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, 2002

[ ] 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                (I.R.S. Employer Identification No.)
of incorporation or organization)

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 $7,176,822

At December  31, 2002 the  aggregate  market  value of the voting  stock held by
non-affiliates of the registrant was approximately $7,551,468.

As of March 19, 2003 registrant had 534,130 shares of its $1.00 par value common
stock outstanding.

Documents  Incorporated  by Reference:  Proxy  Statement  related to 2003 Annual
Meeting of Shareholders.







<PAGE>


                                Table of Contents


Part 1:

     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........................................21-42

Part III:

     Item 9:   Directors, Executive Officers, Promoters and Control Persons;
               Compliance with Section 16 (a) of the Exchange Act.............43

     Item 10:  Executive Compensation.........................................43

     Item 11:  Security Ownership of Certain Beneficial Owners and
               Management.....................................................44

     Item 12:  Certain Relationships and Related Transactions.................44

Part IV:

     Item 13:  Exhibits List and Reports on Form 8-K..........................44

     Item 14:  Controls and Procedures........................................44

     Signatures...............................................................45



<PAGE>


                                     PART I

ITEM 1.       DESCRIPTION OF BUSINESS


General

     Tennessee Valley Financial  Holdings,  Inc. (the "Company"),  is a business
corporation  incorporated  on February 15, 2002,  under the laws of the State of
Tennessee for the purpose of acquiring TNBank, a Tennessee  banking  corporation
(the "Bank") by means of a share exchange and 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  (the  "Plan of Share  Exchange")
between  the Company  and the Bank  whereby  the common  shares of the Bank were
exchanged,  on a one for one  basis,  for  common  shares  of the  Company.  The
exchange became  effective on May 9, 2002. The Company's only activity is owning
the Bank.

     The Bank commenced the  organizational  process to become a Tennessee state
chartered  bank on July 6, 1994 and 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.

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

     The Bank  offers long term,  fixed rate  mortgage  loans to its  customers.
Through  relationships  the Bank has with secondary market  investors,  mortgage
loans are  originated  at the Bank and  subsequently  sold to  secondary  market
investors resulting in fee income. The Bank does not retain any servicing rights
on these loans sold.

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

     The Bank is subject to the regulatory authority of the Tennessee Department
of Financial Institutions ("TDFI") and the Federal Deposit Insurance Corporation
("FDIC").

                                       3
<PAGE>

Market Area

     The Bank's primary  service area  encompassing  Anderson and Knox counties,
includes  the cities of Oak Ridge and 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.

Employees

     At  December  31,  2002 the Bank had 40  full-time  employees.  The  Bank's
employees  are not  represented  by any  union  or other  collective  bargaining
agreement and the Bank believes its 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, 2002, the net loan
portfolio totaled $81.2 million, or 76% of total assets.

     Loan  Underwriting.  Loan activities are subject to underwriting  standards
and  loan  origination  procedures  prescribed  by the  board of  directors  and
management.  Loan applications are obtained to determine the borrower's  ability
to repay,  and the more  significant  items on these  applications  are verified
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,  flood  insurance  is
required. 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 disbursements are made for items such as 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, the Bank 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,  secured  by  personal  property  or secured by liens on real
estate.

     The maximum amount which the Bank could have loaned to one borrower and the
borrower's  related  entities as of December 31, 2002,  was  approximately  $1.9
million.  Our largest loan  relationship  is $1.8 million  consisting of several
loans secured by commercial real estate and residential real estate,  which were
made prior to December 31, 2002.

     Interest  rates charged on loans are affected  principally  by  competitive
factors, the demand for such 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.

                                       4
<PAGE>
     Residential  Real Estate Loans.  The Bank currently  originates  fixed-rate
residential mortgage loans and adjustable rate mortgage loans for terms of up to
30 years.  As of  December  31,  2002,  $37.7  million  or 46% of the total loan
portfolio  consisted of one-to-four  family residential real estate loans. As of
such date, approximately $1.5 million, or 4% of these loans were adjustable rate
mortgage loans.

     Consumer Loans.  The Bank makes various types of consumer loans,  including
automobile and boat loans,  but primarily home equity loans. The Bank originates
consumer loans to provide a range of financial  services to customers and create
stronger  ties to its  customers.  In  addition,  the shorter  term and normally
higher  interest  rates on such 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, 2002,  consumer loans amounted to
$8.2 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,  2002,  the largest  commercial  loan was  $684,000  secured by
accounts receivable and automobiles.  As of December 31, 2002, the Bank had $8.4
million in commercial loans, which was 10% 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
and Knox Counties.  These types of loans amounted to $15.0 million or 18% of the
total loan portfolio as of December 31, 2002.  Commercial  real estate loans may
be amortized for up to 25 years,  but  frequently  mature in three to six years.
The  Bank  generally  does  not  offer  fixed-rate  commercial  real  estate  or
multi-family real estate loans.

     Income  from  Loan  Activities.  Fees are  earned 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.

     Loan fees typically are charged at the time of loan  origination and may be
a flat fee or a percentage of the amount of the loan.  Under current  accounting
standards  the total amount of such fees for long term  mortgage  loans the Bank
retains cannot typically be recognized as income  immediately,  rather a portion
of the fees are deferred and taken into income over the contractual  life of the
loan,  using a level  yield  method.  If loans are  prepaid or  refinanced,  all
remaining deferred fees with respect to such loans are taken 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 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.  Steps taken range from
working out a reasonable payment agreement to foreclosure.

     A loan is  generally  placed  on  nonaccrual  status  and  ceases  accruing
interest when loan payment performance is deemed unsatisfactory.  All loans past
due 90 days, however,  are placed 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 the Bank will generally  participate as a bidder.  If we
are the successful bidder, the acquired real estate property is then included in
the other real estate owned "OREO"  account  until it is sold.  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.

                                       5
<PAGE>
Competition

     The Bank competes with six  commercial  banks and four credit unions in its
primary market area of Oak Ridge. In addition to these local competitors,  banks
from other market areas also serve as  competition  to the Bank.  In addition to
traditional  providers  (i.e.  banks,  credit unions,  thrifts) other  financial
services  companies  serve as  competition  for the Bank:  insurance  companies,
brokerages, finance companies, etc. Management anticipates 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 the
Bank's net interest  margin,  as consumers  have more choices for deposits (thus
increasing  the cost) and loans  (lowering  the  income).  The Bank  attempts to
mitigate  these factors by  emphasizing  its service and  relationship  style of
banking services.

     It is contemplated  that the Company may seek to enter  businesses  closely
related to banking or to acquire  existing  businesses  already  engaged in such
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 the Company will require prior  approval of the Federal  Reserve
Board and, in some instances, other regulatory agencies.  Currently there are no
negotiations  for the  acquisition of any entities and there can be no assurance
that any entity will be acquired by the Company in the future.

         The Company competes with those banks and other financial institutions
that compete with the Bank. In addition, in attempting to acquire other
permissible entities, and engaging in activities closely related to banking, the
Company will be competing with other bank holding companies, many of which have
far greater assets and financial resources than the Company and whose common
stock may be more widely traded than that of the Company.

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  ("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.

     The  Company is  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:
     -    acquiring more than 5% of the voting shares of any bank, or
     -    acquiring all or substantially all of the assets of a bank, and
     -    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,  the  Company  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,  the Company may not deem it
advisable to provide such assistance.

                                       6
<PAGE>

     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, the Company is required to file with the Federal
Reserve Board an annual report of its  operations at the end of each fiscal year
and such  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 Company and each of its 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 the Company's 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. The Company has not  experienced
a material impact on its 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,  2002,  the Bank is not the subject of any such action by the
FDIC or the TDFI.

     The  deposits  of the Bank are insured by the FDIC in the manner and 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
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.

                                        7
<PAGE>

Payment of Dividends

     The payment of  dividends  by the Company  depends to a great extent on the
ability of the Bank to pay dividends to the Company.  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 the Company.  If the Bank fails to meet these standards,  it
may not be able to pay dividends to the Company 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.

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


ITEM 2.       DESCRIPTION OF PROPERTY

     The Bank operates three facilities for its banking  operations.  The Bank's
two Oak Ridge branch  facilities are owned by the Bank and the Knoxville  branch
is leased  from a third  party.  The Bank's  Main Office is located at 401 South
Illinois  Avenue in Oak Ridge and is owned by the Bank.  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 Bank's  operations and  bookkeeping  departments,  credit
administration  and most other  administrative  functions.  The  Bank's  Jackson
Square  branch is  located  at 900 Oak Ridge  Turnpike  in Oak Ridge and is also
owned by the Bank.  This 2,000 square foot facility  offers full service banking
including  ATM, safe deposit,  night  depository  and drive thru  services.  The
Bank's  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 the
Bank's  branch  facilities  are  staffed  with  experienced  retail and  lending
personnel.  The Pointe West branch is leased for an annual rent of $27,412.  The
lease on the  Pointe  West  branch  expired  in June 2001 at which time the Bank
exercised  the first of four one year  options to extend the lease term for this
facility  and the  Bank  executed  another  one year  option  in June  2002.  In
September  2002 the Bank 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. It is  managements'  contemplation  that this branch will replace
the Pointe West branch.  The facility is currently occupied by another financial
institution  and  management  believes  the Bank  will  begin  operation  in the
facility sometime during the fall of 2003.

ITEM 3.       LEGAL PROCEEDINGS

     There are no pending legal  proceedings to which the Company or the Bank is
a party or to which any of their properties are subject.

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 2002.
                                       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 the common stock of the Company.  There
is no  significant  likelihood  that any such 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 the Company's common stock.

                                                          High             Low
                                                          ----             ---
2001:
         First Quarter...............................  $15.00            $12.00
         Second Quarter..............................   16.00             16.00
         Third Quarter...............................   17.00             16.00
         Fourth Quarter..............................   17.00             17.00
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


     The payment of cash dividends is subject to the discretion of the Company's
board of directors.  The Company's ability to pay dividends is dependent on cash
dividends  paid to it by the Bank.  The ability of the Bank to pay  dividends to
the Company is  restricted  by applicable  regulatory  requirements.  See ITEM 1
"Description  of  Business - Payment of  Dividends".  The Company has never paid
cash dividends and does not anticipate  that it will be paying cash dividends in
the  foreseeable  future.  No assurances  can be given that any dividend will be
declared or, if declared,  what the amount of such dividend  would be or whether
such dividends would continue in future periods.

     Options  convertible into 14,500 shares of common stock were outstanding as
of December 31, 2002. As of December 31, 2002, the Company's  executive officers
and directors  beneficially  owned 102,826 shares of the Company's common stock,
including  shares  issuable  upon the  exercise of  options.  The Company is not
presently  publicly  offering  shares of common  stock and has not  proposed  to
publicly offer shares of common stock which could have a material  effect on the
market price of the Company's common stock. As of December 31, 2002, the Company
had  approximately 767 shareholders of record and 534,130 shares of common stock
outstanding.


                                       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.

Results of Operations for the Years Ended December 31, 2002 and 2001.

General

     The Company  was  incorporated  on February  15, 2002 under the laws of the
state of Tennessee  for the purpose of acquiring  the Bank by means of the share
exchange,  and becoming a  registered  bank  holding  company  under the Federal
Reserve  Act.  The  Company's  only  activity  is owning the Bank.  The Bank was
incorporated  on July 6, 1994 for the purpose of  organizing  a  state-chartered
commercial bank. The Bank commenced operations on May 30, 1995.

     The Company  achieved net income of $716,641 for 2002  compared to $527,175
for 2001, an increase of 36%. On a per share basis, the Company earned $1.34 per
common share in 2002 compared to $0.99 per common share in 2001. The increase in
net income for 2002 can  primarily  be  attributed  to increases in net interest
income and non interest income  offsetting  increases in loan loss provision and
non interest expense.  Net interest income increased  $920,000 or 32% in 2002 as
compared  to  2001,  primarily  as  a  result  of  growth  in  earnings  assets,
particularly  loans and an improvement in the Company's net interest margin. Non
interest  income  increased  $266,000  or 48% in 2002 as  compared  to 2001  due
primarily to growth in fees on loans sold and  increases  in service  charges on
deposits. Loan loss provision increased $321,000 to $485,000 in 2002 compared to
2001 due primarily to increased  levels of classified  assets,  which  typically
require  a higher  reserve  allocation  than  loans  which  are not  classified,
increased  loan  volume and higher net charge off ratios in 2002 as  compared to
2001.  Non  interest  expense  increased  $616,000 or 25% in 2002 as compared to
2001.The  increases  in non  interest  expense  primarily  relate  to  growth in
overhead to support continued sound earnings asset growth.

The table below presents certain key ratios for the Company.

                                   Schedule I
                           Return on Assets and Equity
                                                             2002         2001
                                                        -----------------------
Return on Average Assets                                     0.73%       0.63%
Return on Average Equity                                     9.85%       7.94%
Dividend Payout Ratio                                        0.00%       0.00%
Average Equity to Average Assets                             7.37%       7.92%

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, 2002 and 2001.

                                       10
<PAGE>

<TABLE>
<CAPTION>

                                   Schedule II
                    Average Balances, Interest and Rate/Yield
                                                               2002                               2001
                                                -----------------------------------------------------------------------
                                                   Average   Interest    Average      Average   Interest    Average
                                                 Balance(1)     (2)     Yield/Rate Balance (1)     (2)     Yield/Rate
                                                -----------------------------------------------------------------------
Assets
-------
<S>                                               <C>         <C>              <C>     <C>         <C>
Federal funds sold                                $1,847      $   30           1.62%   $  2,353    $  101     4.29%

Investment securities:

Available for sale:

Taxable                                           10,036         523           5.21%     11,027       738     6.69%

Tax exempt                                         3,377         199           5.89%      2,554       147     5.76%

Held to maturity:

Taxable                                                -                                    265        15     5.66%

FHLB Stock                                           425          20           4.71%        323        20     6.19%

Gross loans, including fees                       75,970       5,624           7.40%     61,569     5,183     8.42%
                                                -----------------------------------------------------------------
Total interest earning assets                   $ 91,655      $6,396           6.98%  $  78,091   $ 6,204     7.94%
                                                             ======================              =================
Cash and due from banks                            1,576                                  1,387

All other assets                                   6,397                                  5,205

Less:

Reserve for loan losses                              859                                    728

Unearned fees and interest                            98                                     67
                                              -------------                       -------------
Total Assets                                  $   98,671                              $  83,888
                                              =============                       =============

Liabilities and Shareholders' Equity
------------------------------------
Interest bearing deposits:

Time deposits                                 $   45,321      $1,812           4.00%   $  42,715   $  2,454   5.75%

Other deposits                                    31,889         467           1.46%      23,360        593   2.54%

FHLB Advances and repurchase agreements            6,412         293           4.57%       5,023        271   5.40%

Total Interest-bearing liabilities            $   83,622      $2,572           3.08%   $  71,098   $  3,318   4.67%
                                                ===================================================================
Non-interest-bearing deposits                      7,027                                   5,501
                                                                       ------------                       ---------
Cost of Funds                                                                 2.84%                           4.33%
                                                                       ============                       =========
All other liabilities
                                                    747                                      646
Shareholders' equity
                                                  7,110                                    6,504
Unrealized gain (loss) on available for sale
securities                                          165                                      139
                                               -------------                       -------------
Total Liabilities and Shareholders' Equity       $98,671                           $      83,888
                                               =============                       =============

                                                                       ------------                     -----------
Net interest spread                                                           4.14%                           3.61%
                                                                       ============                     ===========

                                                                       ------------                     -----------
Net interest margin                                                           4.17%                           3.70%
                                                                       ============                     ===========
</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

                                       11
<PAGE>

     As seen from  Schedule  II,  average  interest  earning  assets  grew $13.6
million or 17% during 2002 as compared to 2001.  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
$14.4 million or 23% in 2002 as compared to 2001. Average investment  securities
(which includes  average  available for sale taxable and tax-exempt  securities,
held to  maturity  taxable  securities  and  Federal  Home Loan Bank  Stock) and
average  federal  funds  sold  declined,  approximately  $331,000  and  $506,000
respectively,  in 2002 as compared to 2001 as loan growth used up a  significant
portion of the Company's sources of funds during 2002.

     Average interest  bearing  liabilities grew $12.5 million or 18% in 2002 as
compared  to  2001.  Average  interest  bearing  liabilities  include  deposits,
advances from the Federal Home Loan Bank ("FHLB") and other  borrowings.  During
2002, average total deposit grew $14.1 million,  or 18% as compared to 2001. The
majority of the average  deposit  growth  during 2002 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  the  Company's  net  interest
margin.

     The yield on average  interest  earning  assets  decreased  96 basis points
during 2002 to 6.98%.  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 of 2002.  While some of the
Company's  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 well as new earning  assets are added at yields lower than
those presently in the earning asset portfolio.

     The yield on loans for 2002 was  7.40%,  a decline  of 102 basis  points as
compared  to 2001.  The  decline in loan  yields  during  2002 can be  primarily
attributed to the decline in interest rates discussed previously. Roughly 40% of
the Company's loan portfolio is priced at variable  rates,  therefore,  as rates
declined during 2001 the yields on these loans declined. Additionally, new loans
made during 2002 generally carried lower yields than those made in 2001, further
lowering loan yields.  Yields on investment  securities declined 99 basis points
during 2002 as compared to 2001 again due to the decline in the general interest
rate environment.  The decline in yields was particularly  prevalent in mortgage
backed securities and U.S. Government Agency securities. The decline in mortgage
backed securities was primarily due to accelerated premium  amortization brought
on by higher mortgage  prepayments  during 2002 as compared to 2001. 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 yield on federal funds sold declined 267 basis points in 2002
compared to 2001 due to the decline in general interest rates.

     The Company's cost of funds declined 149 basis points during 2002 to 2.84%.
This decline can be attributed to the decline in general  interest  rates during
2001 and 2002. Rates on time deposits declined 175 basis points to 4.00% in 2002
as compared to 2001. Other interest bearing deposits saw rates decline 108 basis
points during 2002 to 1.46%.  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 therefore those rates can be changed
at  management's  discretion  but are subject to  competitive  pressures and the
Company's need for liquidity.  Rates on FHLB Advances and repurchase  agreements
declined  83 basis  points  during  2002 to 4.57% due to declines in the general
interest rate environment and the Company's use of a higher  proportion of short
term  borrowings  during 2002. The Company has a Cash  Management Line of Credit
with the FHLB which is priced at an overnight interest rate. This line of credit
was utilized more during 2002 than in 2001.

     The Company's net interest  margin  improved 47 basis points during 2002 as
compared to 2001. During 2002, the Company's cost of funds declined to a greater
degree than the Company's 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),  improved loan
fee income and better loan pricing and the lower interest rate environment.

                                       12
<PAGE>


                                  Schedule III
                       Rate Volume Analysis (in thousands)
                                      ------------------------------------------
                                                       2002 vs. 2001
                                      ------------------------------------------
                                         Increase (decrease) due to change in:
                                      ------------------------------------------
                                       Average Balance Rate/Yield        Total
                                      ------------------------------------------
Interest Income
Federal funds sold                            (18)           (53)         (71)

Securities available for sale                  (4)          (159)        (163)

Securities held to maturity                    (7)            (8)         (15)

FHLB stock                                      6             (6)           -

Loans, including fees                       1,116           (675)         441

                                      ------------------------------------------
Total interest income                       1,093           (901)         192
                                      ------------------------------------------

Interest Expense

Interest bearing deposits                     454         (1,222)        (768)

FHLB advances and Repurchase
 Agreements                                     67            (45)          22
                                      ------------------------------------------
Total interest expense                        521         (1,267)        (746)
                                      ------------------------------------------

Net change in net interest income             571            366          938
                                      ==========================================


Non Interest Income

     Non interest income  increased  approximately  $266,000,  or 48% in 2002 as
compared to 2001 due  primarily  to  increases in fees on loans sold and service
charges on demand deposits. The Company offers traditional  residential mortgage
financing  through  the  secondary  market.  Under  this  program,  the  Company
originates  residential mortgage loans, which are in turn funded and serviced by
secondary market lenders and the Company receives fees for its loan origination.
Fees on loans sold increased  approximately  $208,000 during 2002 as compared to
2001. 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 lower interest rates
during 2002. Service charges on demand deposits increased  approximately $55,000
during 2002 as compared  to 2001 due  primarily  to an increase in the volume of
deposit accounts at the Company.  Other income increased  approximately  $13,000
during 2002 as compared to 2001 due to  increases  in gains on the sale of other
assets, which consisted primarily of repossessed automobiles.

     Non interest income increased  $277,000 during 2001 as compared to 2000 due
to  increases  in fees on loans sold.  The increase in fees on loans sold during
2001  again can be  attributed  to a higher  volume  of loans  sold due to lower
interest rates. Fees on loans sold increased  approximately $202,000 during 2001
as compared to 2000.

Non Interest Expense

     Non interest expense increased approximately $616,000 or 25% during 2002 as
compared  to 2001.  The  increase in non  interest  expense is the result of the
growth  in assets  of the  Company  which  necessitates  growth in non  interest
expense to support  safe and sound  asset  growth.  The  primary  categories  of
increase  during  2002  were  salaries  and  employee   benefits   (increase  of
approximately $323,000 or 27% during 2002 as compared to 2001) and other expense
(an increase of approximately $208,000 or 61% during 2002 as compared to

                                       13
<PAGE>

2001).  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. Other expense increased  approximately $208,000 during
2002 to $547,032.  The increase in other  expense is due primarily to the growth
the Company  experienced  during  2002.  One of the largest  increases  in other
expense was loan  expense  which  increased  approximately  $117,000 to $200,597
during 2002.  The  increase in loan  expense is due  primarily to an increase in
loan volume during 2002.

     Non interest expense increased  approximately  $412,000 in 2001 as compared
to 2000. This increase was primarily attributable to the general growth in asset
of the Company,  which resulted in increases in categories  such as salaries and
employee  benefits (an increase of  approximately  $160,000 as compared to 2000)
and other expenses (an increase of approximately $95,000 as compared to 2000).

Income Taxes

     The Company  recognizes  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 the Company's  assets and liabilities at enacted tax rates expected
to be in effect  when the  amounts  related to such  temporary  differences  are
realized or settled.  The Company's  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.

     The Company  recognized  income tax expense of  approximately  $329,000 for
2002  compared  to  approximately  $270,000  in  2001.  The  Company  recognized
approximately $150,000 in income tax expense during 2000.

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.  Loan losses are charged  directly to the
allowance  when  incurred  and  recoveries  are credited to the  allowance  when
realized. The amount of provision is based on past loss experience, management's
evaluation of the loan portfolio  under current  economic  conditions,  and such
other factors as in management's  best judgment  deserve current  recognition in
estimating  loan  losses.  The  balance  of the  allowance  for loan  losses was
$1,047,297  or 1.27% of gross loans  outstanding  at December 31,  2002.  During
2002, the loan loss provision  totaled  $485,000,  an increase of  approximately
$321,000 as compared to 2001. The increase in loan loss provision during 2002 as
compared to 2001 is due  primarily to  increased  levels of  classified  assets,
which  typically  require a higher reserve  allocation  than loans which are not
classified,  increased  loan  volume and higher net charge off ratios in 2002 as
compared to 2001. As of December 31, 2002,  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  the
Company's  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,  the Company maintains 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 the Company's reserve for loan
losses,  and based on their  judgment  may  require  the  Company  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
the Company's loan policy are determined based on a variety of factors including
the Company's historical loss experience, industry loss rates, guidance received
from previous regulatory

                                       14
<PAGE>


examinations, and other factors such as the borrower's ability to repay the loan
and the  availability of the collateral.  As of December 31, 2002  approximately
$2.5  million  of the  Company's  loan  portfolio  was  considered  specifically
classified  with  approximately  32% of the allowance for loan losses related to
these loans.  The remaining 68% of the allowance for loan losses was assigned to
the general population of loans.

     Included in  management's  formal analysis of the allowance for loan losses
are loan  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 the Company 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  the  Company's  lowest  three  adversely  classified  categories  are
considered for  impairment.  Due to the  relatively  small size of the Company's
loan  portfolio,  management  considers each individual  loan  specifically  for
impairment.  The allowance for loan losses related to impaired loans amounted to
approximately   $164,000   and  $45,000  as  of  December  31,  2002  and  2001,
respectively.  Schedules IV and V present a summary of the  Company's  loan loss
experience and reserve analysis during 2002 and 2001.

                                      Schedule IV
                      Analysis of Loan Loss Reserve (in thousands)
                                                   The year ended December 31,
                                            ------------------------------------
                                                    2002             2001
                                            ------------------------------------
Balance at Beginning of Period                  $    811         $   694
Charge-offs:
Commercial, financial and agricultural               104              12
Real Estate - construction                                             -
Real estate - mortgage                                21              39
Installment - consumer                               151               -
Other                                                  -               -
                                            ------------------------------------
Total charge-offs                                    276              51
                                            ------------------------------------

Recoveries:
Commercial, financial and agricultural                                -
Real Estate - construction                                            -
Real estate - mortgage                                                -
Installment - consumer                              27                5
Other                                                -                -
                                            ------------------------------------
Total recoveries                                    26                5
                                            ------------------------------------
Net charge-offs                                    249               46
Provision for loan losses                          485              163
                                            ------------------------------------

Balance at the End of Period                  $  1,047          $   811
                                            ====================================

                                            ------------------------------------
Ratio of net charge-offs to average loans
outstanding                                        0.33%            0.07%
                                            ====================================

                                       15
<PAGE>
                                   Schedule V
                 Allocation of Loan Loss Reserve (In thousands)
<TABLE>
<CAPTION>

                                                        For the year ended December 31,
                                          ----------------------------------------------------------
                                                      2002                        2001
                                          ----------------------------------------------------------
                                            $ Allocation  % Allocation   $ Allocation  % Allocation
                                          ----------------------------------------------------------
<S>                                         <C>                   <C>          <C>             <C>

Commercial, financial and agricultural            400             38%          332             41%
Real Estate-construction                          148             14%           38              5%
Real Esate-mortgage                               284             27%          234             29%
Installment-consumer                              215             21%          207             26%
Other                                               -              0%            -              0%
                                          ------------------          -------------------
Total                                       $   1,047                    $     811
                                          ==================          ===================
</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 the Company, taken originally as loan collateral.  Schedule VI presents
the amounts of non-performing assets at December 31, 2002 and 2001.

                                   Schedule VI
                      Non Performing Assets (in thousands)
                                  December 31,
                                                 2002           2001
                                           --------------------------------
Non accrual loans (1) (3)                   $      318     $      145

Loans past due greater than 90 days and
still accruing interest (2) (3)                     28            346
Restructured loans (3)                             169              -
Other real estate owned

                                           --------------------------------
Total Non Performing Assets                 $      515     $      491
                                           ================================

(1)  Included in non accrual  loans are  approximately  $132,000  and $36,000 of
     loans considered impaired as of December 31, 2002 and 2001, respectively.
(2)  Included in loans past due 90 days or more and still accruing  interest are
     approximately  $28,000 and $23,000  considered  impaired as of December 31,
     2002 and 2001, respectively. At December 31, 2002 approximately $169,000 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,  2002  and 2001
     respectively, there were $471,000 and $141,000 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 the Company's  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 would be considered
     in the decision to evaluate and recognize loans as being impaired.

     Loans are determined to be  non-accruing  when it has been  determined that
the ability of the Company to collect the unpaid balance of such loans is highly
unlikely due to the  financial  position of the  borrower  and general  economic
conditions. The determination of such classification is made by management on an
case by case basis for problem loans.  Generally,  a review of each loan 90 days
or more past due is made monthly and such loans where  collection  is determined
to be doubtful are place on non-accrual  status.  During 2002, the Company would
have earned approximately $27,000 on loans in non-accrual status had these loans
been current in accordance  with their terms.  The Company earned  approximately
$19,000 on loans that were in non-accrual status during 2002.

     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,  consideration  as to  whether  to place the loan on  non-accrual
status is made.  However,  until  such  classification  is made,  interest  will
continue to accrue.

     Non-accrual  loans increased to  approximately  $318,000 as of December 31,
2002 compared to $145,000 as of December 31, 2001.  The increase in  non-accrual
loans is due  primarily  to the  addition of loan  relationships  to this status
during 2002. Of the loans in non-accrual status as of December 31, 2001,

                                       16
<PAGE>

approximately  $118,000  were  charged off during  2002,  $10,000 were taken off
non-accrual  status due to an improvement in performance and $17,000 remained in
non-accrual  status as of December 31, 2002,  although these loans had paid down
balances approximately $10,000 during 2002. Therefore,  the loans in non-accrual
status as of December 31, 2002 include  approximately $7,000 in loans which were
non-accrual as of December 31, 2001 and approximately $311,000 in loans added to
non-accrual  status  during  2002.   Management   attributes  this  increase  in
non-accrual loans primarily to a weaker economy during 2002. Loans past due over
ninety days and still accruing  interest  declined to $28,000 as of December 31,
2002 from  $346,000 as of December 31, 2001.  The decline in loans past due over
ninety days and still accruing  interest  relates  primarily to a more effective
job by management in placing loans on  non-accrual  after they reach ninety days
past due.

     Net charge-offs increased to $249,000 during 2002 as compared to $46,000 in
2001. The ratio of net charge-offs to average loans was 0.33% for 2002 and 0.07%
for 2001.  Management  attributes  this increase in net  charge-offs to a slight
weakening of local economy in which the Company operates.

     Loans  increased  $14.1 million to $81.2 million as of December 31, 2002 as
compared  to  December  31,  2001.  Management  attributes  this growth to lower
interest  rates,  growth in the  Knoxville  market and the strong  effort of the
Company's lending  personnel.  The primary categories of growth were real estate
loans.  During  2002,   management   reclassified  certain  loans  to  different
categories based on FDIC financial reporting  guidelines,  with  classifications
based more on collateral  type than loan purpose.  This resulted in a decline in
commercial  and  industrial  loans and  consumer  loans and an increase in loans
secured by real estate.

                                  Schedule VII
                          Loans by Type (in thousands)
                                                         December 31,
                                                     2002              2001
                                              ----------------------------------
Loans secured by real estate:
Commercial properties                          $         15,014   $      5,605
Construction and land development                        12,983          5,351
Residential and other properties                         37,694         27,562
                                              ----------------------------------
Total loans secured by real estate                       65,691         38,518

Commercial and industrial loans                           8,433         14,086
Consumer loans and other                                  8,214         15,412
                                              ----------------------------------
                                                         82,338         68,016
Less: Allowance for loan losses                          (1,047)          (811)
      Unearned loan fees                                    (85)           (90)
                                              ----------------------------------
                                               $         81,206    $    67,115
                                              ==================================

Investment Securities

     Investment  securities  were $13.8 million as of December 31, 2002 compared
to $14.1 million as of December 31, 2001. At December 31, 2002 and 2001,  all of
the Bank's  investment  securities  were classified  available for sale.  During
2002,  $5.7 million in available for sale  securities were purchased as compared
to $6.6  million  in  purchases  of  available  for  sale  securities  in  2001.
Maturities,   calls  and  principal   payments  received  from   mortgage-backed
securities totaled $3.9 million in 2002 and $4.6 million in 2001.  Proceeds from
the sale of available for sale securities totaled $2.2 million, with gross gains
on these sales of $8,856 and gross losses of $5,156.  Proceeds  from the sale of
available for sale securities in 2001 totaled $1.1 million,  with gross gains on
the sales of $12,827 and gross  losses of $0. 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 $366,227 at December 31,
2002  compared  to  $175,514  at  December  31,  2001.  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.

                                     17
<PAGE>


     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  (FHLMC), the FHLB, the Federal Farm Credit Bank
(FFCB),  the Government  National Mortgage  Association  (GNMA),  Small Business
Administration  (SBA) and the Federal National Mortgage  Association  (FNMA) and
bank-qualified,  investment grade state,  county and municipal bonds. The Bank's
investment  policy  prohibits  the Bank  from  investing  in state,  county  and
municipal  bonds  rated Baa or lower by Moody's  or BBB by S&P.  Mortgage-backed
issues  comprised  38% of the portfolio at December 31, 2002 and 42% at December
31, 2001.  Schedule VIII sets forth the maturity of the  securities  held in the
investment portfolio as of December 31, 2002:




                                  Schedule VIII
                  Maturities of Securities at December 31, 2002

<TABLE>
<CAPTION>
                                               Due in One Year or   Due After One Year  Due After Five Years
($ in Thousands)                                      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 Corproations and Agencies           $   399      6.21%   $   1,067    4.87%   $   1,154    4.97%
Mortgage-Backed and Related Securities               -                    365    6.15%         766    4.94%
Obligations of State and Political Subdivisions     90      8.33%         333    6.81%       1,038    6.75%
Corporate Debt Securities                          304      7.34%         273    7.37%           -

                                              ----------------------------------------------------------------
Total Debt Securities                          $   793              $   2,038    7.03%   $   2,958    6.04%
                                              ================================================================

</TABLE>

<TABLE>
<CAPTION>

($ in Thousands)                               Due After Ten Years         Total
Securities available for sale:                   Amount     Yield     Amount     Yield
                                              -------------------------------------------
<S>                                           <C>           <C>       <C>        <C>

U.S. Treasury Securities and Obligations of U.S.
Government Corporations and Agencies          $  947        4.68%     $ 3,567    5.00%
Mortgage-Backed and Related Securities         4,151        4.78%       5,282    4.90%
Obligations of State and Political             2,438        6.36%       3,899    6.55%
Corporate Debt Securities                          -                      577    7.35%

                                              -------------------------------------------
Total Debt Securities                         $7,536        6.15%     $13,325    5.51%
                                              ===========================================
</TABLE>

     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 the Bank's 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 the Bank's 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 the Bank's
interest  earning  assets and interest  bearing  liabilities.  As seen from this
analysis,  the Bank is in a negative gap position in both  repricing  categories
through one to five years.  Management  continually monitors its asset liability
position, and corrective measures, where possible, are taken.

                                       18
<PAGE>



                                   Schedule IX
                Interest Rate Sensitivity Analysis (in thousands)
                             As of December 31, 2002
<TABLE>
<CAPTION>


                                     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                              $  34,605              $ 6,946           $ 39,403         $ 1,385      $  82,339
Investment Securities                  3,060                  703              2,631           7,459         13,853
Federal funds sold                       128                                                                    128
                                     -------------------------------------------------------------------------------
Total earning assets                  37,793                7,649             42,034           8,844         96,320
                                     -------------------------------------------------------------------------------
Interest Bearing Liabilities:
Interest bearing deposits             44,956               26,006             12,195               -         83,157
FHLB advances                          1,770                2,000              3,500               -          7,270
                                     -------------------------------------------------------------------------------
Total interest bearing liabilities    46,726               28,006             15,695               -         90,427
                                     -------------------------------------------------------------------------------

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

Repricing Gap                         (8,933)            (20,357)             26,339           8,844          8,844
Repricing Gap as a percentage of
earning assets                         -9.3%               -21.1%               27.3%            9.2%
Cumulative repricing gap              (8,933)            (29,290)             (2,951)          5,893          5,893
Cumulative repricing gap as a
percentage of earning assets           -9.3%               -30.4%               -3.1%            6.1%

</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

     The  Company's   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, 2002, the Company held $13.8 million in  available-for-sale
securities.  Deposits  increased $15.6 million during 2002. The Company has $3.0
million in  available  federal  funds lines and  approximately  $3.3  million in
potentially available borrowings from the FHLB.

     The Bank utilizes  various  types of other  borrowings to help fund balance
sheet growth and mitigate its 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, 2002 the Bank had $7.3
million in  outstanding  advances with the FHLB.  The Bank had $500,000 in fixed
rate  advances  which offer  fixed  interest  rates on balances  that are due at
maturity.  The Bank had $6.0 million in Convertible  Fixed Rate Advances ("CFR")

                                       19
<PAGE>
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.  The Bank also  maintains a Cash  Management  Advance
("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, 2002 the Bank had  $770,700  outstanding
under its CMA line of credit.

     The Bank can also enter into repurchase  agreement  transactions should the
need for additional liquidity arise. At December 31, 2002, the Bank had $282,000
in repurchase agreements outstanding.

     At  December  31,  2002,  the Bank had  capital  of $8.5  million  in total
capital,  or 10.3% of total risk based  assets as compared to $7.6  million,  or
11.1% at December 31, 2001.  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.

                                   Schedule X
                   Regulatory Capital Ratios ($ in thousands)
<TABLE>
<CAPTION>

                                                                                            To be Well
                                                                    To comply with      Capitalized under
                                                                    minimum capital     Prompt Corrective
                                                    Actual           requirements       Action provisions
                                             ----------------------------------------------------------------
                                                Amount     Ratio    Amount     Ratio     Amount      Ratio
                                             ----------------------------------------------------------------
As of December 31, 2002
----------------------------------------
<S>                                          <C>           <C>       <C>       <C>        <C>        <C>

Total Capital (to risk-weighted assets)      $ 8,465       10.3%     6,560     >8.0%      8,201      >10.0%

Tier 1 Capital (to risk-weighted assets)       7,440        9.1%     3,280     >4.0%      4,920       >6.0%

Tier 1 Capital (to average assets)             7,440        7.1%     5,224     >5.0%      5,224       >5.0%

As of December 31, 2000
----------------------------------------
Total Capital (to risk-weighted assets)      $ 7,586        11.1%    5,462     >8.0%      6,827      >10.0%

Tier 1 Capital (to risk-weighted assets)       6,775         9.9%    2,731     >4.0%      4,096       >6.0%

Tier 1 Capital (to average assets)             6,775         7.6%    4,435     >5.0%      4,435       >5.0%


</TABLE>

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 the
Company does not have any legal  obligations as described above,  this statement
is not  expected  to have any  impact on the  Company's  consolidated  financial
position or results of operations.

     In August 2001, the Financial  Accounting  Standards Board issued Statement
of Financial  Accounting  Standard No. 144,  Accounting  for the  Impairment  or
Disposal of Long-Lived Assets. SFAS No. 144. This statement  supercedes SFAS No.
121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of, and the  accounting  and reporting  provisions of APB Opinion
No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of
a Segment of a Business,  and Extraordinary,  Unusual and Infrequently Occurring
Events  and  Transactions,  for the  disposal  of a segment  of a  business  (as

                                       20
<PAGE>

previously  defined in that  Opinion).  SFAS No. 144 is effective  for financial
statements  issued for fiscal years  beginning  after  December  15,  2001,  and
interim  periods  within those fiscal years.  This  statement is not expected to
have a  significant  impact on the  Company's  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 the  Company's  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. The
Company  and the Bank  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. The Company's
consolidated  annual  financial  statements  beginning in 2002 and  consolidated
interim  financial  statements  beginning  in 2003 will  include the  additional
disclosures  required by SFAS No. 148, but management  does not anticipate  this
statement having a significant  impact on the Company's  consolidated  financial
position or results of operations.

ITEM 7.  FINANCIAL STATEMENTS

                         Index to Financial Statements

Independent Auditor's Report...............................................22

Consolidated Balance Sheets as of December 31, 2002 and 2001...............23

Consoldiated Statements of Income for the Years ended
  December 31, 2002, 2001 and 2000.........................................24

Consolidated Statements of Comprehensive Income for the
  Years ended December 31, 2002, 2001 and 2000.............................25

Consoldiated Statements of Changes in Shareholders' Equity
  for the Three Years ended December 31, 2002..............................26

Consolidated Statements of Cash Flows for the Years ended
  December 31, 2002, 2001 and 2000.........................................27-28

Notes to Financial Statements..............................................29-42

                                       21
<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, 2002 and 2001 and the
related  consolidated  statements of income,  comprehensive  income,  changes in
shareholders'  equity,  and cash flows for the years ended  December  31,  2002,
2001, and 2000. 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 audit 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, 2002 and 2001, and
the  results  of their  operations  and their  cash  flows  for the years  ended
December 31, 2002,  2001,  and 2000 in  conformity  with  accounting  principles
generally accepted in the United States of America.


                                                   /s/  Pugh & Company, P.C.

                                                   Certified Public Accountants
                                                   Knoxville, Tennessee
                                                   January 31, 2003

                                       22

<PAGE>
                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.

                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>


                                         As of December 31,        2002                    2001
                                                             ---------------         --------------


<S>                                                          <C>                     <C>
                                          ASSETS
Cash and Due From Banks                                      $     2,018,197         $    2,084,774
Federal Funds Sold                                                   127,514                      0
                                                             ---------------         --------------
   Total Cash and Cash Equivalents                                 2,145,711              2,084,774
Investment Securities Available for Sale, at Fair Value           13,853,233             14,117,881
Loans Held for Sale, at Fair Value                                 5,942,350              2,613,750
Loans, Net                                                        81,205,940             67,114,997
Premises and Equipment, Net                                        3,368,925              3,461,813
Accrued Interest Receivable                                          568,350                544,170
Deferred Income Tax Benefit                                          167,014                168,611
Prepaid Expenses and Other                                           106,005                 55,803
                                                             ---------------         --------------
TOTAL ASSETS                                                 $   107,357,528         $   90,161,799
                                                             ===============         ==============


                                  LIABILITIES AND EQUITY
LIABILITIES
 Deposits:                                                   $    45,756,562         $   33,061,571
  Term                                                            45,704,783             42,769,739
                                                             ---------------         --------------
  Total Deposits                                                  91,461,345             75,831,310
                                                             ---------------         --------------

 Securities Sold Under Agreements to Repurchase                      282,398                      0
 Advances From Federal Home Loan Bank                              7,270,700              6,755,000
 Accrued Interest Payable                                            346,995                407,058
 Accrued Income Taxes                                                 58,821                 79,585
 Other                                                               210,535                203,343
                                                             ---------------         --------------
  Total Liabilities                                               99,630,794             83,276,296
                                                             ---------------         --------------


SHAREHOLDERS' EQUITY
 Common Stock, Par Value $1, Authorized 2,000,000                    534,130                534,030
  Shares; Issued and Outstanding 534,130 Shares in 2002            6,487,427              5,242,917
  534,030 in 2001)
 Capital in Excess of Par Value                                      471,975                998,344
 Retained Earnings                                                 7,493,532              6,775,291
 Accumulated Other Comprehensive Income                              233,202                110,212
                                                             ---------------         --------------

Shareholders' Equity                                               7,726,734              6,885,503
                                                             ---------------         --------------

TOTAL LIABILITIES AND EQUITY                                 $   107,357,528         $   90,161,799
                                                             ===============         ==============

</TABLE>

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

                                       23

<PAGE>





                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.

                        CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>

                                    For the Years Ended December 31,           2002                   2001                 2000
                                                                         ------------------     -----------------     --------------
<S>                                                                      <C>                    <C>

 Loans (Including Fees)                                                  $       5,623,920      $      5,183,424      $    4,640,720
 Investment Securities                                                             699,255               893,544             787,795
 Federal Funds Sold                                                                 29,398               100,675             144,608
                                                                         ------------------     -----------------     --------------
Total Interest Income                                                            6,352,573             6,177,643           5,573,123
                                                                         ------------------     -----------------     --------------
INTEREST EXPENSE
 Deposits                                                                        2,279,857             3,046,350           2,994,309
 Securities Sold Under Agreements to Repurchase                                      1,958                31,828                   0
 Advances From Federal Home Loan Bank                                              291,015               239,599             131,447
                                                                         ------------------     -----------------     --------------

  Total Interest Expense                                                         2,572,830             3,317,777           3,125,756
                                                                         ------------------     -----------------     --------------

NET INTEREST INCOME                                                              3,779,743             2,859,866           2,447,367

PROVISION FOR LOAN LOSSES                                                          485,000               163,500             143,000
                                                                         ------------------     -----------------     --------------

NET INTEREST INCOME AFTER PROVISION
  FOR LOAN LOSSES                                                                3,294,743             2,696,366           2,304,367
                                                                         ------------------     -----------------     --------------

NONINTEREST INCOME
 Service Charges on Demand Deposits                                                307,648               253,070             220,970
 Fees on Loans Sold                                                                451,996               243,775              41,748
 Net Gain (Loss) on Sales of Investment Securities
 Available For Sale                                                                  3,700                12,827             (7,051)
 Other                                                                              60,905                48,279              24,802
                                                                         ------------------     -----------------     --------------

  Total Noninterest Income                                                         824,249               557,951             280,469
                                                                         ------------------     -----------------     --------------

NONINTEREST EXPENSE
 Salaries and Employee Benefits                                                  1,509,933             1,186,585           1,026,885
 Occupancy Costs                                                                   309,884               296,357             240,556
 Furniture and Equipment Depreciation and Maintenance                              144,519               126,956              97,670
 Data Processing Fees                                                              234,154               204,002             163,514
 Office Supplies and Postage                                                       160,225               137,740             112,414
 Advertising and Promotion                                                         100,567               102,491              98,646
 Legal and Professional                                                             66,697                64,083              60,866
 Other                                                                             547,032               339,161             244,560
                                                                         ------------------     -----------------     --------------

  Total Noninterest Expense                                                      3,073,011             2,457,375           2,045,111
                                                                         ------------------     -----------------     --------------

INCOME BEFORE INCOME TAXES                                                       1,045,981               796,942             539,725

INCOME TAXES                                                                       329,340               269,767             150,472
                                                                         ------------------     -----------------     --------------

NET INCOME                                                               $         716,641      $        527,175      $      389,253
                                                                         ==================     =================     ==============

EARNINGS PER SHARE:
Basic                                                                    $            1.34      $           0.99      $         0.73
                                                                         ==================     =================     ==============

Assuming Dilution                                                        $            1.34      $           0.99      $         0.73
                                                                         ==================     =================     ==============

</TABLE>

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

                                       24
<PAGE>


                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


<TABLE>
<CAPTION>

                                       For the Years Ended December 31,              2002                  2001                 2000
                                                                             ----------------     -----------------    -------------
<S>                                                                          <C>                  <C>                  <C>

NET INCOME                                                                   $      716,641       $       527,175   $       389,253
                                                                             ----------------     -----------------    -------------


OTHER COMPREHENSIVE INCOME, NET OF TAX:
 Unrealized Gain (Losses) on Investment Securities Available for Sale               194,413               152,238           262,152

 Reclassification Adjustment for Net (Gains) Losses Included
  in Net Income                                                                      (3,700)              (12,827)            7,050

 Income Taxes Associated With Unrealized Gains/Loss on
  Investment Securities Available for Sale                                          (67,723)              (51,582)         (102,298)

 Other Comprehensive Income, Net of Tax                                             122,990                87,829           166,904
                                                                             ----------------     -----------------   --------------

COMPREHENSIVE INCOME                                                         $      839,631       $       615,004   $       556,157
                                                                             ================     =================  ===============

</TABLE>














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

                                       25

<PAGE>




                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                   For the Three Years Ended December 31, 2002





<TABLE>
<CAPTION>


                                                                                                      Accumulated
                                                                Capital in                               Other           Total
                                                 Common          Excess of          Retained         Comprehensive    Shareholders'
                                                 Stock           Par Value          Earnings         Income (Loss)       Equity
                                              -------------    --------------     -------------    ------------------  ------------
<S>                                           <C>              <C>                <C>              <C>                   <C>

BALANCES, JANUARY 1, 2000                     $    529,363     $   5,177,579      $    81,916      $       (144,521)     $5,644,337

Net Income                                               0                 0          389,253                     0         389,253

Common Stock Options Exercised
 (2,500 Shares at $15 Per Share)                     2,500            35,000                0                     0          37,500

Common Stock Options Converted
 to Common Stock (6,500 in Options
 for 2,167 Shares)                                   2,167            30,338                0                     0          32,505

Other Comprehensive Income                               0                 0                0               166,904         166,904
                                              -------------    --------------     -------------    ------------------  ------------

BALANCES, DECEMBER 31, 2000                        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
                                              =============    ==============     =============    ================   =============


</TABLE>






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

                                       26
<PAGE>



                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>


                                     For the Years Ended December 31,          2002               2001               2000
                                                                           ------------     -------------       -------------
<S>                                                                        <C>               <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net Income                                                                $    716,641      $    527,175       $     389,253
                                                                           ------------     -------------       -------------

 Adjustments to Reconcile Net Income to Net Cash
  Provided by Operating Activities:
   Provision for Loan Losses                                                    485,000           163,500             143,000
   Depreciation                                                                 158,357           123,181              57,022
   Loss on Sales of Premises and Equipment                                          999             2,514                   0
   Conversion of Stock Options - Charged to Compensation Expense                      0                 0              32,505
   Deferred Income Tax Benefit                                                  (66,126)          (75,744)            (16,160)
   Increase (Decrease) in Unearned Loan Fees                                     (5,034)           44,324              26,436
   Net Amortization of Premiums and Discounts on Investment                      56,696           (24,211)            (10,195)
Securities
   FHLB Stock Dividends                                                         (19,800)          (19,900)            (15,600)
   Net (Gain) Loss on Sales of Investment Securities Available for               (3,700)          (12,827)              7,051
Sale
   Fees on Loans Sold                                                          (430,000)         (230,930)            (13,493)
   Gain on Sales of Foreclosed Real Estate                                         (188)                0                   0
   Increase in Accrued Interest Receivable                                      (24,180)          (37,628)            (97,128)
   (Increase) Decrease in Prepaid Expense and Other                             (50,202)          (20,822)             30,989
   (Increase) Decrease in Prepaid Income Taxes                                        0            69,203             (69,203)
   Increase (Decrease) in Accrued Interest Payable                              (60,063)          (94,127)            178,291
   Increase (Decrease) in Accrued Income Taxes                                  (20,764)           79,585            (203,562)
   Increase (Decrease) in Other Liabilities                                       7,192           110,526             (57,010)
                                                                           ------------       -----------       --------------
    Total Adjustments                                                            28,187            76,644              (7,057)
                                                                           ------------       -----------       --------------
      Net Cash Provided by Operating Activities                                 744,828           603,819             382,196
                                                                           ------------       -----------       --------------


CASH FLOWS FROM INVESTING ACTIVITIES
 Investment Securities Available for Sale:
 Sales                                                                        2,211,658         1,114,035             740,156
 Purchases                                                                   (5,742,169)       (6,611,128)         (4,742,688)
 Maturities                                                                   1,880,000         2,550,000           1,175,000
 Principal Repayments Received                                                2,072,676         2,010,935             753,004
 Maturities of Investment Securities Held to Maturity                                 0         1,000,000                   0
 Net Increase in Loans                                                      (14,577,962)      (12,159,955)         (7,314,427)
 New Loans Originated for Sale                                              (28,401,750)      (18,060,970)         (1,214,657)
 Proceeds From Sales of Loans                                                25,503,150        15,678,150           1,374,900
 Purchases of Premises and Equipment                                            (66,468)         (928,469)         (1,689,448)
 Proceeds From Sales of Foreclosed Real Estate                                    7,241                 0                   0
                                                                           -------------      ------------      --------------
      Net Cash Used in Investing Activities                                 (17,113,624)      (15,407,402)        (10,918,160)
                                                                           -------------      ------------      --------------
</TABLE>

                                       27
<PAGE>



                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)





<TABLE>
<CAPTION>


                                     For the Years Ended December 31,          2002               2001               2000
                                                                          -------------     -------------     ---------------
<S>                                                                        <C>              <C>               <C>

CASH FROM FINANCING ACTIVITIES
 Net Increase in Deposits                                                    15,630,035         7,559,003          10,667,152
 Net Increase in Securities Sold Under Agreements to Repurchase                 282,398                 0                   0
 Net Increase in Advances From Federal Home Loan Bank                           515,700         3,255,000           1,500,000
 Proceeds From Issuance of Common Stock                                           1,600                 0              37,500
                                                                           ------------     -------------     ---------------

      Net Cash Provided by Financing Activities                              16,429,733        10,814,003          12,204,652
                                                                           ------------     -------------     ---------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                             60,937        (3,989,580)          1,668,688

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                2,084,774         6,074,354           4,405,666
                                                                           ------------     -------------     ---------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                   $  2,145,711     $   2,084,774     $     6,074,354
                                                                           ============     =============     ===============

Supplementary Disclosures of Cash Flow Information:
 Cash Paid During the Year for:
  Interest                                                                 $  2,632,893     $   3,411,904     $     2,947,465
  Income Taxes                                                             $    415,495     $     197,174     $       417,218

Supplementary Disclosures of Noncash Investing and
 Financing Activities:
  Acquisition of Foreclosed Real Estate                                    $     48,312     $           0     $             0
  Sales of Foreclosed Real Estate by Origination of Mortgage Loans         $     41,259     $           0     $             0
  Change in Unrealized Gain/Loss on Investment Securities
   Available for Sale                                                      $    190,713     $     139,411     $       269,202
  Change in Deferred Taxes Associated With Unrealized
  Gain/Loss on Investment Securities Available for Sale                    $     67,723     $      51,582     $       102,298
  Change in Net Unrealized Gain/Loss on Investment Securities
   Available for Sale                                                      $    122,990     $      87,829     $       166,904
  Conversion of 6,500 Stock Options to 2,167 Shares of Stock               $          0     $           0     $        32,505


</TABLE>









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

                                       28
<PAGE>

                    TENNESSEE VALLEY FINANCIAL HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 2002, 2001, and 2000

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 2000 and 2001  consolidated  financial
statements  have  been  reclassified  to  conform  with  the  2002  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 $70,000 as of December 31, 2002 ($152,000 in 2001).

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.

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.

                                       29
<PAGE>

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, 2002 and 2001.

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.

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 15. The Company accounts for those 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 those 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.

                                       30
<PAGE>

<TABLE>
<CAPTION>

                                                                                      Year Ended December 31,
                                                                      --------------------------------------------------------
                                                                             2002                 2001               2000
                                                                      ----------------     ---------------     ---------------
<S>                                                                   <C>                  <C>                 <C>
Net Income, as Reported                                               $      716,641       $      527,175      $       389,253
Less: Total Stock-Based Employee Compensation
 Expense Determined Under Fair Value Based Method
 for All Awards, Net of Related Tax Effects                                   (8,413)              (7,344)              (8,251)
                                                                      ---------------      ---------------     ----------------
Pro Forma Net Income                                                  $      708,228       $      519,831      $       381,002
                                                                      ===============      ===============     ================
Earnings Per Share:
 Basic - as Reported                                                  $         1.34       $         0.99      $          0.73
                                                                      ===============     ================    =================
 Basic - Pro Forma                                                    $         1.33       $         0.97      $          0.72
                                                                      ===============     ================    =================
 Diluted - as Reported                                                $         1.34       $         0.99      $          0.73
                                                                      ===============     ================    =================
 Diluted - Pro Forma                                                  $         1.32       $         0.97      $          0.72
                                                                      ===============     ================    =================


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

                                                                            2002                 2001                 2000
                                                                      ----------------     ----------------    -----------------
Weighted Average Number of Shares Outstanding
 Used for Basic Calculation                                                 534,085              534,030              532,297
Effect of Dilutive Stock Options                                                853                  442                    0
                                                                      ----------------     ----------------    -----------------
 Number of Shares Used for Calculation Assuming Dilution                    534,938                                   532,297
                                                                      ================     ================    =================


</TABLE>
                                       31
<PAGE>

Stock options awarded to key employees to purchase 14,600 shares of common stock
at $16 per share were not  considered  dilutive  in 2000  because  the  options'
exercise  price was greater than the average  market price of the common  shares
for the corresponding period.

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, 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
                                                        ===============    ===============    ===============     ==============

                                                                       Investment Securities Available for Sale
                                                        ------------------------------------------------------------------------
                                                                                Gross              Gross             Estimated
                                                          Amortized          Unrealized         Unrealized            Fair
                                                             Cost              Gains              Losses              Value
                                                        ---------------    ---------------    ---------------     --------------
December 31, 2001:
 Debt Securities:
  U.S. Treasury Securities and Obligations of
   U.S. Government Corporations and Agencies            $    3,728,387     $       63,397     $      (2,375)      $   3,789,409
  Mortgage-Backed and Related Securities                     5,920,864             78,743           (11,892)          5,987,715
  Obligations of States and
   Political Subdivisions                                    3,091,345             42,240           (30,837)          3,102,748
  Corporate Debt Securities                                    799,271             36,238                 0             835,509
                                                        ---------------    ---------------    ---------------     --------------
     Total Debt Securities                                   13,539,867           220,618           (45,104)         13,715,381
 Equity Securities:
  Federal Home Loan Bank Stock, at Cost                         402,500                 0                 0             402,500
                                                        ---------------    ---------------    ---------------     --------------
                                                        $    13,942,367    $      220,618     $     (45,104)      $  14,117,881
                                                        ===============    ===============    ===============     ==============
</TABLE>


The amortized  cost and estimated  fair value of debt  securities as of December
31, 2002, by contractual maturity, are as follows:

                                                           Available for Sale
                                             ----------------------------------
                                                                      Estimated
                                                   Amortized             Fair
                                                     Cost               Value
                                              ---------------     -------------

Due in One Year or Less                       $      778,001      $     793,530
Due After One Year Through Five Year               1,575,552          1,672,539
Due After Five Years Through Ten Years             2,102,892          2,191,846
Due After Ten Years                                3,369,699          3,384,542
                                              ---------------     --------------
                                                   7,826,144          8,042,457
Mortgage-Backed and Related Securities             5,132,762          5,282,676
                                              ---------------     --------------
                                              $   12,958,906      $  13,325,133
                                              ===============     ==============
                                       32
<PAGE>


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  $2,211,658 during the year ended December 31, 2002 ($1,114,035 in 2001
and  $740,156 in 2000).  Gross gains of $8,856  ($12,827 in 2001 and $0 in 2000)
and gross losses of $5,156 ($0 in 2001 and $7,051 in 2000) were  realized by the
Bank during the year ended  December  31,  2002.  The Bank did not  transfer any
investment  securities  between  categories  during the years ended December 31,
2002, 2001, and 2000.

Investments with a total estimated fair value (which approximates book value) of
approximately  $6,246,000  as of  December  31, 2002  ($3,405,000  in 2001) were
pledged to secure deposits of public and private funds.


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 and Knox County areas. A
summary of loans as of December 31, 2002 and 2001 is as follows:

                                                 2002                 2001
                                           ----------------    -----------------
Loans Secured by Real Estate:
Commercial Properties                      $    15,014,207     $      5,604,976
 Construction and Land Development              12,982,559            5,350,935
 Residential and Other Properties               37,694,354           27,562,265
                                           ----------------    -----------------
  Total Loans Secured by Real Estate       $    65,691,120     $     38,518,176

Commercial and Industrial Loans                  8,433,366           14,086,253
Consumer Loans and Other                         8,214,141           15,412,480
                                           ----------------    -----------------
                                                82,338,627           68,016,909
Less:  Allowance for Loan Losses                (1,047,297)            (811,488)
           Unearned Loan Fees                      (85,390)             (90,424)
                                           ----------------    -----------------
                                           $    81,205,940     $     67,114,997
                                           ================    =================

During 2002, management reclassified certain loans to different categories based
on FDIC  financial  reporting  guidelines,  with  classifications  based more on
collateral type than loan purpose.  This resulted in a decline in commercial and
industrial  loans and consumer  loans,  and an increase in loans secured by real
estate.

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 become payable.  Outstanding
letters of credit were approximately  $880,000 as of December 31, 2002 ($633,000
as of December 31, 2001).  Unadvanced  lines of credit and commitments to extend
credit were approximately $14,514,000 as of December 31, 2002 ($15,075,000 as of
December 31, 2001).  Of the total  outstanding  letters of credit and unadvanced
lines and commitments as of December 31, 2002  approximately  $10,869,000,  were
secured, primarily by real estate ($13,188,000 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:

                                                 2002                 2001
                                           ----------------    -----------------

Loans at Beginning of Year                 $      793,466      $       909,074
 Disbursements                                    436,358            1,357,763
 Repayments                                      (701,045)          (1,473,371)
                                           ----------------    -----------------
Loans at End of Year                       $      528,779      $       793,466
                                           ================    =================

                                       33
<PAGE>




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

<TABLE>
<CAPTION>

                                                                              2002                 2001                 2000
                                                                      ----------------     ----------------    -----------------
<S>                                                                   <C>                  <C>                 <C>
Balance, Beginning of Year                                            $      811,488       $      694,351      $       662,101
Charge-offs                                                                 (276,054)             (50,785)            (113,160)
Recoveries                                                                    26,863                4,422                2,410
Provision - Charged to Expense                                               485,000              163,500              143,000
                                                                      ----------------     ----------------    -----------------
Balance, End of Year                                                  $    1,047,297       $      811,488      $       694,351
                                                                      ================     ================    =================
</TABLE>

The Bank had  approximately  $28,000 in 2002 ($346,000 in 2001 of loans past due
ninety days or more and still accruing interest,  and approximately  $318,000 in
loans on which the accrual of interest had been  discontinued as of December 31,
2002 ($145,000 in 2001).

As  of  December  31,  2002,  the  Bank  had  approximately  $800,000  in  loans
specifically  classified as impaired  ($200,000 in 2001). The allowance for loan
losses  related to  impaired  loans  amounted  to  approximately  $164,000 as of
December 31, 2002 ($45,000 in 2001).


NOTE 5 - PREMISES AND EQUIPMENT

A summary of premises and equipment is as follows:

                                                     2002                 2001
                                           ----------------    -----------------
Land                                       $     1,148,074     $      1,148,074
Buildings                                        1,980,669            1,971,523
Leasehold Improvements                               6,894               11,436
Furniture, Fixtures, and Equipment                 749,824              692,502
                                           ----------------    -----------------
                                                 3,885,461            3,823,535
Less Accumulated Depreciation                     (516,536)            (361,722)
                                           ----------------    -----------------
                                           $     3,368,925     $      3,461,813
                                           ================    =================


NOTE 6 - ACCRUED INTEREST RECEIVABLE

A summary of accrued interest receivable is as follows:
                                                   2002                2001
                                           ----------------    ----------------
Investment Securities                      $        131,007    $        158,350
Loans                                               437,343             385,820
                                           ----------------    ----------------
                                           $        568,350    $        544,170
                                           ================    ================


NOTE 7 - DEPOSITS

A summary of deposits is as follows:

                                                   2002                 2001
                                             ----------------    ---------------
 Demand Deposits:
 Noninterest-Bearing Accounts                $   8,304,599       $     5,573,367
 NOW and MMDA Accounts                          34,944,348            26,139,861
 Savings Accounts                                2,507,615             1,348,343
                                             ----------------    ---------------
 Total Demand Deposits                       $  45,756,562       $    33,061,571
                                             ----------------    ---------------
Term Deposits:
 Less Than $100,000                             31,939,581            30,118,621
 $100,000 or More                               13,765,202            12,651,118
                                             ----------------    ---------------
  Total Term Deposit                            45,704,783            42,769,739
                                             ----------------    ---------------
                                             $  91,461,345            75,831,310
                                             ================    ===============

                                       34
<PAGE>




As of December 31, 2002, the scheduled  maturities of  certificates  of deposits
are as follows:

           2003                           $     33,510,031
           2004                                  7,696,133
           2005                                  2,009,642
           2006                                  1,854,776
           2007 and Thereafter                     634,201
                                          ----------------
                                          $     45,704,783
                                          ================


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, 2002 and 2001 were $282,398 and $0, respectively.

Securities sold under agreements to repurchase averaged  approximately  $129,000
and $547,000 during 2002 and 2001, respectively. The maximum amounts outstanding
at  any  month-end  during  2002  and  2001  were  approximately   $282,000  and
$2,092,000, 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, 2002:

<TABLE>
<CAPTION>

                                                                                                            Amount
      Date of Advance                                  Next Call/                   Final                Outstanding
                             Interest Rate           Prepayment Date            Maturity Date            at Year-End
      ----------------     ------------------     ----------------------    ----------------------     ----------------
         <S>                     <C>                    <C>                       <C>                  <C>
         09/22/00                6.22%                  09/21/03                  09/21/10             $      1,000,000
         12/27/00                5.00%                  03/27/03                  12/27/10                    1,000,000
         08/10/01                5.09%                  08/10/06                  08/10/11                    1,000,000
         08/15/01                3.60%                  01/05/03                  08/15/11                    1,000,000
         06/25/02                4.82%                    None                    06/21/07                      500,000
         08/30/02                3.65%                  08/30/07                  08/30/12                    2,000,000
         12/26/02                1.50%                  01/03/03                  03/26/03                      770,700
                                                                                                       ----------------
                                                                                                       $      7,270,700
                                                                                                       ================
</TABLE>

Interest  expense  associated with the advances from the FHLB totalled  $291,015
for the year ended  December  31, 2002  ($239,599 in 2001 and $131,447 in 2000).
Pursuant to collateral agreements with the FHLB, the advances are secured by the
Bank's FHLB stock and certain first mortgage  loans.  Also during 2002, the Bank
entered  into a Cash  Management  Advance  (CMA)  agreement  with the FHLB  with
maximum borrowings of $6,000,000 expiring in June 2003.


NOTE 10 - INTEREST EXPENSE

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

                                                                          2002                 2001                 2000
                                                                     ----------------     ----------------     ----------------
<S>                                                                   <C>                  <C>                 <C>
NOW and MMDA Accounts                                                 $       447,195      $       572,209     $        625,732
Savings Accounts                                                               20,277               20,391               20,134
Term Deposits                                                               1,812,385            2,453,750            2,348,443
FHLB Advances and Repurchase Agreements                                       292,973              271,427              131,447
                                                                      ----------------     ----------------    ----------------
Total Interest Expense                                                $     2,572,830      $     3,317,777     $      3,125,756
                                                                      ================     ================    ================

</TABLE>

                                       35
<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>

                                                   2002                            2001                             2000
                                       -----------------------------    --------------------------     --------------------------
                                                         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                        $   355,634          34.0 %      $  270,960          34.0 %      $  183,507         34.0 %
Change in Deferred Tax
 Valuation Allowance                            0           0.0           (25,219)         (3.1)          (21,308)        (4.0)
Tax Exempt Interest
 and Dividends                            (53,816)         (5.1)          (22,521)         (2.8)          (10,829)        (2.0)
State Income Tax and
 Other, Net                                27,522           2.6            46,547           5.8              (898)        (0.2)
                                       -----------    -----------     ------------    ------------     -----------    -----------
                                       $  329,340          31.5 %     $   269,767          33.9 %      $   150,472        27.8 %
                                       ===========    ===========     ============    ============     ===========    ===========
Income Taxes Consist of:

Current                                $  395,466                     $   345,511                      $   166,632
Deferred Benefit                          (66,126)                        (75,744)                         (16,160)
                                       -----------                    ------------                     ------------
                                       $  329,340                     $   269,767                      $   150,472
                                       ===========                    ============                     ============
</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>

                                                                                                     2002                 2001
                                                                                          ----------------    -----------------
<S>                                                                                       <C>                 <C>
Preferred Tax Assets:
 Allowance for Loan Losses                                                                $        336,701    $         244,185
 Deferred Loan Fees                                                                                 34,583                    0
 Conversion to Cash Basis                                                                           10,163               53,258
 Organizational Costs                                                                               21,205                    0
                                                                                          ----------------    -----------------
Total Deferred Tax Assets                                                                 $        402,652    $         297,443
                                                                                          ----------------    -----------------

Deferred Tax Liabilities:
 Depreciation                                                                                       41,713               17,265
 FHLB Stock Dividends                                                                               33,899               25,560
 Discount Accretion                                                                                 16,433               13,891
 Unrealized Holding Gains on Investment Securities Available for Sale                              133,509               65,301
 State Tax                                                                                          10,084                6,815
                                                                                          ----------------    -----------------
  Total Deferred Tax Liabilities                                                                   235,638              128,832
                                                                                          ----------------    -----------------

  Net Deferred Tax Assets                                                                 $        167,014    $         168,611
                                                                                          ================    =================
</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.


NOTE 12 - PROFIT SHARING PLAN

Contributions to the profit sharing plan,  determined annually at the discretion
of the Bank's board of  directors,  were $23,729,  $20,108,  and $17,258 for the
years ended December 31, 2002, 2001, and 2000, respectively.

                                       36
<PAGE>


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, 2002, that the Bank
meets all capital adequacy requirements to which it is subject.

As of December 31, 2002, 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>             <C>
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%

As of December 31, 2001:
Total Capital
 (to Risk-Weighted Assets)                       $   7,586       11.1%       $ 5,462         8.0%        $ 6,827         10.0%
Tier I Capital
 (to Risk-Weighted Assets)                       $   6,775        9.9%       $ 2,731         4.0%        $ 4,096          6.0%
Tier I Capital
 (to Average Assets)                             $   6,775        7.6%       $ 4,435         5.0%        $ 4,435          5.0%


</TABLE>

NOTE 14 - EMPLOYMENT AGREEMENT


The Bank has entered into an  employment  agreement  with its  president,  for a
minimum annual salary and other related benefits.

                                       37
<PAGE>


NOTE 15 - STOCK OPTION PLANS

Directors  Stock Option Plan - In 1995, the Bank awarded  nontransferable  stock
options to certain directors and advisory directors.  These options provided for
the purchase of 105,000 shares at a price of $10 per share for options exercised
prior to May 23,  1998,  and $12 per share for options  exercised  after May 23,
1998.  All  options  expire ten years from the date the  options  were  granted.
Additionally,  the options  provided for the  conversion  of options into shares
based on the fair value of the options at the date of  conversion.  During 2000,
2,500 options were  exercised in cash and 2,167 options were converted to shares
of stock.  All remaining  unexercised  options  totalling  46,833 expired in May
2000.

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 Bank. 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
Bank'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 vest over a four-year period.
In 2002, options for 100 shares were exercised (none exercised in prior years).

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:
<TABLE>
<CAPTION>

                                                                                 Years Ended December 31,
                                                              ----------------------------------------------------------------
                                                                    2002                   2001                  2000
                                                              -------------------    -------------------    ------------------
<S>                                                               <C>                     <C>                    <C>

Dividend Yield                                                      1.37%                  1.22%                  1.09%
Expected Life                                                      6 years                7 years                8 years
Expected Volatility                                                  10%                    10%                    10%
Risk-Free Interest Rate                                              5.2%                   5.2%                  5.2%

</TABLE>


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

<TABLE>
<CAPTION>


                                              2002                            2001                             2000
                                   ---------------------------    -----------------------------    ----------------------------
                                                    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                     14,600      $    16.00           14,600      $    16.00         66,100       $     12.88
Granted                                     0                                0                              0
Exercised                                (100)          16.00                0                         (4,667)            12.00
Forfeited                                   0                                0                        (46,833)            12.00
                                   ------------                   -------------                    -----------
Outstanding at                         14,500      $    16.00           14,600      $    16.00         14,600       $     16.00
 End of Year
                                   ============    ===========    =============    ============    ===========     ===========
Options Exercisable                    14,500      $    16.00           12,700      $    16.00         10,800       $     16.00
 at Year-End
Weighted-Average Fair
 Value of Options Granted
 During the Year                           N/A                             N/A                             N/A
</TABLE>

                                       38
<PAGE>


Information  pertaining  to  options  outstanding  at  December  31,  2002 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            6.4 years        $  16.00            14,500      $      16.00

</TABLE>


NOTE 16 - LEASE COMMITMENTS/RELATED PARTY

The Bank leases certain office facilities and office equipment. These 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, 2002,  2001, and 2000 totalled  $35,905,  $55,065,  and
$113,597, respectively, of which $0 was paid to a related party in 2002 ($12,000
in 2001 and $48,000 in 2000).  The Bank no longer  leases any office  facilities
from a related  party with the  completion  of the new main  office  facility in
2001.

Future minimum rental payments under all  noncancellable  operating leases as of
December 31, 2002 are as follows:

           2003                                  $        15,735
           2004                                            3,756
           2005                                            3,756
           2006                                            3,130
                                                 ---------------
                                                 $        26,377
                                                 ===============

The Bank  also  entered  into a capital  lease  agreement  in 2002 with  monthly
payments ranging from $6,000 to $8,000 over the 20 year term of the lease.  This
lease will not commence until 2003.


NOTE 17 - SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK

The Bank's  primary  business  activity is with  customers  located  within East
Tennessee. As of December 31, 2002, 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 18 - 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.

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.

                                       39
<PAGE>


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, 2002 and 2001,
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.

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.

                                       40
<PAGE>


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 market value for advances that have variable rates.

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, 2002 and 2001.

The  recorded  book  value and  estimated  fair  value of the  Bank's  financial
instruments as of December 31, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                                       2002                                 2001
                                                           --------------------------------    ---------------------------------
                                                              Recorded         Estimated          Recorded           Estimated
                                                             Book Value        Fair Value        Book Value         Fair Value
                                                            -------------    ---------------    --------------     --------------
<S>                                                         <C>              <C>                <C>                <C>
FINANCIAL ASSETS:
Cash and Cash Equivalents                                   $  2,145,711     $    2,145,711     $   2,084,774      $   2,084,774
Investment Securities                                       $ 13,853,233     $   13,853,233     $  14,117,881      $  14,117,881
Loans Held for Sale                                         $  5,942,350     $    5,942,350     $   2,613,750      $   2,613,750
Net Loans                                                   $ 81,205,940     $   80,933,996     $  67,114,997      $  67,364,635

FINANCIAL LIABILITIES:
Deposits                                                    $ 91,461,345     $   92,283,929     $  75,831,310      $  76,835,051
Securities Sold Under Agreements to Repurchase              $    282,398     $      282,398     $           0      $           0
Advances From Federal Home Loan Bank                        $  7,270,700     $    7,818,611     $   6,755,000      $   6,755,000

</TABLE>

NOTE 19 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

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

                             CONDENSED BALANCE SHEET
                             As of December 31, 2002

Assets:
 Cash and Due From Banks                                  $           3,222
 Prepaid and Deferred Income Taxes                                   28,082
 Investment in Common Stock of TNBank                             7,462,228
                                                          -----------------
Total Assets                                              $       7,493,532
                                                          =================
Liabilities                                               $               0
                                                          -----------------
Shareholders' Equity:
 Common Stock                                                       534,130
 Capital in Excess of Par Value                                   6,487,427
 Retained Earnings                                                  471,975
                                                          -----------------
 Total Shareholders' Equity                                       7,493,532
                                                          -----------------
 Total Liabilities and Shareholders' Equity               $       7,493,532
                                                          =================

                                       41
<PAGE>


                          CONDENSED STATEMENT OF INCOME
                       For the Period From May 9, 2002 to
                                December 31, 2002
<TABLE>
<CAPTION>


<S>                                                                                 <C>

Income - Dividends From TNBank                                                      $         75,000
Organizational Costs and Operating Expenses                                                   73,400
                                                                                    ----------------
Income Before Income Tax Benefit and Equity in Undistributed Net Income of TNBank              1,600
Income Tax Benefit                                                                            28,105
Equity in Undistributed Net Income of TNBank                                                 442,270
                                                                                    ----------------

Net Income                                                                          $        471,975
                                                                                    ================
</TABLE>


<TABLE>
<CAPTION>

                        CONDENSED STATEMENT OF CASH FLOWS
                       For the Period From May 9, 2002 to
                                December 31, 2002
<S>                                                                                 <C>

Cash Flows From Operating Activities:
Net Income                                                                           $        471,975
                                                                                     -----------------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Equity in Undistributed Net Income of TNBank                                                 (442,270)
   Increase in Prepaid and Deferred Income Taxes                                              (28,083)
                                                                                     -----------------
Total Adjustments                                                                            (470,353)
                                                                                     -----------------
Net Cash Provided by Operating Activities                                                       1,622
                                                                                     -----------------
Cash Flows From Financing Activities:
Proceeds From Issuance of Common Stock                                                          1,600
                                                                                     -----------------
  Net Cash Provided by Financing Activities                                                     1,600
                                                                                     -----------------
Net Increase in Cash and Cash Equivalents                                                       3,222
Cash and Cash Equivalents, Beginning of Period                                                      0
                                                                                     -----------------
Cash and Cash Equivalents, End of Period                                             $          3,222
                                                                                     =================

</TABLE>

                                       42
<PAGE>
                                    PART III

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


     This item is incorporated by reference to the sections entitled "Management
of the Company" and "Beneficial Ownership Reporting Compliance" of the Company's
2003 Proxy  Statement.

ITEM 10 - EXECUTIVE COMPENSATION

     The  following  table sets  forth the  aggregate  compensation  paid by the
Company to its Chief Executive  Officer for services  rendered in all capacities
during the years ended  December 31,  2002,  2001 and 2000.  No other  executive
officer's  compensation  exceeded  $100,000  during such years. No stock options
were granted to any executive  officers  during 2002.  The Company  utilizes the
intrinsic  value  based  method  of  accounting  for its stock  option  plans as
prescribed by APB No. 25.

                           Summary Compensation Table
                                                                    Other Annual
Name and Principal Position   Year      Salary           Bonus      Compensation
--------------------------------------------------------------------------------
Thomas E. Tuck,               2002   $  104,160      $  19,998       $  6,000

Director, President &         2001       98,475              -          4,200

Stock Options                 2000       90,000         18,750          5,200

     The Company has a stock  option  plan for certain key  employees  which was
approved by the  shareholders  in March 1996. A total of 19,457 shares have been
reserved  under this plan and in 1999 the Board of Directors  granted a total of
14,600  options to certain key  employees,  at an option  price equal to $16 per
share. As of December 31, 2002 14,500 of those options remained outstanding.

     Under the 2002 Incentive and  Nonqualified  Stock Option Plan for Employees
of Tennessee Valley Financial Holdings, Inc. and its subsidiaries,  the Board of
Directors  are  authorized  to issue to  employees  of the  Company and the Bank
options up to a number of shares that is the lesser of (a) 20% of the issued and
outstanding  shares or (b) 213,612  shares of the  Company's  stock.  The option
prices are  determined by the Board of Directors,  or a committee  thereof,  but
option prices may not be less than 100% of the fair market value of the Stock on
the date the  option is  granted.  No awards  can be made  under this plan after
2012. Currently there are no options granted under this plan.

Director's Compensation

     In August 1997 the Company began paying directors fees. The Bank's board of
directors  receives a $400 fee for each Board of Director's meeting attended and
$75 for  each  committee  meeting  attended.  During  2002  total  fees  paid to
Directors for board and committee meetings attended was $63,425.

Certain Transactions

     Some  directors  and officers of the Company are customers of the Bank (its
subsidiary) and have had and expect to have loan  transactions  with the Bank in
the ordinary course of business. In addition, some of the directors and officers
of the Bank are, at present,  as in the past,  affiliated with businesses  which
are  customers  of the  Bank  and  which  have  had  and  expect  to  have  loan
transactions with the Bank in the ordinary course of business.  These loans were
made in the ordinary course of business and were made on substantially  the same
terms, including interest rates and collateral,  as those prevailing at the time
for comparable  transactions with other parties.  In the opinion of the board of
directors,  these loans do not involve more than a normal risk of collectibility
or present other unfavorable features.

     The following directors and executive officers were indebted to the Bank as
of December 31, 2002.

J. Michael Anderson   $ 134,580
Larry Beeman                  -
A.P. Cappiello           32,617
Victor I. Dodson        261,624
Mark B. Holder                -
J. Frank Jamison         57,592
Terry L. Kerbs            6,818
Thomas D. Moye           34,785
Braxton L. Sadler           763
Thomas E. Tuck                -
W. Robert Witt                -
                    -----------
Total                 $ 528,779
                    ===========

                                       43
<PAGE>
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 the Company's 2003 Proxy Statement.

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     This item is  incorporated  by reference to the section  entitled  "Certain
Relationships and Related Transactions" of the Company's 2003 Proxy Statement.

                                    PART IV

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.

         23.1              Consent of Independent Public Accountants

         99.1**            Certification  Pursuant to 18 U.S.C. Section 1350, as
                           Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                           Act of 2002,  signed by Thomas E. Tuck, the President
                           and the Chief Executive Officer of  Tennessee  Valley
                           Financial Holdings, Inc. on March 31, 2003.

         99.2**            Certification  Pursuant to 18 U.S.C. Section 1350, as
                           Adopted Pursuant to Section 906 of the Sarbanes-Oxley
                           Act  of  2002, signed  by  Mark  Holder,  Senior Vice
                           President of  Tennessee  Valley  Financial  Holdings,
                           Inc. on March 31, 2003.

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

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


         ** A signed  original of this written statement required by Section 906
            has been provided to the Company and will be retained by the Company
            and furnished to the Securities and Exchange Commission or its staff
            upon request.

(b) Reports on Form 8-K

     The Company filed no reports on Form 8-K during the quarter ended  December
31, 2002.

ITEM 14 -  CONTROLS AND PROCEDURES

     (a)  Evaluation  of  Disclosure  Controls  and  Procedures.  The  Company's
President  and Chief  Executive  Officer  and its  Senior  Vice  President  have
evaluated  the  effectiveness  of the  design  and  operation  of the  Company's
disclosure  controls and procedures (as defined in Exchange Act Rule  13a-14(c))
as of a date within 90 days of the filing date of this annual  report.  Based on
that evaluation,  the President and Chief Executive  Officer and the Senior Vice
President have concluded that the Company's  disclosure  controls and procedures
are  effective to ensure that material  information  relating to the Company and
the Company's 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 the  Company's  internal  controls  or in other  factors  that could
significantly affect these controls subsequent to the date of their evaluation.

                                       44

<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 26, 2003


/s/ Mark Holder                                 /s/ Thomas E. Tuck
---------------------------                     --------------------------------
Mark Holder                                     Thomas E. Tuck,
Senior Vice President,                          President and Chief
Cashier and Secretary                           Executive Officer, Director
Date:  March 31, 2003                           Date:  March 31, 2003



                                                /s/ J. Michael Anderson
---------------------------                     --------------------------------
Victor Dodson,                                  J. Michael Anderson,
Director                                        Director
Date:  March 31, 2003                           Date:  March 31, 2003



/s/ J. Frank Jamison                            /s/ A.P. Cappiello
---------------------------                     --------------------------------
J. Frank Jamison,                               A.P.Cappiello,
Director                                        Director
Date:  March 31, 2003                           Date:  March 31, 2003



/s/ Larry Beeman
---------------------------                     --------------------------------
Larry Beeman                                    Terry L. Kerbs
Director                                        Director
Date: March 31, 2003                            Date:  March 31, 2003



---------------------------                     --------------------------------
Dr. Thomas D. Moye, Jr.                         William Robert Witt
Director                                        Director
Date:  March 31, 2003                           Date:  March 31, 2003

                                       45







<PAGE>
                    Certification of Chief Executive Officer
                         Pursuant to Section 302 of the
                           Sarbanes-Oxley Act of 2002

I, Thomas E. Tuck, certify that:

     1.   I have reviewed this annual report on Form 10-KSB of Tennessee  Valley
          Financial Holdings, Inc. ("Tennessee Valley");

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

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

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

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

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

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

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

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

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

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

Date:  March 31, 2003                      /s/ Thomas E. Tuck
                                           -------------------------------------
                                           Thomas E. Tuck
                                           President and Chief Executive Officer


<PAGE>


                    Certification of Chief Financial Officer
                         Pursuant to Section 302 of the
                           Sarbanes-Oxley Act of 2002

I, Mark B. Holder, certify that:

     1.   I have reviewed this annual report on Form 10-KSB of Tennessee  Valley
          Financial Holdings, Inc. ("Tennessee Valley");

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

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

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

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

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

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

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

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

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

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

Date:  March 31, 2003                      /s/ Mark B. Holder
                                           -------------------------------------
                                           Mark B. Holder
                                           Senior Vice President (principal
                                           accounting and financial officer)