United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number
Tennessee Valley Financial Holdings, Inc.
(Exact name of small business issue as specified in its charter)
Tennessee
(State or other jurisdiction of incorporation or organization)
401 South Illinois Avenue, Oak Ridge, Tennessee
(Address of principal executive office)
45-0471419
(I.R.S. Employer Identification No.)
37830
(Zip Code)
Registrant's telephone number, including area code: (865) 483-9444
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock (par
value $1.00 per share)
Indicate by mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
Indicate by mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13, or (15d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes [x] No [ ]
The number of outstanding shares of the registrant's Common Stock, par
value $1.00 per share, was 536,545 on November 14, 2005.
FORM 10-QSB
Index
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet
as of September 30, 2005 (unaudited) and December 31, 2004..................................3
Condensed Consolidated Statement of Income
for the three and nine months ended September 30, 2005 and 2004 (unaudited).................4
Condensed Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended September 30, 2005 (unaudited).............................6
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 2005 and 2004 (unaudited)...................................7
Condensed Consolidated Statements of Comprehensive Income
for the nine months ended September 30, 2005 and 2004 (unaudited)...........................8
Notes to Unaudited Condensed Consolidated Financial Statements...........................9-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........................................13-20
Item 3. Controls and Procedures....................................................................21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................................................21
Item 2. Changes in Securities......................................................................21
Item 3. Defaults upon Senior Securities............................................................21
Item 4. Submission of Matters to a Vote
of Securities Holders......................................................................21
Item 5. Other Information..........................................................................21
Item 6. Exhibits and Reports on Form 8-K...........................................................21
Signature....................................................................................................22
2
Tennessee Valley Financial Holdings, Inc.
Condensed Consolidated Balance Sheet
(In Thousands)
(Unaudited)
September 30, 2005 December 31, 2004
(Unaudited)
-------------------------------- ---------------------------------
Assets
Cash and due from banks $ 2,880 $ 2,369
Federal funds sold 5,996 -
-------------------------------- ---------------------------------
Cash and cash equivalents 8,876 2,369
Investment Securities:
Investment Securities available for sale, at Fair
Value 19,296 15,325
Loans, net 106,935 101,227
Loans Held for Sale, at Fair Value 679 859
Banking premises and equipment, net 4,660 4,169
Accrued interest receivable 737 672
Other real estate owned - 335
Prepaid expenses and other assets 475 381
-------------------------------- ---------------------------------
Total Assets $ 141,658 $ 125,337
================================ =================================
Liabilities and Stockholders Equity
Deposits $ 119,299 $ 104,799
Securities sold under agreements to repurchase 459 353
Other Borrowings 8,773 10,315
Accrued interest payable 589 355
Long Term Subordinated Debt 2,062 0
Other liabilities 485 260
-------------------------------- ---------------------------------
Total Liabilities 131,667 116,082
-------------------------------- ---------------------------------
Stockholders Equity:
Common Stock, $1.00 Par Value, 2,000,000
shares authorized, 536,150 issued and outstanding 536 534
in 2004, 534,130 issued and outstanding in 2003.
Capital in excess of par value 6,522 6,491
Retained Earnings 2,905 2,183
Accumulated other comprehensive income 28 47
-------------------------------- ---------------------------------
Total Stockholders Equity 9,991 9,255
-------------------------------- ---------------------------------
Total Liabilities and Stockholders Equity $ 141,658 $ 125,337
================================ =================================
The accompanying notes are an integral part of these financial statements.
3
Tennessee Valley Financial Holdings, Inc. and Subsidiary
Condensed Consolidated Statements of Income
(In Thousands except for per share amounts)
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
2005 2004 2005 2004
----------------- --------------- ---------------- -----------------
Interest Income:
Loans, including fees $ 2,043 $ 1,622 $ 5,787 $ 4,577
Investment securities 176 149 477 435
Federal funds sold 54 4 142 9
Other interest income 7 - 20 -
----------------- --------------- ---------------- -----------------
Total interest income 2,280 1,775 6,426 5,021
----------------- --------------- ---------------- -----------------
Interest Expense:
Deposits 724 418 1,953 1,180
Advances from the Federal Home Loan Bank and other
borrowings 90 92 276 271
Trust Preferred Interest Expense 34 - 62 -
----------------- --------------- ---------------- -----------------
Total interest expense 848 510 2,291 1,451
----------------- --------------- ---------------- -----------------
Net interest income 1,432 1,265 4,135 3,570
Provision for loan losses 150 99 256 145
----------------- --------------- ---------------- -----------------
Net interest income after provision for loan losses 1,282 1,166 3,879 3,425
----------------- --------------- ---------------- -----------------
Non-interest income
Service charges on deposit accounts 106 104 295 295
Fees on sale of mortgage loans 114 97 284 263
Net gains (losses) on sales of investment securities
available for sale 4 - 5 23
Other income 45 15 88 65
----------------- --------------- ---------------- -----------------
Total non-interest income 269 216 672 646
----------------- --------------- ---------------- -----------------
Non-interest expense
Salaries and employee benefits 536 472 1,610 1,441
Net occupancy expense 181 167 497 446
Data processing fees 113 75 275 208
Advertising and promotion 40 31 94 107
Office supplies and postage 44 46 126 138
Legal and professional 62 60 215 136
Loan Expense 63 54 169 172
Other 125 125 399 351
----------------- --------------- ---------------- -----------------
Total non-interest expense 1,164 1,030 3,385 2,999
----------------- --------------- ---------------- -----------------
The accompanying notes are an integral part of these financial statements.
4
Tennessee Valley Financial Holdings, Inc. and Subsidiary
Condensed Consolidated Statements of Income
Continued from Page 4
(In Thousands except for per share amounts)
(Unaudited)
Income before income tax expense 387 352 1,166 1,072
Income tax expense 158 151 444 384
----------------- --------------- ---------------- -----------------
Net Income $ 229 $ 201 $ 722 $ 688
================= =============== ================ =================
Basic Earnings per Common Share $ 0.43 $ 0.38 $ 1.36 $ 1.29
================= =============== ================ =================
Diluted Earnings per Common Share $ 0.43 $ 0.38 $ 1.34 $ 1.29
================= =============== ================ =================
Weighted average common shares (Denominator Basic EPS)
532,130 532,030 532,130 532,752
Dilutive effect of stock options 5,577 2,603 5,577 2,603
----------------- --------------- ---------------- -----------------
Weighted average common shares and common stock
equivalents (Denominator Diluted EPS) 537,707 534,633 537,707 535,355
================= =============== ================ =================
The notes are an integral part of these financial statements.
5
Tennessee Valley Financial Holdings, Inc. and Subsidiary
Condensed Consolidated Statement of Changes in Stockholders Equity
For the nine months ended September 30, 2005
Common Stock Capital in Retained Earnings Accumulated Other Total
Excess of Par Comprehensive Stockholders
Value Income (Loss) Equity
---------------------------------------------------------------------------------------------
Balances at December 31, 2004 $ 534 $ 6,491 $ 2,183 $ 47 $ 9,255
Net income 722 722
Other comprehensive income (loss) (19) (19)
Sold 2,020 shares of common stock
per
officer stock option 2 31
---------------------------------------------------------------------------------------------
=============================================================================================
Balances at September 30, 2005 $ 536 $ 6,522 $ 2,905 $ 28 $ 9,991
=============================================================================================
The accompanying notes are an integral part of these financial statements.
6
Tennessee Valley Financial Holdings, Inc. and Subsidiary
Condensed Consolidated Statement of Cash Flows
(In Thousands)
For the Nine Months ended September 30,
2005 2004
--------------------- ---------------------
Cash Flows from Operating Activities:
Net Income $ 722 $ 688
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 256 145
Amortization of premium on investment securities, 30 62
Depreciation 177 155
Net (gain) loss on sale of available for sale securities (5) (23)
Stock dividends on FHLB Stock (19) (17)
Changes in operating assets and liabilities:
Accrued interest receivable (65) (2)
Other assets (83) (43)
Accrued interest payable and other liabilities 459 (244)
--------------------- ---------------------
Net cash provided by operating activities 1,472 741
--------------------- ---------------------
Cash Flows from Investing Activities:
Proceeds from sales of available for sale investment securities 3,162 1,489
Proceeds from maturities and calls of available for sale investment securities 2,222 3,761
Purchases of available for sale investment securities (9,391) (5,894)
Loans originated, net of payments received (5,931) (11,859)
Additions to banking premises and equipment (668) (619)
Sale of other real estate owned 335 20
Net (increase) decrease in loans held for sale 180 130
--------------------- ---------------------
Net cash used in investing activities (10,091) (12,972)
--------------------- ---------------------
Cash Flows from Financing Activities:
Increase in deposits, net 14,500 16,896
Repurchase of common stock 0 (41)
Proceeds from Trust Preferred Issuance 2,062 0
Proceeds from securities sold under agreements to repurchase and other borrowings,
net of principal repayments (1,436) (575)
--------------------- ---------------------
Net cash provided by financing activities 15,126 16,280
--------------------- ---------------------
Net Increase (Decrease) in Cash and Cash Equivalents 6,507 4,049
Cash and Cash Equivalents, Beginning of Period 2,369 2,145
--------------------- ---------------------
Cash and Cash Equivalents, End of Period $ 8,876 $ 6,194
===================== =====================
Supplementary Disclosure of Cash Flow Information:
Interest paid on deposit accounts and other borrowings 2,057 1,426
Income taxes paid 456 636
Supplementary Disclosures of Noncash Investing Activities:
Acquisition of real estate acquired through foreclosure 35 85
Purchase of building financed by capital lease obligation - 488
Proceeds from Issuance of common stock for payment of Director's Fees 33 0
Change in unrealized gain (loss) on available for sale investment securities (29) (45)
Change in deferred tax associated with unrealized gain (loss) on investment
securities available for sale (11) (14)
Change in net unrealized gain (loss) on available for sale investment securities (19) (31)
The accompanying notes are an integral part of these financial statements.
7
Tennessee Valley Financial Holdings, Inc. and Subsidiary
Condensed Consolidated Statements of Comprehensive Income
For the nine months ended September 30, 2005 and 2004
(In Thousands)
(Unaudited)
2005 2004
----------------- -----------------
Net Income $ 722 $ 688
----------------- -----------------
Other comprehensive income, net of tax:
Unrealized gains/losses on investment securities (25) (22)
Reclassification adjustment for gains/losses included in net income (5) (23)
Income taxes related to unrealized gains/losses on investment securities 11 14
----------------- -----------------
Other comprehensive income (loss), net of tax (19) (31)
----------------- -----------------
Comprehensive income $ 703 $ 657
================= =================
The accompanying notes are an integral part of these financial statements.
8
Tennessee Valley Financial Holdings, Inc. and Subsidiary
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2005 and 2004
PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS
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.
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:
- Economic conditions (both generally and more specifically in the markets
in which we operate);
- Competition for our customers from other providers of financial services;
- Government legislation and regulation (which changes from time to time
and over which we have no control);
- Changes in interest rates; and
- Material unforeseen changes in liquidity, results of operations, or
financial condition of our customers.
These risks are difficult to predict and many of them are beyond our control.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited quarterly financial statements of Tennessee Valley Financial
Holdings, Inc. presented herein should be read in conjunction with our audited
financial statements for the year ended December 31, 2004.
Financial information as of September 30, 2005 and the results of operations for
the three and nine months ended September 30, 2005, and cash flows for the nine
month periods ended September 30, 2005 and 2004 are unaudited, and in the
opinion of management reflect all adjustments necessary for a fair presentation
of such information. Interim results are not necessarily indicative of results
to be expected for the entire year.
NOTE 2 - ACCOUNTING POLICY CHANGES
Derivative Instruments and Hedging Activities
9
In April 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 149, Amendment of Statement 133 on "Derivative
Instruments and Hedging Activities". This statement amends Statement 133 for
decisions made as part of the Derivatives Implementation Group process and other
board projects and in conjunction with other implementation issues. Management
does not expect this statement to have any significant impact on the Company's
financial position or results of operations.
Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity
In May 2003, the financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity". This statement
established standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
Management does not expect this statement to have a significant impact on the
Company's financial position or results of operations.
Consolidation of Variable Interest Entities
In December 2003, the FASB issued revised Interpretation No. 46 (FIN46),
"Consolidation of Variable Interest Entities." This Interpretation clarifies the
application of ARB No. 51, "Consolidated Financial Statements," for certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated support from
other parties. This Interpretation requires variable interest entities to be
consolidated by the primary beneficiary, which represents the enterprise that
will absorb the majority of the variable interest entities' expected losses if
they occur, receive a majority of the variable interest entities' residual
returns if they occur, or both. This Interpretation is effective for the Company
in the first fiscal year or interim period ending after December 15, 2004. The
Company does not presently have any related entities considered to be variable
interest entities and this Standard is not expected to have a material effect on
the Company's financial statements.
Accounting for Certain Loans or Debt Securities Acquired in a Transfer
In December 2003, the American Institute of Certified Public Accountants issued
Statement of Position 03-3, "Accounting for Certain Loans and Debt Securities
Acquired in a Transfer" ("SOP 03-3"). SOP 03-3 addresses accounting for
differences between contractual cash flows expected to be collected and an
investor's initial investment in loans or debt securities acquired in a transfer
if those differences are attributable, at least in part, to credit quality. SOP
03-3 also prohibits "carrying over" or creation of valuation allowances in the
initial accounting of all loans acquired in a transfer that are within the scope
of SOP 03-3. The prohibition of the valuation allowance carryover applies to the
purchase of an individual loan, a pool of loans, a group of loans, and loans
acquired in a purchase business combination. SOP 03-3 is effective for loans
acquired in fiscal years beginning after December 15, 2004. The Company does not
anticipate that the adoption of SOP 03-3 will have a material impact on its
financial condition or results of operations.
Meaning of Other-Than-Temporary Impairment
In March 2004, the Emerging Issues Task Force reached a consensus on Issue 03-1,
"Meaning of Other Than Temporary Impairment" ("Issue 03-1"). The Task Force
reached a consensus on an other-than-temporary impairment model for debt and
equity securities accounted for under Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and cost method investments, and required certain additional
financial statement disclosures. The implementation of the "Other-than-Temporary
Impairment" component of this consensus has been postponed. The adoption of the
guidance contained in this EITF consensus did not have a material effect on the
Company's financial statements.
Share-Based Payment
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment," which is a revision of SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123(R) supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and amends SFAS Statement No. 95, "Statement of Cash
Flows." Generally, the approach to accounting for share-based payments in SFAS
No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS
No. 123(R) requires all share-based payments to employees, including grants of
10
employee stock options, to be recognized in the financial statements based on
their fair values, which means that pro forma disclosure is no longer an
alternative to financial statement recognition. SFAS No. 123(R) is effective for
the Company beginning January 1, 2006. The Company is currently evaluating the
provisions of SFAS No. 123(R) to determine its impact on the Company's financial
statements in future periods.
Exchanges of Non-Monetary Assets
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets
- - an Amendment to APB opinion No. 29." This Statement addresses the measurement
of exchanges of nonmonetary assets. The Statement is effective for nonmonetary
exchanges occurring in fiscal periods beginning after June 15, 2005. Management
does not believe this Statement will have a material effect on the Company's
financial statements.
NOTE 3 - COMMITMENTS
As of September 30, 2005, the Company had outstanding commitments to advance
construction funds and to originate loans in the amount of $25 million and
commitments to advance existing home equity and other credit lines in the amount
of $14 million. In addition, the Company has also conveyed $962,000 in standby
letters of credit.
NOTE 4 - OTHER BORROWINGS
The following table summarizes the Company's other borrowings as of September
30, 2005 and December 31, 2004, respectively.
September 30, 2005 December 31, 2004
---------------------- -----------------------
Federal Home Loan Bank Advances $ 8,500 $ 9,700
Fed Funds Purchased - 375
Capital Lease Obligations 223 240
Other borrowings 50 -
---------------------- -----------------------
Total Other Borrowings $ 8,773 $ 10,315
====================== =======================
NOTE 5 - STOCK OPTIONS
The Company has two stock option plans that are described more fully below. 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 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 under
SFAS Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.
11
(In Thousands, Except Per Share Data)
Quarter Ended September 30, Nine Months Ended September 30,
--------------- ----------------- ------------------- -----------------
2005 2004 2005 2004
--------------- ----------------- ------------------- -----------------
Net Income, as Reported $ 229 $ 201 $ 722 $ 688
Less: Total Stock-Based Employee Compensation
Expense Determined Under Fair Value Based
Method for All Awards, Net of Related Tax
Effects 10 0 22 -
--------------- ----------------- ------------------- -----------------
Pro Forma Net Income $ 219 $ 201 $ 700 $ 688
=============== ================= =================== =================
Earnings Per Share:
Basic - as Reported $ 0.43 $ 0.38 $ 1.36 $ 1.29
=============== ================= =================== =================
Basic - Pro Forma $ 0.41 $ 0.38 $ 1.31 $ 1.29
=============== ================= =================== =================
Diluted - as Reported $ 0.43 $ 0.38 $ 1.34 $ 1.29
=============== ================= =================== =================
Diluted - Pro Forma $ 0.41 $ 0.38 $ 1.30 $ 1.29
=============== ================= =================== =================
Key Employee Stock Option Plan - In March 1996, the board of directors approved
a stock option plan to provide key employees with additional incentive to
contribute to the best interests of the Company. The plan terminates in ten
years, or sooner at the board's discretion. The board of directors also has
discretion concerning which eligible persons shall be granted options, the term
of each granted option, and the number of shares for which each option shall be
granted. Options must be exercised within ten years from the date they are
granted and must include a price per share of at least 85% to 110% of the fair
value of the stock on the date the options were granted. The board 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 15,600 options at exercise prices
ranging from $16 to $19.50 per share. These prices were equal to the fair value
of the stock on the date the options were granted. The options vest over a
four-year period, 13,480 of which are vested and remain unexercised as of
September 30, 2005.
In 2002, the board of directors approved an additional stock option plan to
provide key employees with additional incentive to contribute to our best
interests. The plan terminates in ten years. 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 100% of the fair value of
our common stock on the date the option is granted. The board of directors has
reserved the lesser of 20% of the diluted shares outstanding or 213,612 shares
of common stock for issuance during the term of the plan. The board of directors
has awarded 44,000 options under this plan.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions for the quarter ending September 30, 2005 and 2004.
Nine Months September 30,
2005 2004
-------------------------------
Dividend Yield 1.37% 1.37%
Expected Life 6 years 6 years
Expected Volatility 10% 10%
Risk-Free Interest Rate 5.2% 5.2%
12
A summary of the status of the Company's stock option plans is presented below:
Nine Months Ended Nine Months Ended
September 30, September 30,
2005 2004
-------------------------------------------------------------------
Shares Weighted Shares Weighted
Average Average
Exercise Price Exercise Price
---------------- ----------------- -------------- -----------------
Outstanding at
Beginning of Period 15,500 $ 16.22 14,500 $ 16.00
Granted 44,000 $ 26.00 0
Exercised (2,020) $ 16.00 0
Forfeited (250) $ 26.00 0
---------------- --------------
Outstanding at
End of Period 57,230 $ 23.65 14,500 $ 16.00
================ ================= ============== =================
Options Exercisable
at Period-End 13,230 $ 16.26 14,500 $ 16.00
Weighted Average Fair
Value of Options Granted
During the Period 2.12 N/A
Information pertaining to options outstanding at September 30, 2005 is as
follows:
Weighted Average Weighted Weighted
Number Remaining Average Number Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------------------------ ---------------- ------------------ ---------------- ----------------- ---------------
$16.00 - $26.00 57,230 3.5 years $ 23.65 13,230 $ 16.26
13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDING SEPTEMBER 30,
2005 AND 2004
GENERAL
We are a Tennessee bank holding company which acquired the Bank through a share
exchange in May 2002. We are a registered bank holding company under the Federal
Reserve Act. Our only activity is owning the Bank which commenced operations on
May 30, 1995.
For the three months ending September 30, 2005 we earned net income of $229,000
or $0.43 per share as compared to $201,000 or $0.38 per share for the
corresponding period in 2004. For the first three quarters of 2005, net income
was $722,000 and $688,000 for the same period in 2004. Net income has benefited
from the continued rising interest rate environment as evidence in the increase
in interest income for both the three month and nine month periods for 2005 as
compared to the same periods in 2004. Conversely, the current rate environment
has also impacted interest expense for these periods, however, the overall net
interest income effect remains positive. The table below presents certain key
financial ratios for the first three quarters of 2005 and 2004.
For the nine months ending
September 30,
2005 2004
------------------- -------------------
Return on Average Assets 0.70% 0.80%
Return on Average Equity 8.80% 10.53%
Earnings per share - basic $ 1.36 $ 1.29
NET INTEREST INCOME
Net interest income was $4.1 million for the first three quarters of 2005, an
increase of approximately 16% or $565,000 over the same period in 2004. The
increase in net interest income was due primarily to an increase in the volume
of earnings assets coupled with the continued rising rate environment for the
first three quarters of 2005 as compared to 2004. The Net Interest Margin has
slightly declined due to the overall increase of cost of funds due to increasing
interest rates. Net interest income was $ 1.4 million for the third quarter of
2005 as compared to $1.3 million for the same period in 2004. The slight
increase in net interest income for the third quarter of 2005 as compared to the
third quarter of 2004 can be attributed to an increase in the volume of earning
assets. Average loans increased approximately $14.1 million to $106.7 million at
September 30, 2005, as compared to $92.6 million at September 30, 2004. Average
loans were approximately 82% of total earning assets at September 30, 2005 and
85% at September 30, 2004.
The yield on total earning assets increased by 44 basis points for the first
three quarters of 2005 as compared to the first three quarters of 2004. The
primary reason for the increase in yields on earning assets was due to the
continued increase in general interest rates over the past 15 months. The
increase in general interest rates resulted in increased earning asset yields
primarily due to the affect of the level of loans tied to prime and other
floating rate instruments. Additionally, the increased volume of newly acquired
earning assets (i.e. loans originated, securities purchased, and federal funds
sold) during 2005 were added at higher yields. Loan yields increased 64 basis
points in 2005 from the same nine month period in 2004. Investment yields
slightly increased 16 basis points to 4.30% during the first three quarters of
2005 as compared to the same period in 2004, again due to the increase in the
general interest rate environment. The most significant increase in both volume
and yield is noted in federal funds sold. The volume increased from $1.1 million
to $6.5 million for the nine month period in 2005 as compared to the same period
in 2004. Yields on federal funds sold, the rates on which can change overnight,
increased 184 basis points. The impact of a changing rate environment is most
noticeable in the federal funds sold sector of earning assets due to their short
term nature and the entire volume subject to fluctuations in rates.
14
Total interest expense was approximately $2.2 million for the first three
quarters of 2005, a 54% increase as compared to the same period in 2004. The
average rate on interest-bearing deposits was 2.46% for the first three quarters
of 2005, 66 basis points higher than the average rate on deposits during the
first three quarters of 2004. The increase in the rates on deposits during 2005
as compared to 2004 can be attributed to the steady increase in interest rates
since July 2004. The average cost of borrowed funds was 3.88% for the first
three quarters of 2005 and 3.82% for the first three quarters of 2004. The
overall yield on rate-bearing liabilities was 2.36% for the first three quarters
of 2005 compared to 1.83% for the same period in 2004.
Nine Months Ended (In thousands) Nine Months Ended (In thousands)
September 30, 2005 September 30, 2004
------------------------------------------- ---------------------------------------------
Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate
---------------- -------------- ----------- ----------------- ---------------- ----------
Loans(1) (2) $ 106,748 $ 5,787 7.23% $ 92,656 $ 4,577 6.59%
Investment securities(3) (5) 16,958 547 4.30% 14,891 462 4.14%
Federal funds sold 6,477 142 2.92% 1,111 9 1.08%
---------------- -------------- ----------------- ---------------- ----------
Total earning assets 130,183 6,476 6.63% 108,658 5,048 6.19%
-------------- ----------------
Other assets 7,511 6,485
---------------- -----------------
Total Assets 137,694 115,144
================ =================
Interest-bearing deposits 105,720 1,952 2.46% 87,388 1,180 1.80%
Demand deposits 10,706 - 0.00% 9,026 - 0.00%
Securities sold under agreements to
repurchase and other borrowings 9,511 277 3.88% 9,452 271 3.82%
---------------- -------------- ----------------- ---------------- ----------
Total rate-bearing liabilities 125,937 2,229 2.36% 105,866 1,451 1.83%
Other liabilities 821 563
---------------- -----------------
Total Liabilities 125,484 106,429
---------------- -----------------
Total Stockholders' Equity 10,936 8,715
---------------- -----------------
Total Liabilities and Stockholders'
Equity 137,694 115,144
================ =================
-------------- ----------------
Net interest income $ 4,247 $ 3,597
============== ================
----------- ----------
Net interest spread 4.27% 4.36%
=========== ==========
Net interest margin(4) 4.35% 4.41%
=========== ==========
(1) Gross of allowance for loan losses
(2) Includes average non-accrual loans
(3) Excludes the impact of the average net unrealized loss on securities
available for sale
(4) Net interest income divided by total earning assets
(5) Interest income on investment securities is presented on a tax-effected
basis using a 38% income tax rate and a 20% TEFRA disallowance
15
Our profitability is dependent to a large extent upon net interest income, which
is the difference between interest income on interest-earning assets and
interest expense on interest-bearing liabilities. We will be affected by changes
in levels of interest rates and other economic factors beyond its control,
particularly to the extent that such factors affect the overall volume of its
lending and deposit activities. A sudden increase in interest rates could have
an adverse impact on the Company's net income through a narrower interest margin
and reduced lending volume.
Our Asset/Liability Committee ("ALCO" committee) follows the Asset/Liability
Management Policy approved by the board of directors. The ALCO committee is
scheduled to meet at least quarterly or more often as considered necessary to
discuss asset/liability management issues and make recommendations to the board
of directors regarding prudent asset/liability management policies and
procedures. Some of the issues the ALCO committee considers include: local and
national economic forecasts; interest rate forecasts and spreads; mismatches
between the maturities of our assets (loans, and investments) and liabilities
(deposits); anticipated loan demands; and the liquidity position.
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time period. A
gap is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to result in an increase in net interest income. During
a period of falling interest rates, a negative gap would tend to result in an
increase in net interest income while a positive gap would tend to adversely
affect net interest income. We have a negative gap for the next twelve month
period.
PROVISION FOR LOAN LOSSES
Provision for loan losses was $256,000 for the first three quarters of 2005,
compared to $145,000 for the first three quarters of 2004. For the third quarter
of 2005 the provision for loan losses was $149,500 compared to $99,000 during
the third quarter of 2004. The increase in the provision for loan losses for the
first three quarters of 2005 can be primarily attributed to the need for
additional funding of the Loan Loss Reserve based on two large credits being
downgraded from satisfactory status to the doubtful category in the third
quarter of 2005. The provision expense for September 2005 alone was $142,500 as
a result of the reclassification of the credits previously mentioned. The
balance of the allowance for loan losses at September 30, 2005 was $1.41 million
(1.30% of gross loans) compared to $1.27 million (1.24% of gross loans) at
December 31, 2004. Net charge-offs for the first three quarters of 2005 were
$115,000 as compared to $200,000 for the first three quarters of 2004. As a
percentage of average loans, the annualized rate of net charge-offs was 0.11%
for the first three quarters of 2005 compared to a 0.22% ratio for the same
period in 2004.
As of September 30, 2005, management's review of the allowance for loan losses
concluded that the balance was adequate to provide for potential losses based
upon an evaluation of risk in the loan portfolio. Despite our credit standards,
internal controls, and continuous loan review process, the inherent risk in the
lending process results in periodic charge-offs. Through the provision for loan
losses, we maintain a reserve for loan losses that management believes is
adequate to absorb losses within the loan portfolio. In addition, various
regulatory agencies, as an integral part of their examination procedures,
periodically review our reserve for loan losses, and based on their judgment may
require us to recognize additions to the reserve for loan losses. Management
completes a formal analysis of the reserve for loan losses adequacy on a monthly
basis. A portion of this analysis is maintained as an unallocated reserve to
recognize the imprecision in estimating the allowance for loan losses.
Management strives on an ongoing basis to identify potential problems in its
loan portfolio, resulting in more specific analysis of reserve amounts for
specific loans and less analysis for unallocated reserve amounts.
16
Analysis of the Allowance for Loan Losses
For the Nine Months Ended September 30,
2005 2004
----------------- ------------------
Average Loans Outstanding $ 106,748 $ 92,656
================= ==================
Allowance at beginning of period
$ 1,271 $ 1,283
Charge-offs:
Commercial, financial and agricultural 2 83
Real Estate - construction
Real Estate - mortgage 57 8
Installment - consumer 126
Other
----------------- ------------------
Total charge-offs 131 217
----------------- ------------------
Recoveries:
Commercial, financial and agricultural 12
Real Estate - construction
Real Estate - mortgage 3 5
Installment - consumer 1 12
Other
----------------- ------------------
Total recoveries 16 17
Net charge-offs 115 200
----------------- ------------------
Provision for loan losses
256 145
----------------- ------------------
Balance at end of period $ 1,412 $ 1,228
================= ==================
Ratio of net charge-offs during the period to 0.11% 0.22%
average loans outstanding during the period
NON-INTEREST INCOME
Total non-interest income was approximately $672,000 for the first three
quarters of 2005 compared to $646,000 for the same period in 2004. For the third
quarter of 2005, non-interest income increased to $269,000 from $216,000 in the
third quarter of 2004. Increases in non-interest income for the first three
quarters of 2005 and the third quarter of 2005 as compared to the same period in
2004 are noted mortgage fee income and other income. Sub categories of other
income that have improved include ATM fee income and investment fee income. Fees
on sales of mortgage loans increased to $284,000 during the first three quarters
of 2005 as compared to approximately $263,000 during the first three quarters of
2004. Fees on the sale of mortgage loans were $114,000 for the third quarter of
2005 as compared to $97,000 for the same period in 2004. ATM fee income
increased to $40,000 in the first three quarters of 2005 as compared to $26,000
for the same nine month period in 2004. Investment fee income has increased to
$16,000 for the first three quarters 2005 compared to $2,000 for the same period
in 2004. Management attributes these improvements to increased ATM charges for
non customers and investment department growth and performance since year-end
2004, respectively.
17
NON-INTEREST EXPENSE
Non-interest expense totaled approximately $3.4 million for the first three
quarters of 2005 as compared to $3.0 million during the first three quarters of
2004. Non-interest expense (annualized) as a percent of total average assets was
3.28% for the first three quarters of 2005 compared to 3.47% for the first three
quarters of 2004. Although an increase in the actual amount of non-interest
expense is evident, the ratio to average assets has improved based on overall
asset growth. The increase in non-interest expense during the first three
quarters of 2005 as compared to the same period in 2004 can be primarily
attributed to increases in data processing fees, legal and professional
expenses, and other expenses. Data processing expense increased due to the need
to upgrade our internal processing system in the third quarter of 2005. The
increase in legal and professional expense is attributable in part to additional
audit work required under new audit standards and expanded internal audit
services employed by management. Non-interest expense increased $134,000 to $1.2
million for the third quarter as compared to the same period in 2004. The
increase in these expenses can be attributed to the growth which has brought on
the need for additional overhead expenses.
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 our assets and liabilities at enacted tax rates expected to be in
effect when the amounts related to such temporary differences are realized or
settled. Our deferred tax assets are reviewed quarterly and adjustments to such
assets are recognized as deferred income tax expense or benefit based on
management's judgment relating to the realizability of such assets.
We recognized income tax expense of $444,000 and $384,000 for the first three
quarters of 2005 and 2004, respectively. Income tax expense was $158,000 for the
third quarter of 2005 as compared to $151,000 for the third quarter of 2004. The
effective income tax rate for the Company was 38.1% for the first three quarters
of 2005 and 35.8% for the first three quarters of 2004.
BALANCE SHEET ANALYSIS - COMPARISON OF SEPTEMBER 30, 2005 TO DECEMBER 31, 2004
Assets totaled $141.7 million at September 30, 2005, as compared to $125.3
million at December 31, 2004, an increase of 13%. The primary categories of
asset growth were loans, federal funds sold, and investment securities. Loans,
including loans held for sale, increased approximately $5.5 million, investments
grew approximately $4.0 million, and federal funds sold increased approximately
$6.0 million in the first three quarters of 2005. An approximate increase of
$14.5 million in deposit growth funded the increases in the asset categories
during the same period.
INVESTMENT SECURITIES
Investment securities were approximately $19.3 million, or 13.6% of total
assets, at September 30, 2005, an increase of $4.0 million from December 31,
2004. We purchased $9.4 million in investment securities during the first three
quarters of 2005, while maturities, calls, sales and principal pay-downs
provided cash of $5.4 million.
The investment portfolio is comprised of U.S. Government and federal agency
obligations and mortgage-backed securities issued by the Federal Home Loan
Mortgage Corporation (FHLMC), the Federal Home Loan Bank (FHLB), the Federal
Farm Credit Bank (FFCB), the Government National Mortgage Association (GNMA) and
the Federal National Mortgage Association (FNMA). We also invest in tax-free,
bank-qualified state, county and municipal bonds, and investment grade corporate
debt securities. Mortgage-backed issues comprised 27.3% of the portfolio at
September 30, 2005 and 32.6% at December 31, 2004.
At September 30, 2005 and December 31, 2004, 100% of our portfolio was
classified as available for sale and is reflected on the balance sheet at fair
value with net unrealized gains and losses excluded from earnings and reported
as a separate component of stockholders' equity, net of applicable deferred
income taxes. The unrealized gain on investment securities available for sale
18
was $45,000 at September 30, 2005, a decrease of $30,000 from December 31, 2004,
primarily as a result of changes in the bond market. The fair value of
securities fluctuates with the movement of interest rates. Generally, during
periods of decreasing interest rates, the fair values increase whereas the
opposite may hold true during a rising interest rate environment.
LOANS
During the first three quarters of 2005, loans increased $5.7 million to $106.9
million at September 30, 2005.
Loans by Type
September 30, 2005 December 31, 2004
----------------------- ----------------------------
Commercial, financial and agricultural $ 31,637 $ 29,197
Real estate - construction 26,848 23,552
Real estate - mortgage 35,813 38,320
Installment loans to individuals 14,187 11,566
----------------------- ----------------------------
Loans, gross $ 108,485 $ 102,635
Less:
Allowance for loan losses (1,411) (1,271)
Unearned loan fees (139) (137)
----------------------- ----------------------------
$ 106,935 $ 101,227
======================= ============================
Included in the above may be loans which have been classified as impaired,
pursuant to the adoption of SFAS No. 114.
Non-Performing Assets
September 30, 2005 December 31, 2004
----------------------- ------------------------
Non-accrual loans(1) $ 406 $ 546
Loans past due greater than 90 days and still
accruing interest 24 -
Restructured loans(2) 272 257
Other real estate owned 335
----------------------- ------------------------
Total Non-Performing Assets $ 702 $ 1,138
======================= ========================
(1) Included in non-accrual loans are $348,000 and $546,000 of loans considered
impaired as of September 30, 2005 and December 31, 2004, respectively.
(2) Included in restructured loans are $187,000, as of September 30, 2005, also
considered impaired.
A loan is generally placed on non-accrual status and ceases accruing interest
when loan payment performance is deemed unsatisfactory. All loans past due 90
days, however, are placed on non-accrual status, unless the loan is both well
19
collateralized and in the process of collection. Cash payments received while a
loan is classified as non-accrual are recorded as a reduction of principal as
long as doubt exists as to collection. We had no Other Real Estate Owned as of
September 30, 2005. The balance totaled $335,000 at December 31, 2004. We have
three relationships that are considered restructured as defined by accounting
standards. The classification as restructured was brought on by changes in the
terms of the loans precipitated by deterioration in the borrowers' financial
condition.
DEPOSITS
Deposits grew approximately $14.5 million to $119.3 million at September 30,
2005 from $104.8 million at December 31, 2004. Core deposits, which include
regular savings, money market, NOW and demand deposits, were $57.6 million, or
48.3% of total deposits, at September 30, 2005. Core deposits were 57.5% of
total deposits at December 31, 2004. Time deposits totaled $61.7 million at
September 30, 2005, an increase of approximately $17.2 million from $44.5
million at December 31, 2004. The increase in time deposits represents more
aggressive deposit pricing for time deposits in the first three quarters of
2005, due to funding requirements of our loan portfolio growth.
Deposit Balances By Type
September 30, 2005 December 31, 2004
-------------------- ------------------
Demand Deposits:
Non-interest bearing demand
accounts $ 10,990 $ 11,958
NOW and money market accounts 42,889 44,966
Savings accounts 3,718 3,374
-------------------- ------------------
Total demand deposits 57,597 60,298
-------------------- ------------------
Term Deposits:
Less than $100,000 37,875 29,879
$100,000 or more 23,827 14,622
-------------------- ------------------
Total Term Deposits 61,702 44,501
-------------------- ------------------
Total Deposits $ 119,299 $ 104,799
==================== ==================
CAPITAL
During the first three quarters of 2005, stockholders' equity increased $736,000
to approximately $10.0 million. The increase is due to net income for the first
three quarters of 2005 of $722,000 and proceeds from the exercise of stock
options of $33,000. These increases offset a decline in accumulated other
comprehensive income of $19,000.
20
Regulatory Capital
TnBank
(Wholly-Owned Subsidiary of Tennessee Valley Financial Holdings, Inc.)
September 30, 2005
-------------------------------------------
Bank Well Minimum
Capitalized Regulatory
Levels Requirement
-------- --------------- ------------------
Tier 1 Capital as a percentage of risk-weighted assets 10.3% 6.0% 4.0%
Total Capital as a percentage of risk-weighted assets 11.6% 10.0% 8.0%
Tier 1 capital to average assets 8.4% 5.0% 5.0%
December 31, 2004
-------------------------------------------
Bank Well Minimum
Capitalized Regulatory
Levels Requirement
-------- ---------------- -----------------
Tier 1 Capital as a percentage of risk-weighted assets 9.8% 6.0% 4.0%
Total Capital as a percentage of risk-weighted assets 11.1% 10.0% 8.0%
Tier 1 capital to average assets 7.7% 5.0% 5.0%
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are deposit balances, available-for-sale
securities, principal and interest payments on loans and investment securities,
Fed Fund lines, and Federal Home Loan Bank advances.
At September 30, 2005, we held $19.3 million in available-for-sale securities.
Deposits increased approximately $14.5 million during the first three quarters
of 2005. We had $3.0 million in available federal funds lines and approximately
$8.5 million in available borrowings from the Federal Home Loan Bank as of
September 30, 2005.
We can also enter into repurchase agreement transactions should the need for
additional liquidity arise. At September 30, 2005, the Company had $459,000 in
repurchase agreement balances outstanding.
At September 30, 2005, the Company had capital of $10.0 million, or 7.1% of
total assets as compared to $9.3 million, or 7.4% at December 31, 2004.
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.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. Our chief executive
officer and chief financial officer have evaluated the effectiveness of the
design and operation of our "disclosure controls and procedures" (as that term
is defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2005,
the end of the fiscal quarter covered by this Quarterly Report on Form 10-QSB.
Based on that evaluation, the chief executive officer and chief financial
officer have concluded that our disclosure controls and procedures are effective
to ensure that material information relating to the Company and the Company's
consolidated subsidiary is made known to such officers by others within these
entities, particularly during the period this Quarterly Report on Form 10-QSB
was prepared, in order to allow timely decisions regarding required disclosure.
(b) Changes in Internal Controls. There has been no change in our internal
control over financial reporting that occurred during the fiscal quarter covered
by this Quarterly Report on Form 10-QSB that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
Item 6. Exhibits
31.1 Certification Pursuant to Rule 13a-14(a)
(Section 302 Certification), dated November 14, 2005,
executed by Thomas E. Tuck, President and Chief Executive
Officer of the Company.
31.2 Certification Pursuant to Rule 13a-14(a)
(Section 302 Certification), dated November 14, 2005,
executed by Jason Wilkinson, Vice President (principal financial
and accounting officer) of the Company.
32.1 Certification Pursuant to 18 U.S.C. ss. 1350
(Section 906 Certification), dated November 14, 2005,
executed by Thomas E. Tuck, President and Chief Executive
Officer of the Company.
32.2 Certification Pursuant to 18 U.S.C. ss. 1350
(Section 906 Certification), dated November 14, 2005,
executed by Jason Wilkinson, Vice President (principal financial
and accounting officer) of the Company.
22
FORM 1O-QSB
SIGNATURES
In accordance with the requirements of 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.
Date: November 14, 2005 By: /s/ Jason Wilkinson
-----------------------------------------
Jason Wilkinson, Vice President
23
EXHIBIT 31.1
Certification of Chief Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Thomas E. Tuck, certify that:
1. I have reviewed this quarterly report of Tennessee Valley Financial
Holdings, Inc.;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report.
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rule
13a-15(f) and 15d-15(f)) for the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the small
business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee
of the small business issuer's board of directors (or persons performing
the equivalent functions):
24
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: November 14, 2005 /s/Thomas E. Tuck
------------------------------------
Thomas E. Tuck
President and
Chief Executive Officer
25
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Jason Wilkinson, certify that:
1. I have reviewed this quarterly report of Tennessee Valley Financial
Holdings, Inc.;
2. Based on my knowledge, this 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
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the small business issuer as of, and for, the periods presented in this
report.
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rule
13a-15(f) and 15d-15(f)) for the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the small business issuer's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the small
business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee
of the small business issuer's board of directors (or persons performing
the equivalent functions):
26
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the small business issuer's
internal control over financial reporting.
Date: November 14, 2005 /s/ Jason Wilkinson
------------------------------------
Jason Wilkinson
Vice President
27
EXHIBIT 32.1
CERTIFICATION
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with this quarterly report on Form 10-QSB of Tennessee Valley
Financial Holdings, Inc., I, Thomas E. Tuck, President and Chief Executive
Officer of Tennessee Valley Financial Holdings, Inc., certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Tennessee Valley Financial Holdings, Inc.
This Certification is signed on November 14, 2005.
/s/Thomas E. Tuck
----------------------------------------
Thomas E. Tuck
President and Chief Executive Officer
28
EXHIBIT 32.2
CERTIFICATION
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
In connection with this quarterly report on Form 10-QSB of Tennessee Valley
Financial Holdings, Inc., I, Jason Wilkinson, Vice President (Principal
Financial and Accounting Officer) of Tennessee Valley Financial Holdings, Inc.,
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Tennessee Valley Financial Holdings, Inc.
This Certification is signed on November 14, 2005.
/s/Jason Wilkinson
----------------------------------------
Jason Wilkinson
Vice President
29