 13,510             (24,180)            (37,628)
   (Increase) Decrease in Prepaid Expenses and Other                  32,455             (50,202)            (20,822)
   Decrease in Prepaid Income Taxes                                        0                   0              69,203
   Decrease in Accrued Interest Payable                              (64,837)            (60,063)            (94,127)
   Increase (Decrease) in Accrued Income Taxes                       275,562             (20,764)             79,585
   Increase in Other Liabilities                                      20,875               7,192             110,526
                                                              ----------------     ---------------     ---------------
    Total Adjustments                                               (168,858)             28,187              76,644
                                                              ----------------     ---------------     ---------------
     Net Cash Provided by Operating Activities                       909,324             744,828             603,819
                                                              ----------------     ---------------     ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment Securities Available for Sale:
 Sales                                                             1,895,626           2,211,658           1,114,035
 Purchases                                                        (7,441,296)         (5,742,169)         (6,611,128)
 Maturities                                                        2,030,000           1,880,000           2,550,000
 Principal Repayments Received                                     2,651,827           2,072,676           2,010,935
 Maturities of Investment Securities Held to Maturity                      0                   0           1,000,000
 Net Increase in Loans                                            (4,646,111)        (14,577,962)        (12,159,955)
 New Loans Originated for Sale                                   (58,237,823)        (28,401,750)        (18,060,970)
 Proceeds From Sales of Loans                                     64,812,765          25,503,150          15,678,150
 Purchases of Premises and Equipment                                (238,360)            (66,468)           (928,469)
 Proceeds From Sales of Foreclosed Real Estate                             0               7,241                   0
                                                              ----------------     ---------------     ---------------
     Net Cash Provided by (Used in) Investing Activities             826,628         (17,113,624)        (15,407,402)
                                                              ----------------     ---------------     ---------------
</TABLE>

                                       29


<PAGE>




                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>


                         For the Years Ended December 31,           2003                2002                2001
                                                               ---------------     ---------------     ---------------
<S>                                                         <C>                 <C>                 <C>
CASH FLOWS FROM FINANCING ACTIVITIES
 Net Increase (Decrease) in Deposits                              (3,343,407)         15,630,035           7,559,003
 Net Increase in Securities Sold Under Agreements to                  56,910             282,398                   0
  Repurchase
 Net Increase in Federal Funds Purchased                             370,000                   0                   0
 Net Increase in Advances From Federal Home Loan Bank              1,379,300             515,700           3,255,000
 Decrease in Obligation Under Capital Lease                          (12,147)                  0                   0
 Cash Dividends Paid                                                (186,945)                  0                   0
 Proceeds From Issuance of Common Stock                                    0               1,600                   0
                                                               ---------------     ---------------     ---------------
     Net Cash Provided by (Used in) Financing Activities          (1,736,289)         16,429,733          10,814,003
                                                               ---------------     ---------------     ---------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                    (337)             60,937          (3,989,580)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                     2,145,711           2,084,774           6,074,354
                                                               ---------------     ---------------     ---------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                    $      2,145,374    $      2,145,711    $      2,084,774
                                                               ===============     ===============     ===============


Supplementary Disclosures of Cash Flow Information:
 Cash Paid During the Year for:
  Interest                                                  $      2,150,910    $      2,632,893    $      3,411,904
  Income Taxes                                              $        370,251    $        415,495    $        197,174

Supplementary Disclosures of Noncash Investing and
 Financing Activities:
  Acquisition of Foreclosed Real Estate                     $         20,000    $         48,312    $              0
  Sales of Foreclosed Real Estate by Origination of
   Mortgage Loans                                           $              0    $         41,259    $              0
  Building Acquired Through Capital Lease                   $       (273,104)   $              0    $              0
  Change in Unrealized Gain/Loss on Investment
  Securities Available for Sale                             $       (191,715)   $        190,713    $        139,411
  Change in Deferred Taxes Associated With Unrealized
   Gain/Loss on Investment Securities Available for Sale    $        (71,000)   $         67,723    $         51,582
  Change in Net Unrealized Gain/Loss on Investment
   Securities Available for Sale                            $       (120,715)   $        122,990    $         87,829

</TABLE>


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


                                       30

<PAGE>


                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2003, 2002, and 2001

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

The consolidated  financial  statements include the accounts of Tennessee Valley
Financial Holdings, Inc. (the "Company"), a bank holding company, and its wholly
owned   subsidiary,   TNBank  (the  "Bank").   All  intercompany   balances  and
transactions have been eliminated.

TNBank  was  incorporated  on July 6,  1994  for the  purpose  of  organizing  a
state-chartered commercial bank and commenced operations on May 30, 1995. TNBank
provides a variety of banking services to individuals and businesses through its
two  offices in Oak Ridge and one office in  Knoxville,  Tennessee.  Its primary
deposit  products  are demand  deposits  and  certificates  of deposit,  and its
primary lending  products are commercial  business,  real estate  mortgage,  and
consumer installment loans.

On May 9, 2002, TNBank's  shareholders  approved a share exchange agreement with
Tennessee Valley Financial Holdings, Inc. whereby one share of Company stock was
exchanged for one share of Bank stock. The Bank's retained earnings as of May 9,
2002, totalling $1,243,010, was transferred to capital in excess of par value on
a consolidated basis.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Reclassifications  - Certain items in the 2002 and 2001  consolidated  financial
statements  have  been  reclassified  to  conform  with  the  2003  consolidated
financial statements.

Use of Estimates - The  preparation  of  consolidated  financial  statements  in
conformity with accounting principles generally accepted in the United States of
America  requires  management  to make  estimates  and  assumptions  that affect
certain reported amounts and disclosures. Actual results could differ from those
estimates.  Material estimates that are particularly  susceptible to significant
change  relate to the  determination  of the  allowance for losses on loans (see
below).

Consolidated  Statement  of  Comprehensive  Income - In June 1997 the  Financial
Accounting Standards Board issued SFAS No. 130, Reporting  Comprehensive Income.
This statement establishes standards for reporting  comprehensive income and its
components in the consolidated financial statements. The object of the statement
is to report a measure of all  changes in equity of an  enterprise  that  result
from   transactions   and  other  economic  events  of  the  period  other  than
transactions  with  owners.  Items  included  in  comprehensive  income  include
revenues  and  gains and  losses  that  under  accounting  principles  generally
accepted  in the  United  States of  America  are  directly  charged  to equity.
Examples include foreign currency  translations,  pension liability adjustments,
and unrealized gains and losses on investment securities available for sale.

Cash and Due From  Banks - Cash and due from  banks  includes  balances  in four
correspondent  commercial  banks  located  in the  Southeastern  United  States.
Balances in  correspondent  bank accounts in excess of FDIC insurance limits are
approximately $73,000 as of December 31, 2003 ($70,000 in 2002).

Federal  Funds Sold - Federal  funds sold  consists of an unsecured  loan to one
correspondent  commercial bank located in the  Southeastern  United States.  The
loan was repaid on the next business day.

Investment Securities - In accordance with SFAS No. 115, the Bank has segregated
its investment securities into the following category:

Available for Sale - All debt  securities  and all equity  securities  have been
placed in this  category.  These  securities  are carried at fair value based on
quoted  market  prices  for  securities  that are  marketable.  Fair  value  for
nonmarketable  securities  is estimated to be  equivalent  to  historical  cost.
Securities  may be sold in  response  to changes in  interest  rates,  liquidity
needs,  and for other  purposes.  Any unrealized gain or loss is reported in the
statements of  comprehensive  income,  net of any deferred tax effect.  Realized
gains and losses on the sales of  investment  securities  available for sale are
based on the net proceeds and amortized cost of the securities  sold,  using the
specific identification method.

                                       31

<PAGE>
Recognition  of Interest on Loans - Interest  on loans is  calculated  using the
simple  interest  method on the  principal  outstanding.  Accrual of interest is
discontinued on a loan when management believes,  after considering economic and
business  conditions  and  collection  efforts,  that the  borrower's  financial
condition is such that collection of interest is doubtful.

Allowance  for Loan Losses - The  allowance  for loan losses is  maintained at a
level which,  in  management's  judgment,  is adequate to absorb  credit  losses
inherent  in the  loan  portfolio.  The  amount  of the  allowance  is  based on
management's  evaluation of the collectibility of the loan portfolio,  including
the nature of the portfolio,  credit  concentrations,  trends in historical loss
experience,  specific  impaired loans, and economic  conditions.  Allowances for
impaired  loans  are  generally  determined  based on  collateral  values or the
present  value  of  estimated  future  cash  flows.   Because  of  uncertainties
associated with regional economic conditions, collateral values, and future cash
flows on impaired loans, it is reasonably possible that management's estimate of
credit  losses  inherent in the loan  portfolio  and the related  allowance  may
change  materially  in the near term.  The allowance is increased by a provision
for loan losses, which is charged to expense and reduced by charge-offs,  net of
recoveries.  Changes in the allowance  relating to impaired loans are charged or
credited to the provision for loan losses.

Loan Fees - Loan fees on  long-term  real estate  loans,  net of initial  direct
costs  related to initiating  and closing the loans,  have been deferred and are
being amortized into interest income over the remaining lives of the loans as an
adjustment of yield using the interest method.

Loans  Held for Sale - Loans  held for sale  are  stated  at fair  value,  which
approximates book value as of December 31, 2003 and 2002.

Premises  and  Equipment  - Premises  and  equipment  are  stated at cost,  less
accumulated  depreciation.  Depreciation  is  computed  using the  straight-line
method using estimated useful lives of three to forty years.

Federal Funds Purchased - Federal funds purchased  consists of an unsecured loan
from one  correspondent  commercial  bank  located  in the  Southeastern  United
States. The loan was repaid on the next business day.

Advertising  and  Promotion - Advertising  and  promotion  costs are expensed as
incurred.

Income Taxes - Income  taxes are  provided  for the tax effects of  transactions
reported in the consolidated financial statements and consist of taxes currently
due plus deferred taxes related  primarily to  differences  between the basis of
the allowance for loan losses,  accumulated depreciation,  and other book income
versus  taxable  income  reporting  differences.  The  deferred  tax  assets and
liabilities,  which are recorded  net of a valuation  allowance,  represent  the
future tax return consequences of those differences which will either be taxable
or deductible when the assets and liabilities are recovered or settled. See Note
11 for additional information.

Stock Option  Plans - The Company has two stock option plans that are  described
more fully in Note 14. The Company  accounts for the plans under the recognition
and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees,  and related  interpretations.  No stock-based employee  compensation
cost is reflected in consolidated  net income,  as all options granted under the
plans had an exercise price equal to the market value of the  underlying  common
stock on the date of grant.  The following  table  illustrates the effect on net
income  and  earnings  per  share if the  Company  had  applied  the fair  value
recognition  provisions of FASB Statement No. 123,  Accounting  for  Stock-Based
Compensation, to stock-based employee compensation.

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                      ----------------------------------------------------------
                                                                           2003                 2002                 2001
                                                                      ----------------    -----------------    -----------------
<S>                                                               <C>                  <C>                  <C>
Net Income, as Reported                                           $         1,078,182  $          716,641   $          527,175
Less: Total Stock-Based Employee Compensation
 Expense Determined Under Fair Value Based Method
 for All Awards, Net of Related Tax Effects                                         0              (8,413)              (7,344)
                                                                      ----------------    -----------------    -----------------
Pro Forma Net Income                                               $        1,078,182  $          708,228   $          519,831
                                                                      ================    =================    =================
Earnings Per Share:
 Basic - as Reported                                               $             2.02  $             1.34   $             0.99
                                                                      ================    =================    =================
 Basic - Pro Forma                                                 $             2.02  $             1.33   $             0.97
                                                                      ================    =================    =================
 Diluted - as Reported                                             $             2.01  $             1.34   $             0.99
                                                                      ================    =================    =================
 Diluted - Pro Forma                                               $             2.01  $             1.32   $             0.97
                                                                      ================    =================    =================
</TABLE>


                                       32
<PAGE>


Earnings Per Share - Earnings per share is based on the  following for the years
ended December 31:

<TABLE>
<CAPTION>

                                                                           2003                 2002                 2001
                                                                      ----------------    -----------------    -----------------
<S>                                                                           <C>                 <C>                   <C>
Weighted Average Number of Shares Outstanding
 Used for Basic Calculation                                                   534,130              534,085              534,030
Effect of Dilutive Stock Options                                                2,603                  853                  442
                                                                      ----------------    -----------------    -----------------
 Number of Shares Used for Calculation Assuming Dilution                      536,733              534,938              534,472
                                                                      ================    =================    =================
</TABLE>


NOTE 3 - INVESTMENT SECURITIES

The amortized  cost and estimated  fair value of  investment  securities  are as
follows:
<TABLE>
<CAPTION>

                                                                       Investment Securities Available for Sale
                                                        ------------------------------------------------------------------------
                                                                               Gross              Gross             Estimated
                                                          Amortized         Unrealized          Unrealized            Fair
                                                             Cost              Gains              Losses              Value
                                                        ---------------    --------------     ---------------     --------------
<S>                                                  <C>                <C>                <C>                 <C>

December 31, 2003:
 Debt Securities:
  U.S. Treasury Securities and Obligations of
   U.S. Government Corporations and Agencies         $       3,583,508  $         63,856   $        (21,159)   $      3,626,205
  Mortgage-Backed and Related Securities                     5,032,646            74,084            (20,617)          5,086,113
  Obligations of States and
   Political Subdivisions                                    4,899,752           111,998            (39,917)          4,971,833
  Corporate Debt Securities                                    262,870             6,267                  0             269,137
                                                        ---------------    --------------     ---------------     --------------
    Total Debt Securities                                   13,778,776           256,205            (81,693)         13,953,288
 Equity Securities:
  Federal Home Loan Bank Stock, at Cost                        549,200                 0                  0             549,200
                                                        ---------------    --------------     ---------------     --------------
                                                     $      14,327,976  $        256,205   $        (81,693)   $     14,502,488
                                                        ===============    ==============     ===============     ==============


                                                                       Investment Securities Available for Sale
                                                        ------------------------------------------------------------------------
                                                                               Gross              Gross             Estimated
                                                          Amortized         Unrealized          Unrealized            Fair
                                                             Cost              Gains              Losses              Value
                                                        ---------------    --------------     ---------------     --------------
December 31, 2002:
 Debt Securities:
  U.S. Treasury Securities and Obligations of
   U.S. Government Corporations and Agencies         $       3,472,317  $        116,181   $        (21,924)   $      3,566,574
  Mortgage-Backed and Related Securities                     5,132,762           150,881               (967)          5,282,676
  Obligations of States and
   Political Subdivisions                                    3,808,402           101,375            (10,537)          3,899,240
  Corporate Debt Securities                                    545,425            31,218                  0             576,643
                                                        ---------------    --------------     ---------------     --------------
    Total Debt Securities                                   12,958,906           399,655            (33,428)         13,325,133
 Equity Securities:
  Federal Home Loan Bank Stock, at Cost                        528,100                 0                  0             528,100
                                                        ---------------    --------------     ---------------     --------------
                                                     $      13,487,006  $        399,655   $        (33,428)   $     13,853,233
                                                        ===============    ==============     ===============     ==============
</TABLE>


                                       33


<PAGE>


The amortized  cost and estimated  fair value of debt  securities as of December
31, 2003, by contractual maturity, are as follows:
<TABLE>
<CAPTION>

                                                                                                     Available for Sale
                                                                                              ----------------------------------
                                                                                                                    Estimated
                                                                                                Amortized             Fair
                                                                                                   Cost               Value
                                                                                              ---------------     --------------
<S>                                                                                        <C>                 <C>
Due in One Year or Less                                                                    $               0   $              0
Due After One Year Through Five Years                                                              2,449,010          2,515,296
Due After Five Years Through Ten Years                                                             2,582,961          2,637,858
Due After Ten Years                                                                                3,714,159          3,714,021
                                                                                              ---------------     --------------
                                                                                                   8,746,130          8,867,175
Mortgage-Backed and Related Securities                                                             5,032,646          5,086,113
                                                                                              ---------------     --------------
                                                                                           $      13,778,776   $     13,953,288
                                                                                              ===============     ==============
</TABLE>

Expected  maturities can differ from contractual  maturities because issuers may
have the right to call or prepay  obligations with or without call or prepayment
penalties.

Proceeds  from sales of investment  securities  classified as available for sale
totalled  $1,895,626 during the year ended December 31, 2003 ($2,211,658 in 2002
and $1,114,035 in 2001).  Gross gains of $48,301  ($8,856 in 2002 and $12,827 in
2001) and gross  losses of $0 ($5,156 in 2002 and $0 in 2001) were  realized  by
the Bank during the year ended December 31, 2003.

Investments with a total estimated fair value (which approximates book value) of
approximately  $6,813,000  as of  December  31, 2003  ($6,246,000  in 2002) were
pledged to secure deposits of public and private funds.

The following table shows the Bank's investments' gross unrealized losses and
fair value, aggregated by investment category and length of time that individual
securities have been in a continuous loss position, as of December 31, 2003.
<TABLE>
<CAPTION>

                                                                                       Less Than One Year
                                                               -------------------------------------------------------------------
                                                                  Number                                               Percent
                                                                    of               Fair           Unrealized            of
Description of Securities                                      Investments          Value             Losses            Losses
-----------------------------------------------------------    -------------     -------------    ---------------    -------------
<S>                                                                 <C>       <C>              <C>                      <C>

 U.S. Treasury Securities and Obligations of U.S.
  Government Corporations and Agencies                               3        $     1,184,690  $        (21,159)        1.82%
 Mortgage-Backed Securities                                          5              1,716,664           (20,617)        1.22%
 Obligations of States and Political Subdivisions                    5              1,572,585           (39,917)        2.60%
                                                               -------------     -------------    ---------------
  Total Temporarily Impaired Securities                             13        $     4,473,939  $        (81,693)        1.86%
                                                               =============     =============    ===============
</TABLE>



Management  believes that all of the Bank's gross unrealized losses are a result
of recent, normal market fluctuations.  Therefore,  the Bank's unrealized losses
are considered  temporary in nature and no permanent  adjustments have been made
to the carrying values of its investment securities.


                                       34



<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES

The Bank  provides  mortgage,  commercial,  and  consumer  lending  services  to
businesses  and  individuals  primarily in the Anderson,  Knox, and Roane County
areas. A summary of loans as of December 31, 2003 and 2002 is as follows:
<TABLE>
<CAPTION>

                                                                                                2003                 2002
                                                                                          -----------------    -----------------
<S>                                                                                    <C>                  <C>
Loans Secured by Real Estate:
 Commercial Properties                                                                 $       15,458,130   $       15,014,207
 Construction and Land Development                                                             12,362,854           12,982,559
 Residential and Other Properties                                                              38,668,918           37,694,354
                                                                                          -----------------    -----------------
  Total Loans Secured by Real Estate                                                           66,489,902           65,691,120

Commercial and Industrial Loans                                                                11,439,618            8,433,366
Consumer Loans and Other                                                                        8,981,386            8,214,141
                                                                                          -----------------    -----------------
                                                                                               86,910,906           82,338,627
Less:  Allowance for Loan Losses                                                               (1,283,465)          (1,047,297)
           Unearned Loan Fees                                                                    (129,385)             (85,390)
                                                                                          -----------------    -----------------
                                                                                       $       85,498,056   $       81,205,940
                                                                                          =================    =================
</TABLE>
Loans held for sale represent  individual  real estate loans  originated for the
purpose of selling the loans to one of several third party purchasers with which
the Bank does  business.  These  loans are sold  without  recourse  and the Bank
receives certain fees for originating the loans.

In the ordinary course of business,  the Bank has entered into off-balance-sheet
financial  instruments  consisting of commitments  to extend credit,  commercial
letters of credit,  and standby letters of credit.  These financial  instruments
are  recorded in the  financial  statements  when they are  funded.  Outstanding
letters of credit were approximately  $585,000 as of December 31, 2003 ($880,000
as of December 31, 2002).  Unadvanced  lines of credit and commitments to extend
credit were approximately $27,969,000 as of December 31, 2003 ($14,514,000 as of
December 31, 2002).  Of the total  outstanding  letters of credit and unadvanced
lines and commitments as of December 31, 2003  approximately  $22,632,000,  were
secured, primarily by real estate ($10,869,000 in 2002).

From  time  to  time,  the  Bank  provides  credit  to its  executive  officers,
directors, and their affiliates. Such transactions are made on the same terms as
those  prevailing for comparable  transactions  with other  borrowers and do not
represent  more than a normal risk of collection.  Loans to executive  officers,
directors, and their affiliates are as follows:
<TABLE>
<CAPTION>

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

Loans at Beginning of Year                                                             $          528,779   $          793,466
 Disbursements                                                                                  1,508,079              436,358
 Repayments                                                                                      (920,021)            (701,045)
                                                                                          -----------------    -----------------
Loans at End of Year                                                                   $        1,116,837   $          528,779
                                                                                          =================    =================

The transactions in the allowance for loan losses are as follows:

                                                                           2003                 2002                 2001
                                                                      ----------------    -----------------    -----------------
Balance, Beginning of Year                                         $       1,047,297   $          811,488   $          694,351
Charge-offs                                                                  (80,587)            (276,054)             (50,785)
Recoveries                                                                    26,755               26,863                4,422
Provision - Charged to Expense                                               290,000              485,000              163,500
                                                                      ----------------    -----------------    -----------------
Balance, End of Year                                               $       1,283,465   $        1,047,297   $          811,488
                                                                      ================    =================    =================
</TABLE>

The Bank had  approximately  $21,000 in 2003 ($28,000 in 2002) of loans past due
ninety days or more and still accruing interest,  and approximately  $962,000 in
loans on which the accrual of interest had been  discontinued as of December 31,
2003 ($318,000 in 2002).

As of  December  31,  2003,  the  Bank  had  approximately  $1,516,000  in loans
specifically  classified as impaired  ($800,000 in 2002). The allowance for loan
losses  related to  impaired  loans  amounted  to  approximately  $338,000 as of
December 31, 2003 ($164,000 in 2002).

                                       35


<PAGE>
NOTE 5 - PREMISES AND EQUIPMENT

A summary of premises and equipment is as follows:
<TABLE>
<CAPTION>

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

Land                                                                          $       1,148,074   $        1,148,074
Buildings                                                                             1,984,582            1,980,669
Leasehold Improvements                                                                    6,894                6,894
Furniture, Fixtures, and Equipment                                                      882,038              749,824
Construction in Progress                                                                375,337                    0
                                                                                ----------------    -----------------
                                                                                      4,396,925            3,885,461
Less Accumulated Depreciation                                                          (683,283)            (516,536)
                                                                                ----------------    -----------------
                                                                              $       3,713,642   $        3,368,925
                                                                                ================    =================
</TABLE>


Included in  Construction  in Progress  above is $273,104 for a branch  building
being renovated that is an asset under capital lease (see Note 15). Depreciation
expense  will begin being  recorded  when the branch is placed in  operation  in
2004.


NOTE 6 - ACCRUED INTEREST RECEIVABLE

A summary of accrued interest receivable is as follows:
<TABLE>
<CAPTION>

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

Investment Securities                                                         $          147,946  $           131,007
Loans                                                                                    406,894              437,343
                                                                                ----------------    -----------------
                                                                              $          554,840  $           568,350
                                                                                ================    =================
</TABLE>



NOTE 7 - DEPOSITS

A summary of deposits is as follows:
<TABLE>
<CAPTION>
                                                                                        2003                 2002
                                                                                ----------------    -----------------
<S>                                                                           <C>                 <C>
Demand Deposits:
 Noninterest-Bearing Accounts                                                 $        7,814,857  $         8,304,599
 NOW and MMDA Accounts                                                                36,048,879           34,944,348
 Savings Accounts                                                                      3,141,666            2,507,615
                                                                                ----------------    -----------------
Total Demand Deposits                                                                 47,005,402           45,756,562

 Term Deposits:
 Less Than $100,000                                                                   26,317,023           31,939,581
 $100,000 or More                                                                     14,795,513           13,765,202
                                                                                ----------------    -----------------
Total Term Deposits                                                                   41,112,536           45,704,783
                                                                                ----------------    -----------------
                                                                              $       88,117,938  $        91,461,345
                                                                                ================    =================
</TABLE>
As of December 31, 2003, the scheduled  maturities of  certificates  of deposits
are as follows:

     2004                             $        20,795,695
     2005                                      14,026,531
     2006                                       2,842,242
     2007                                       3,290,205
     2008 and Thereafter                          157,863
                                         ----------------
                                      $        41,112,536
                                         ================

                                       36


<PAGE>


NOTE 8 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Bank sells  certain  investment  securities  with  agreements  to repurchase
primarily  on an  overnight  basis to selected  depositors.  The  balances as of
December 31, 2003 and 2002 were $339,308 and $282,398, respectively.

Securities sold under agreements to repurchase averaged  approximately  $263,000
and $129,000 during 2003 and 2002, respectively. The maximum amounts outstanding
at any month-end during 2003 and 2002 were approximately  $339,000 and $282,000,
respectively.


NOTE 9 - ADVANCES FROM FEDERAL HOME LOAN BANK

The following table is a maturity schedule of advances from Federal Home Loan
Bank as of December 31, 2003:
<TABLE>
<CAPTION>
                                                                                                   Amount
                                                Next Call/                  Final                Outstanding
 Date of Advance       Interest Rate          Prepayment Date            Maturity Date           at 12/31/03
-----------------    ------------------    ----------------------    ---------------------     ----------------
<S> <C>                    <C>                    <C>                      <C>             <C>

    9/21/00                6.22%                  3/21/04                  9/22/10         $         1,000,000
    12/27/00               5.00%                  3/27/04                  12/27/10                  1,000,000
    8/10/01                5.09%                  8/10/06                  8/10/11                   1,000,000
    8/15/01                3.60%                  8/15/04                  8/15/11                   1,000,000
    6/21/02                4.82%                   None                    6/21/07                     500,000
    8/30/02                3.65%                  8/30/07                  8/30/12                   2,000,000
    4/25/03                2.41%                  4/25/06                  4/25/13                   2,000,000
    12/19/03               1.09%                   Daily                   3/18/04                     150,000
                                                                                               ----------------
                                                                                           $         8,650,000
                                                                                               ================
</TABLE>

Interest  expense  associated with the advances from the FHLB totalled  $332,763
for the year ended  December  31, 2003  ($291,015 in 2002 and $239,599 in 2001).
Pursuant to collateral agreements with the FHLB, the advances are secured by the
Bank's  FHLB  stock  and  certain  first  mortgage  loans.  The  Bank has a Cash
Management  Advance  (CMA)  agreement  with the FHLB with maximum  borrowings of
$6,000,000 expiring in June 2004.


NOTE 10 - INTEREST EXPENSE

A summary of interest expense is as follows:
<TABLE>
<CAPTION>
                                                                             2003                 2002                 2001
                                                                      ----------------    -----------------    -----------------
<S>                                                               <C>                  <C>                  <C>
NOW and MMDA Accounts                                             $           377,271  $           447,195  $           572,209
Savings Accounts                                                               17,924               20,277               20,391
Term Deposits                                                               1,349,911            1,812,385            2,453,750
FHLB Advances and Repurchase Agreements                                       335,670              292,973              271,427
Capital Lease Obligation                                                        5,297                    0                    0
                                                                      ----------------    -----------------    -----------------
 Total Interest Expense                                           $         2,086,073  $         2,572,830  $         3,317,777
                                                                      ================    =================    =================
</TABLE>



                                       37

<PAGE>


NOTE 11 - INCOME TAXES

Income  taxes as shown in the  statements  of  income  differ  from the  amounts
computed using the statutory federal income tax rate as follows:
<TABLE>
<CAPTION>

                                                   2003                            2002                             2001
                                       -----------------------------    ----------------------------     ---------------------------
                                                         Percent                          Percent                          Percent
                                                            of                              of                               of
                                                          Pretax                          Pretax                           Pretax
                                         Amount           Income          Amount          Income           Amount          Income
                                       ------------    -------------    ------------    ------------     ------------    -----------
<S>                                 <C>                      <C>     <C>                    <C>       <C>                   <C>

Federal Income Tax at
 Statutory Rate                     $     565,006            34.0 %  $     355,634           34.0 %   $     270,960         34.0 %
Change in Deferred Tax
 Valuation Allowance                            0             0.0                0            0.0           (25,219)        (3.1)
Tax Exempt Interest
 and Dividends                            (59,328)           (3.6)         (53,816)          (5.1)          (22,521)        (2.8)
State Income Tax and
 Other, Net                                77,923             4.7           27,522            2.6            46,547          5.8
                                       ------------    -------------    ------------    ------------     ------------    -----------
                                    $     583,601            35.1 %  $     329,340           31.5 %   $     269,767         33.9 %
                                       ============    =============    ============    ============     ============    ===========
Income Taxes Consist of:

Current                             $     647,547                    $     395,466                    $     345,511
Deferred Benefit                          (63,946)                         (66,126)                         (75,744)
                                       ------------                     ------------                     ------------
                                    $     583,601                    $     329,340                    $     269,767
                                       ============                     ============                     ============
</TABLE>

The tax effect of each type of temporary  difference and  carryfoward  that give
rise to deferred tax assets and liabilities is as follows:
<TABLE>
<CAPTION>
                                                                                                    2003                 2002
                                                                                            ----------------    -----------------
<S>                                                                                      <C>                 <C>
Deferred Tax Assets:
 Allowance for Loan Losses                                                               $          458,432  $          336,701
 Deferred Loan Fees                                                                                  52,401              34,583
 Conversion to Cash Basis                                                                            14,522              10,163
 Organizational Costs                                                                                13,141              21,205
 Prepaid Items                                                                                        2,896                   0
                                                                                            ----------------    -----------------
  Total Deferred Tax Assets                                                                         541,392             402,652
                                                                                            ----------------    -----------------
 Deferred Tax Liabilities:
 Depreciation                                                                                       105,338              41,713
 FHLB Stock Dividends                                                                                42,444              33,899
 Discount Accretion                                                                                   8,110              16,433
 Unrealized Holding Gains on Investment Securities Available for Sale                                62,267             133,509
 State Tax                                                                                           21,273              10,084
                                                                                            ----------------    -----------------
  Total Deferred Tax Liabilities                                                                    235,638             239,432
                                                                                            ----------------    -----------------
   Net Deferred Tax Assets                                                               $          301,960  $          167,014
                                                                                            ================    =================
</TABLE>


Realization  of net  deferred  tax assets is dependent  upon  sufficient  future
taxable  income  during the period that  deductible  temporary  differences  are
expected to reduce taxable income.  A valuation  allowance was provided until it
was likely that the full amount of net deferred tax assets would be realized.


                                       38


<PAGE>


NOTE 12 - PROFIT SHARING PLAN

Contributions to the profit sharing plan,  determined annually at the discretion
of the Bank's board of  directors,  were $28,749,  $23,729,  and $20,108 for the
years ended December 31, 2003, 2002, and 2001, respectively.


NOTE 13 - REGULATORY MATTERS

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  Total  and  Tier  I  capital  (as  defined  in the  regulations)  to
Risk-Weighted Assets (as defined), and of Tier I capital (as defined) to Average
Assets (as defined). Management believes, as of December 31, 2003, that the Bank
meets all capital adequacy requirements to which it is subject.

As of December 31, 2003, the Bank is categorized as well  capitalized  under the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that date that management  believes have changed the  institution's
category.

The Bank's actual  capital  amounts and ratios are also  presented in the table.
All amounts are in thousands of dollars.
<TABLE>
<CAPTION>
                                                                                                               To Be Well
                                                                                 To Comply With             Capitalized Under
                                                                                Minimum Capital             Prompt Corrective
                                                         Actual                   Requirements              Action Provisions
                                                 -----------------------     -----------------------     ------------------------
                                                    Amount         Ratio        Amount        Ratio         Amount         Ratio
                                                 ----------    ----------    ----------     --------     ----------    ----------
<S>                                           <C>                  <C>    <C>                  <C>    <C>
As of December 31, 2003:
Total Capital
 (to Risk-Weighted Assets)                    $      9,321         11.1%  $      6,724         8.0%   $      8,405         10.0%
Tier I Capital
 (to Risk-Weighted Assets)                    $      8,268          9.8%  $      3,362         4.0%   $      5,043          6.0%
Tier I Capital
 (to Average Assets)                          $      8,268          7.7%  $      5,357         5.0%   $      5,357          5.0%

As of December 31, 2002:
Total Capital
 (to Risk-Weighted Assets)                    $      8,465         10.3%  $      6,560         8.0%   $      8,201         10.0%
Tier I Capital
 (to Risk-Weighted Assets)                    $      7,440          9.1%  $      3,280         4.0%   $      4,920          6.0%
Tier I Capital
 (to Average Assets)                          $      7,440          7.1%  $      5,224         5.0%   $      5,224          5.0%
</TABLE>


                                       39

<PAGE>

NOTE 14 - KEY EMPLOYEES STOCK OPTION PLAN

In 1996,  the board of  directors  approved a stock  option  plan to provide key
employees with  additional  incentive to contribute to the best interests of the
Company.  The plan terminates in ten years, or sooner at the board's discretion.
The board of directors also has  discretion  concerning  which eligible  persons
shall be granted  options,  the term of each granted  option,  and the number of
shares for which each option shall be granted.  Options must be exercised within
ten years from the date they are granted  and must  include a price per share of
at least 85% to 110% of the fair value of the Company's common stock on the date
the option is granted.  The board of  directors  has reserved  19,457  shares of
common stock for  issuance  during the term of the plan.  In 1999,  the board of
directors  awarded a total of 14,600  options  at an  exercise  price of $16 per
share,  which was equal to the fair  value of the stock on the date the  options
were granted.  The options vested over a four-year period. In 2002,  options for
100 shares were exercised (none exercised in other years).

In 2002,  the board of  directors  approved an  additional  stock option plan to
provide key  employees  with  additional  incentive  to  contribute  to the best
interests  of the  Company.  The plan  terminates  in ten  years.  The  board of
directors also has discretion  concerning which eligible persons shall be grated
options,  the term of each  granted  option,  and the number of shares for which
each option shall be granted.  Options  must be exercised  within ten years from
the date they are granted and must include a price per share of at least 100% of
the fair value of the Company's  common stock on the date the option is granted.
The board of  directors  has  reserved  the lesser of 20% of the diluted  shares
outstanding  (107,346  shares at December 31, 2003) or 213,612  shares of common
stock for issuance  during the term of the plan.  The board of directors has not
awarded any options under this plan.



The fair value of each option  granted is  estimated  on the date of grant using
the  Black-Scholes  option-pricing  model  with the  following  weighted-average
assumptions:

                                            Years Ended December 31,
                             ---------------------------------------------------
                                  2003             2002              2001
                             ---------------  ----------------  ----------------
Dividend Yield                    N/A              1.37%             1.22%
Expected Life                     N/A             6 years           7 years
Expected Volatility               N/A                10%               10%
Risk-Free Interest Rate           N/A               5.2%              5.2%

A summary of the status of the Company's stock option plans is presented below:

<TABLE>
<CAPTION>

                                              2003                            2002                             2001
                                   ---------------------------    -----------------------------    -----------------------------
                                                    Weighted                        Weighted                         Weighted
                                                    Average                          Average                          Average
                                                    Exercise                        Exercise                         Exercise
                                     Shares          Price           Shares           Price          Shares            Price
                                   ------------    -----------    -------------    ------------    ------------     ------------
<S>                                     <C>     <C>                    <C>      <C>                    <C>       <C>

Outstanding at
 Beginning of Year                      14,500  $       16.00          14,600   $        16.00          14,600   $        16.00
Granted                                      0                              0                                0
Exercised                                    0                           (100)           16.00               0
Forfeited                                    0                              0                                0
                                   ------------                   -------------                    ------------
Outstanding at
 End of Year                            14,500  $       16.00          14,500   $        16.00          14,600   $        16.00
                                   ============                   =============                    ============
Options Exercisable                     14,500  $       16.00          14,500   $        16.00          12,700   $        16.00
 at Year-End
Weighted-Average Fair
 Value of Options Granted
 During the Year                           N/A                            N/A                              N/A
</TABLE>



                                       40


<PAGE>


Information  pertaining  to  options  outstanding  at  December  31,  2003 is as
follows:
<TABLE>
<CAPTION>
                                                       Options Outstanding                            Options Exercisable
                                       ----------------------------------------------------     --------------------------------
                                                              Weighted
                                                               Average          Weighted                             Weighted
                                                              Remaining          Average                             Average
             Range of                       Number           Contractual        Exercise           Number            Exercise
         Exercise Prices                 Outstanding            Life              Price          Exercisable          Price
-----------------------------------    -----------------    --------------     ------------     --------------     -------------
<S>                                         <C>                <C>            <C>                  <C>         <C>

         $16.00 - $16.00                    14,500             5.3 years      $   16.00            14,500      $      16.00
</TABLE>



NOTE 15 - LEASE COMMITMENTS/RELATED PARTY

The Bank leases certain office facilities and office equipment. On June 1, 2003,
the Bank began leasing a branch  building that has been  classified as a capital
lease for financial accounting  purposes.  This lease is for an initial ten year
period with additional  renewal options and purchase  options.  All other leases
are  classified as operating  leases and provide for monthly lease payments over
12 to 60 months. Total lease expense under  noncancellable  operating leases for
the years ended December 31, 2003, 2002, and 2001 totalled $53,701, $35,905, and
$55,065,  respectively,  of which $0 was paid to a related  party in 2003 ($0 in
2002 and $12,000 in 2001). The Bank no longer leases any office  facilities from
a related party with the completion of the new main office facility in 2001.

The following is a schedule by years of future minimum rental payments  required
under all noncancellable operating and capital leases as of December 31, 2003:

<TABLE>
<CAPTION>

                                                Capital            Operating
                                                 Lease               Leases              Total
                                           ---------------     ---------------    ----------------
<S>                                          <C>                 <C>                <C>

           2004                              $      29,906       $     57,540       $     87,446
           2005                                     29,906             45,850             75,756
           2006                                     29,906             45,850             75,756
           2007                                     29,906             45,224             75,130
           2008                                     33,406             42,094             75,500
           Thereafter                              158,585            185,915            344,500
                                           ---------------     ---------------    ----------------
Total minimum lease payments                 $     311,615       $    422,473       $    734,088
                                           ===============     ===============     ===============
Less amount representing interest                   50,658
                                           ---------------
Present value of minimum lease payments  $         260,957
                                           ===============
</TABLE>

NOTE 16 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK

The Bank's  primary  business  activity is with  customers  located  within East
Tennessee. As of December 31, 2003, the Bank had concentrations of loans secured
by commercial  properties and residential and other  properties.  The usual risk
associated with such  concentrations is generally mitigated by being spread over
several hundred  unrelated  borrowers and by adequate  collateral  loan-to-value
ratios.


NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The  Financial  Accounting  Standards  Board has issued  Statement  of Financial
Accounting  Standards  No.  107,  Disclosures  About  Fair  Value  of  Financial
Instruments  (SFAS No. 107),  which requires the Bank to disclose the fair value
of  financial  instruments,  both  assets  and  liabilities  recognized  and not
recognized in the statements of financial condition, for which it is practicable
to estimate fair value.

                                       41

<PAGE>


According to SFAS No. 107, a financial  instrument is defined as cash,  evidence
of an ownership  interest in an entity,  or a contract that both: (1) imposes on
one  entity a  contractual  obligation  to  deliver  cash or  another  financial
instrument to a second  entity,  or to exchange other  financial  instruments on
potentially  unfavorable  terms with the second entity,  and (2) conveys to that
second  entity  a  contractual  right  to  receive  cash  or  another  financial
instrument from the first entity, or to exchange other financial  instruments on
potentially favorable terms with the first entity.

SFAS No. 107 also states that the fair value of a  financial  instrument  is the
amount at which  the  instrument  could be  exchanged  in a current  transaction
between  willing  parties,  other than in a forced or liquidation  sale.  Quoted
market prices in an active  market,  if available,  are the best evidence of the
fair value of financial instruments. For financial instruments that do not trade
regularly,  management's  best  estimate  of fair  value is based on either  the
quoted market price of a financial instrument with similar characteristics or on
valuation  techniques  such as the present value of estimated  future cash flows
using a discount rate commensurate with the risks involved.

For the Bank, as for most financial institutions, the majority of its assets and
liabilities are considered  financial  instruments as defined above.  However, a
large  majority of those assets and  liabilities  do not have an active  trading
market nor are their characteristics  similar to other financial instruments for
which an active trading market exists.  In addition,  it is the Bank's  practice
and intent to hold the majority of its financial instruments to maturity and not
to engage in trading or sales activities.  Therefore, much of the information as
well as the amounts  disclosed  below are highly  subjective  and  judgmental in
nature.   The  subjective   factors  include   estimates  of  cash  flows,  risk
characteristics, credit quality, and interest rates, all of which are subject to
change.  Because the fair value is  estimated  as of December 31, 2003 and 2002,
the amounts that will  actually be realized or paid upon  settlement or maturity
of the various financial instruments could be significantly different.

The estimates of fair value are based on existing financial  instruments without
attempting to estimate the value of anticipated  future business or activity nor
the  value  of  assets  and  liabilities  that  are  not  considered   financial
instruments.  For example,  the value of mortgage loan servicing  rights and the
value of the Bank's long-term  relationships with depositors,  commonly known as
core deposit  intangibles,  have not been  considered  in the  estimates of fair
values  presented  below.  In  addition,  the tax  implications  related  to the
realization of unrealized gains and losses can have a significant effect on fair
value estimates and have not been included in the estimated fair values below.

The following  methods and  assumptions  were used to estimate the fair value of
the following classes of financial instruments:

Cash and Cash Equivalents - Cash and cash equivalents  include cash and due from
banks and federal funds sold.  For these  short-term  instruments,  the recorded
book value is a reasonable estimate of fair value.

Investment Securities - Quoted market prices are used to determine the estimated
fair value of investment securities.

Net Loans - The estimated fair value of fixed rate mortgage loans and commercial
loans are  calculated by  discounting  future cash flows to their present value.
Future cash flows,  consisting  of both  principal  and interest  payments,  are
discounted using current Bank rates for similar loans with similar maturities.

The estimated fair value of variable rate loans is considered  equal to recorded
book value.

Fixed rate installment  loans have an average maturity of less than three years,
a  relatively  stable  average  interest  rate,  and a variety  of credit  risks
associated  with them. The fair value of these loans is estimated by discounting
future  estimated cash flows to their present value using current Bank rates for
similar loans with similar maturities.

The  estimated  fair value of the  allowance for loan losses is considered to be
recorded book value.  Additionally,  the credit  exposure  known to exist in the
loan portfolio is embodied in the allowance for loan losses.

                                       42

<PAGE>

Deposits - The estimated  fair value of demand,  savings,  NOW, and money market
deposits is the amount  payable on demand at the reporting  date. The fair value
of fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar maturities.

Securities  Sold  Under   Agreements  to  Repurchase  -  Securities  sold  under
agreements  to  repurchase  are  short-term in nature and recorded book value is
considered to approximate fair value.

Federal  Funds  Purchased - For this  short-term  instrument,  the recorded book
value is a reasonable estimate of fair value.

Advances  From  Federal  Home Loan Bank - For  advances  that are fixed rate and
fixed maturity liabilities,  their fair value is estimated using rates currently
available to the Bank for debt with similar terms and remaining maturities. Book
value approximates fair value for advances that have variable rates.

Obligation  Under Capital  Lease - For 2003,  the book value  approximates  fair
value since interest rates have not changed  significantly since this obligation
was incurred.

Off-Balance-Sheet Loan Commitments - The fair value of loan commitments is based
on fees currently charged to enter into similar agreements,  taking into account
the remaining  terms of the agreements and the present  creditworthiness  of the
counterparties.  For fixed rate loan commitments,  fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of letters of credit is based on fees  currently  charged for similar
agreements or on the estimated  cost to terminate  them or otherwise  settle the
obligations  with the  counterparties  at the reporting  date. The fair value of
these items is not material to the Bank as of December 31, 2003 and 2002.

The  recorded  book  value and  estimated  fair  value of the  Bank's  financial
instruments as of December 31, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>

                                                                        2003                                 2002
                                                            --------------------------------    ---------------------------------
                                                              Recorded         Estimated          Recorded           Estimated
                                                             Book Value        Fair Value        Book Value         Fair Value
                                                            -------------    ---------------    --------------     --------------
<S>                                                      <C>              <C>                <C>                <C>
FINANCIAL ASSETS:
Cash and Cash Equivalents                                $     2,145,374  $       2,145,374  $      2,145,711   $      2,145,711
Investment Securities                                    $    14,502,488  $      14,502,488  $     13,853,233   $     13,853,233
Loans Held for Sale                                      $       273,500  $         273,500  $      5,942,350   $      5,942,350
Net Loans                                                $    85,498,056  $      85,381,695  $     81,205,940   $     80,933,996

FINANCIAL LIABILITIES:
Deposits                                                 $    88,117,938  $      88,575,464  $     91,461,345   $     92,283,929
Securities Sold Under Agreements to Repurchase           $       339,308  $         339,308  $        282,398   $        282,398
Federal Funds Purchased                                  $       370,000  $         370,000  $              0   $              0
Advances From Federal Home Loan Bank                     $     8,650,000  $       8,522,981  $      7,270,700   $      7,818,611
Obligation Under Capital Lease                           $       260,957  $         260,957  $              0   $              0
</TABLE>



                                       43
<PAGE>


NOTE 18 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

Condensed  financial  information  pertaining only to Tennessee Valley Financial
Holdings, Inc. is as follows:

                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                               As of December 31,            2003                  2002
                                                                                      -------------------    ------------------
<S>                                                                                <C>                    <C>
Assets:
 Cash in Bank                                                                      $              59,783  $              3,222
 Prepaid and Deferred Income Taxes                                                                46,101                28,082
 Investment in Common Stock of TNBank                                                          8,278,885             7,462,228
                                                                                      -------------------    ------------------
Total Assets                                                                       $           8,384,769  $          7,493,532
                                                                                      ===================    ==================
Liabilities                                                                        $                   0  $                  0
                                                                                      -------------------    ------------------

Shareholders' Equity:
 Common Stock                                                                                    534,130               534,130
 Capital in Excess of Par Value                                                                6,487,427             6,487,427
 Retained Earnings                                                                             1,363,212               471,975
                                                                                      -------------------    ------------------
  Total Shareholders' Equity                                                                   8,384,769             7,493,532
                                                                                      -------------------    ------------------
Total Liabilities and Shareholders' Equity                                         $           8,384,769  $          7,493,532
                                                                                      ===================    ==================



                                                CONDENSED STATEMENTS OF INCOME


                                                                                                               Period From
                                                                                         Year Ended            May 9, 2002
                                                                                        December 31,         to December 31,
                                                                                            2003                   2002
                                                                                      ------------------    -------------------

Income - Dividends From TNBank                                                     $            291,000  $              75,000
Organizational Costs and Operating Expenses                                                      47,759                 73,400
                                                                                      ------------------    -------------------
Income Before Income Tax Benefit and Equity in                                                  243,241                  1,600
 Undistributed Net Income of TNBank
Income Tax Benefit                                                                               18,284                 28,105
Equity in Undistributed Net Income of TNBank                                                    816,657                442,270
                                                                                      ------------------    -------------------
Net Income                                                                         $          1,078,182  $             471,975
                                                                                      ==================    ===================
</TABLE>







                                       44


<PAGE>


                                              CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                                Period From
                                                                                         Year Ended             May 9, 2002
                                                                                        December 31,          to December 31,
                                                                                            2003                   2002
                                                                                      ------------------    ------------------
<S>                                                                                   <C>                   <C>
Cash Flows From Operating Activities:
 Net Income                                                                           $        1,078,182    $          471,975
                                                                                      ------------------    ------------------
Adjustments to Reconcile Net Income to
  Net Cash Provided by Operating Activities:
   Equity in Undistributed Net Income of TNBank                                                 (816,657)             (442,270)
   Increase in Prepaid and Deferred Income Taxes                                                 (18,019)              (28,083)
                                                                                      ------------------    ------------------
    Total Adjustments                                                                           (834,676)             (470,353)
                                                                                      ------------------    ------------------
     Net Cash Provided by Operating Activities                                                   243,506                 1,622
                                                                                      ------------------    ------------------
Cash Flows From Financing Activities:
 Proceeds From Issuance of Common Stock                                                                0                 1,600
 Cash Dividends Paid                                                                            (186,945)                    0
                                                                                      ------------------    ------------------
     Net Cash Provided by (Used in) Financing Activities                                        (186,945)                1,600
                                                                                      ------------------    ------------------
Net Increase in Cash and Cash Equivalents                                                         56,561                 3,222
Cash and Cash Equivalents, Beginning of Period                                                     3,222                     0
                                                                                      ------------------    ------------------
Cash and Cash Equivalents, End of Period                                              $           59,783    $            3,222
                                                                                      ==================    ==================
</TABLE>

















                                       45


<PAGE>


                                    PART III

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

Not applicable.

ITEM 8A.  CONTROLS AND PROCEDURES

     (a)  Evaluation of Disclosure  Controls and  Procedures.  Our President and
Chief Executive  Officer and our Vice President have evaluated the effectiveness
of the design and  operation  of our  disclosure  controls  and  procedures  (as
defined in Exchange Act Rule 13a-14(c)) as of the last day of the period covered
by this  annual  report.  Based on that  evaluation,  the  President  and  Chief
Executive  Officer and the Vice  President  have  concluded  that our disclosure
controls  and  procedures  are  effective  to ensure that  material  information
relating to us and our consolidated  subsidiaries is made known to such officers
by others  within  these  entities,  particularly  during the period this annual
report was  prepared,  in order to allow  timely  decisions  regarding  required
disclosure.

     (b)  Changes in  Internal  Controls.  There  have not been any  significant
changes in our internal  controls or in other  factors that could  significantly
affect these controls subsequent to the date of their evaluation.


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

Audit Committee Financial Expert

     We do not currently have an "audit committee  financial expert," as defined
under the rules of the Securities and Exchange Commission,  serving on our Audit
Committee.  We  believe  that all of the  members  of the  Audit  Committee  are
qualified to serve on the  committee  and have the  experience  and knowledge to
perform the duties  required of the  committee.  We do not have any  independent
directors who would qualify as an audit committee  financial expert, as defined.
We believe that it has been, and may continue to be, impractical to recruit such
a director unless and until we are significantly larger.

Code of Ethics

     We have  adopted a code of ethics  that  applies to our senior  management,
including our chief  executive  officer,  vice president  (principal  accounting
officer) and persons performing similar functions.  Copies of our code of ethics
are available without charge upon written request directed to Gerald L. Cooksey,
Jr. Vice President, TnBank, 401 S. Illinois Avenue, Oak Ridge TN 37830.

     The  remainder  of this item is  incorporated  by reference to the sections
entitled  "Management  of  the  Company"  and  "Beneficial  Ownership  Reporting
Compliance" of our 2004 Proxy Statement.

ITEM 10.  EXECUTIVE COMPENSATION

     This item is incorporated by reference to the sections entitled  "Executive
Compensation,"  "Stock Options" and "Directors' Compensation"  of our 2004 Proxy
Statement.

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     This item is incorporated by reference to the section entitled "Information
Regarding Certain Beneficial Owners" of our 2004 Proxy Statement.



                                       46

<PAGE>

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     This item is  incorporated  by reference to the section  entitled  "Certain
Relationships and Related Transactions" in our 2004 Proxy Statement.


ITEM 13.   EXHIBITS LIST AND REPORTS ON FORM 8-K

(a)  Exhibits

     Exhibit No.  Description
     -----------  -----------

          3.1*    Charter of Tennessee Valley Financial Holdings, Inc.

          3.2*    Bylaws of Tennessee Valley Financial Holdings, Inc.

         21.1     Subsidiaries of Tennessee Valley Financial Holdings, Inc.

         31.1     Certification of Thomas E. Tuck, President and Chief Executive
                  Officer of Tennessee Valley Financial Holdings, Inc., Pursuant
                  to Section 302 of the Sarbanes-Oxley Act of 2002.

         31.2     Certification  of  Gerald L. Cooksey,  Jr., the Vice President
                  (principal  accounting  and  financial  officer) of  Tennessee
                  Valley  Financial  Holdings,  Inc., Pursuant to Section 302 of
                  the Sarbanes-Oxley Act of 2002.

         32.1     Certification of Thomas E. Tuck, President and Chief Executive
                  Officer of Tennessee Valley Financial Holdings, Inc., Pursuant
                  to Section 906 of the Sarbanes-Oxley Act of 2002.

         32.2     Certification  of  Gerald L. Cooksey,  Jr., the Vice President
                  (principal  accounting  and  financial  officer) of  Tennessee
                  Valley  Financial  Holdings, Inc., Pursuant  to Section 906 of
                  the Sarbanes-Oxley Act of 2002.


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

         *  Incorporated by reference to the Company's Registration Statement on
            Form 10-SB filed with the Securities and Exchange Commission on June
            13, 2002.

(b)  Reports on Form 8-K

     The Company filed no reports on Form 8-K during the quarter ended  December
31, 2003.

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

     This item is incorporated by reference to the section  entitled  "Principal
Accountant Fees and Services" in our 2004 Proxy Statement.

                                       47


<PAGE>


                                   SIGNATURES

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

                                       Tennessee Valley Financial Holdings, Inc.


                                     By: /s/ Thomas E. Tuck
                                         ---------------------------------------
                                         Thomas E. Tuck
                                         President and CEO
                                         Date:  March 16, 2004



/s/ Gerald L. Cooksey, Jr.               /s/ Thomas E. Tuck
--------------------------------------------------------------------------------
Gerald L. Cooksey, Jr.                   Thomas E. Tuck
Vice President                           President and Chief
Date:  March 16, 2004                    Executive Officer, Director
                                         Date: March 16, 2004



/s/ Victor Dodson                       /s/ J. Michael Anderson
--------------------------------------------------------------------------------
Victor Dodson                            J. Michael Anderson
Director                                 Director
Date:  March 16, 2004                    Date:  March 16, 2004



/s/ J. Frank Jamison                     /s/ A.P. Cappiello
--------------------------------------------------------------------------------
J. Frank Jamison                         A.P. Cappiello
Director                                 Director
Date:  March 16, 2004                    Date:  March 16, 2004



/s/ Larry Beeman                        /s/ Terry L. Kerbs
--------------------------------------------------------------------------------
Larry Beeman                             Terry L. Kerbs
Director                                 Director
Date:  March 16, 2004                    Date:  March 16, 2004


/s/ Dr. Thomas D. Moye, Jr.             /s/ William Robert Witt
--------------------------------------------------------------------------------
Dr. Thomas D. Moye, Jr.                  William Robert Witt
Director                                 Director
Date: March 16, 2004                     Date: March 16, 2004





                                       48