Use these links to rapidly review the documentTABLE OF CONTENTS TENNESSEE COMMERCE BANCORP, INC. CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2010 and 2009 and for the three-year period ended December 31, 2010



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2010ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                to


Commission file number 000-51281

Tennessee Commerce Bancorp, Inc.(Exact name of registrant as specified in its charter)

Tennessee(State or other jurisdiction
of incorporation or organization)

62-1815881(I.R.S. Employer
Identification No.)381 Mallory Station Road, Suite 207, Franklin, Tennessee(Address of principal executive offices)

37067(Zip Code)


Registrant's
telephone number, including area code(615) 599-2274

Securities
registered pursuant to Section 12(b) of the Act:

(Title of each class)

(Name of each exchange of which registered)Common Stock, $0.50 par value per share

NASDAQ Global Market


Securities
registered pursuant to Section 12(g) of the Act:

(Title
of each class)

Indicate
by check mark if the registrant is a well-known, seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

Indicate by check mark whether registrant (1) has filed 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 ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a
smaller reporting company)

Smaller reporting company ý


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant at June 30, 2010 was $31.75 million,
based upon the average sale price on that date.

As
of March 11, 2011, there were 12,194,884 shares of the registrant's common stock outstanding.

Documents Incorporated by Reference:

Part III information is incorporated herein by reference, pursuant to Instruction G of Form 10-K, to registrant's Definitive Proxy
Statement for its 2011 annual meeting of shareholders to be held on May 19, 2011, which will be filed with the Commission no later than April 19, 2011.



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TABLE OF CONTENTS



PART IITEM 1.

BUSINESS

1ITEM 1A.

RISK FACTORS

19ITEM 1B.

UNRESOLVED STAFF COMMENTS

31ITEM 2.

PROPERTIES

31ITEM 3.

LEGAL PROCEEDINGS

31PART IIITEM 5.

MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

32ITEM 6.

SELECTED FINANCIAL DATA

33ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

34ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

58ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

60ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

60ITEM 9A.

CONTROLS AND PROCEDURES

60ITEM 9B.

OTHER INFORMATION

61PART IIIITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE

61ITEM 11.

EXECUTIVE COMPENSATION

61ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS

62ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

62ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

62PART IVITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

63


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PART I



ITEM 1.BUSINESS

General

Tennessee Commerce Bancorp, Inc. (the "Corporation" or "we" or "us") is a Tennessee corporation that was formed as a bank
holding company to own the shares of Tennessee Commerce Bank (the "Bank"). The Bank commenced operations as a Tennessee state chartered bank on January 14, 2000, and is a full service financial
institution headquartered in Franklin, Tennessee, 15 miles south of Nashville, Tennessee. Franklin is in Williamson County, one of the most affluent and rapidly growing counties in the nation.
The Bank conducts business from a single location in the Cool Springs commercial area of Franklin. The Bank had total assets at December 31, 2010 of $1.5 billion. Although the
Bank offers a full range of banking services and products, it operates with a focused "Business Bank" strategy. The Business Bank strategy emphasizes banking services for small-to medium-sized
businesses, entrepreneurs and professionals in the local market. The Bank competes by combining the personal service and appeal of a community bank institution with the sophistication and flexibility
of a larger bank. This strategy distinguishes the Bank from its competitors in efforts to attract loans and deposits of local businesses. In addition, the Bank accesses a national market through a
network of financial service companies and vendor partners that provide indirect funding opportunities for the Bank nationwide.

The
Bank does not compete based on the traditional definition of "convenience" and does not have a branch network for that purpose. Business is conducted from a single office without a
teller line, drive-through window or extended banking hours. The Bank competes by providing responsive and personalized service to meet customer needs. Convenience is created by technology and by free
courier service which transports deposits directly from the local business locations of customers to the Bank. The Bank provides free electronic banking and cash management tools and
on-site training for business customers. The Bank competes for local consumer business by providing superior products, attractive deposit rates, free Internet banking services and access
to a third party regional automated teller machine ("ATM") network. The Bank targets service, manufacturing and professional customers rather than retail businesses with high transaction volume.

The
Bank offers a full range of competitive retail and commercial banking services. The deposit services offered include various types of checking accounts, savings accounts, money
market investment accounts, certificates of deposits and 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 loans, commercial loans to small-and-medium size businesses and professionals, and letters of credit. The Bank issues VISA
credit cards and is a merchant depository for cardholder drafts under VISA credit cards. The Bank also offers check cards and debit cards. The Bank offers its local customers courier services, access
to third-party ATMs and state of the art electronic banking. The Bank has trust powers but does not have a trust department.

The
Business Bank strategy is evident in differences between the financial statements of the Bank and more traditional financial institutions. The Business Bank model creates a high
degree of leverage. By avoiding the investment and maintenance costs of a typical branch network, the Bank is able to maintain earning assets at a higher level than peer institutions. Management
targets a minimum earning
asset ratio of 90.00% compared to the average of 86.28%, as of December 31, 2010, for all banks insured by the Federal Deposit Insurance Corporation ("FDIC"). Assets of the Bank are centered in
the loan portfolio which consists primarily of commercial and industrial loans. Management targets a loan mix of approximately 60% commercial loans and 40% real estate. At December 31, 2010,
the composition of the $1.23 billion loan portfolio was 52.71% commercial, 37.84% secured by real estate (both commercial and consumer), 9.15% in tax leases and 0.30% in consumer and credit
card loans.

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In
addition to lending in the local marketplace, the Bank generates assets in the national market by providing collateral-based loans to business borrowers located in other states
through two types of indirect funding programs. In both programs, the transactions are originated by a third party, such as an equipment vendor or financial services company, who provides the Bank
with a borrower's financial information and arranges for a borrower's execution of loan documentation. The Bank funds these transactions earning strong yields and has no servicing expense or residual
risk in any transaction originated by these financial service companies and vendors. The Bank has management and personnel who are experienced in this type of transaction and are able to evaluate and
partner effectively with the companies who originate these transactions. All indirect funding is secured by the business asset financed, and is subject to the Bank's minimum credit score and
documentation standards. These national market transactions provide geographic and collateral diversity for the portfolio and represent 18.84% of the total loan portfolio at December 31, 2010.

The
two national market funding programs fund different-sized loans through two different networks. In the first type, the Bank uses an established network of financial service companies
and vendor partners that provide the Bank funding opportunities to national middle-market and investment grade companies. At December 31, 2010, the average size of this type of loan in the loan
portfolio was approximately $386,000 and earned an average yield of 6.17%. Funding under this program represents approximately 7.67% of the $1.23 billion total loan portfolio. In the second
program, the Bank partners with a second network of financial service companies and vendors located in Tennessee, Alabama, Georgia, California and Michigan. This program is for smaller transactions
involving loans to finance business assets that are less than $150,000 at origination. Management has installed a standardized credit approval process that delivers quick responsive service. At
December 31, 2010, the average size of this type of loan in the loan portfolio was approximately $40,000, and the average yield on these loans was 5.63%. Funding under this program represents
11.17% of the $1.23 billion total loan portfolio.

Management
believes the Business Bank model is highly efficient. The Bank targets the non-retail sector of the commercial market, which is characterized by lower levels of
transactions and processing costs. The commercial customer mix and the strategic outsourcing of certain administrative functions, such as data processing, allow the Bank to operate with a smaller,
more highly trained staff. Management targets an average asset per employee ratio of $15.0 million compared to all banks insured by the FDIC of $6.55 million at December 31, 2010.
The Bank also promotes the use of technology, both internally and externally, to maximize the efficiency of operations. Management targets an operating efficiency ratio (total operating expense
divided by total revenue) of 45% to 50%.

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

The
Bank's principal executive offices are located at 381 Mallory Station Road, Suite 207, Franklin, Tennessee 37067, and its telephone number is
(615) 599-2274.

As
a bank holding company, the Corporation's activities are subject to the supervision of the Board of Governors of the Federal Reserve System ("Federal Reserve Board"). The
Corporation's offices are the same as the principal office of the Bank. On March 29, 2005, the Corporation formed a wholly owned subsidiary, Tennessee Commerce Bank Statutory Trust I (the
"Trust I"). In June 2008, the Corporation formed a wholly owned subsidiary, Tennessee Commerce Bank Statutory Trust II (the "Trust II") and in July 2008, the Corporation formed a wholly owned
subsidiary, TCB Commercial Asset Services, Inc ("TCB"). As of December 31, 2010, the Bank, the Trust I, the Trust II and TCB were the only subsidiaries of the Corporation. The accompanying
consolidated financial statements include the accounts of the Corporation, the Bank and TCB. The Trust I and the Trust II are not consolidated in accordance with Financial Accounting Standards Board
("FASB") Accounting Standards Codification (ASC) Topic 810, "Consolidation" ("FASB ASC 810"). Material intercompany accounts and transactions have been eliminated.

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Corporation Overview

The Corporation, headquartered in Franklin, Tennessee, is the holding company for the Bank, and the Corporation's primary business is
to operate the Bank. The Bank has a focused strategy that serves the banking needs of small to medium-sized businesses, entrepreneurs and professionals in the Nashville metropolitan statistical area,
or the Nashville Metropolitan Statistical Area ("MSA"), as well as the funding needs of certain national and regional equipment vendors and financial services companies. The Corporation calls this
strategy its Business Bank strategy. The Corporation and Bank primarily conduct business from a single location in the Cool Springs commercial area of Franklin, Tennessee, 15 miles south of Nashville.
To concentrate on lending within Tennessee, as of January 31, 2011, the Bank closed its three loan production officesone in each of Birmingham, Alabama, Minneapolis, Minnesota and
Atlanta, Georgia.

The
Bank offers a full range of competitive retail and commercial banking services to local customers in the Nashville MSA. The Bank's deposit services include a broad offering of
checking accounts, savings accounts, money market investment accounts, certificates of deposits and 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 loans, commercial loans to small and medium-sized businesses and professionals, and letters of credit. The
Bank issues VISA credit cards and is a merchant depository for cardholder drafts under VISA credit cards. The Bank also offers check cards and debit cards and offers its local customers free courier
services, access to third-party ATMs, remote deposit and state-of-the-art electronic banking. The Bank has trust powers but does not have a trust department.

Employees

At December 31, 2010, the Bank employed 99 people on a full-time basis. The Corporation has entered into employment
agreements with two of its executive officers who are also employees of the Bank. The Bank's employees are not represented by any union or other collective bargaining agreement and management of the
Bank believes its employee relations are satisfactory.

Supervision and Regulation

General

The Corporation is regulated as a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "BHC
Act"), and is registered with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") as such. The Corporation is required to file reports with, and otherwise comply with,
the rules and regulations of the Federal Reserve Board, and of the Securities and Exchange Commission ("SEC") under federal securities laws.

The
Bank, a wholly-owned subsidiary of the Corporation, is a Tennessee state-chartered bank that is subject to regulation, examination and supervision by the TDFI, as the Bank's state
regulator, and the FDIC, as the Bank's primary federal regulator and insurer of deposits placed at the Bank.

The
following discussion is intended to provide a summary of the material statutes and regulations applicable to bank holding companies and state-chartered commercial banks, and does not
purport to be a comprehensive description of all such statutes and regulations.



The BHC Act provides a federal framework for the supervision and regulation of all U.S. bank holding companies and the subsidiaries of
such companies. Among the principal purposes of the BHC Act is to protect the safety and soundness of banks controlled by a corporate entity. The BHC Act provides for all bank holding companies to be
supervised on a consolidated basis by the Federal Reserve Board. Consolidated supervision of a bank holding company encompasses the parent company and its nonbank

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subsidiaries,
and allows the Federal Reserve Board to understand the organization's structure, activities, resources, and risks, as well as to address financial, managerial, operational, or other
deficiencies before they pose a danger to the holding company's subsidiary depository institution.

To
carry out these responsibilities, the BHC Act grants the Federal Reserve Board authority to inspect and obtain reports from a bank holding company and its nonbanking subsidiaries
concerning, among other things, the company's financial condition, systems for monitoring and controlling financial and operational risks, and compliance with the BHC Act and other federal laws
(including consumer protection laws) that the Federal Reserve Board has specific jurisdiction to enforce. In addition, federal law authorizes the Federal Reserve Board to take action against a bank
holding company or nonbank subsidiary to prevent these entities from engaging in "unsafe or unsound" practices or to address violations of law that occur in connection with their own business
operations even if those operations are not directly connected to the bank holding company's subsidiary depository institution. Using its authority, the Federal Reserve Board also has established
consolidated capital standards for bank holding companies, which help to ensure that each bank holding company maintains adequate capital to support its enterprise-wide activities, does
not become excessively leveraged, and is able to serve as a source of strength for a subsidiary depository institution.

As
a bank holding company, the Corporation is required to file with the Federal Reserve Board periodic reports and such additional information as the Federal Reserve Board may require.
The Federal Reserve Board also conducts periodic inspections of the Corporation and has the authority to issue enforcement actions against the Corporation.

Capital Requirements and Source of Financial Strength.According to Federal Reserve Board policy and the recently enacted Dodd-Frank
Wall
Street Reform and Consumer Protection Act ("Dodd-Frank Act"), bank holding companies are required to act as a source of financial strength to each subsidiary bank and to commit required
resources to support each such subsidiary in the event of financial distress of the subsidiary. This support can include precluding the Corporation from paying any dividends or distributions on its
outstanding securities, including its trust preferred securities and preferred stock. Moreover, this support obligation may be required at times when a bank holding company may not have the financial
means or is otherwise unable to provide such support.

The
capital-based prompt corrective action provisions first implemented as part of the Federal Deposit Insurance Corporation Improvement Act ("FDICIA") and implementing regulations, as
discussed below, have historically applied only to FDIC-insured depository institutions rather than being directly applicable to holding companies that control such institutions. However,
legislation enacted in July 2010 mandates that new minimum leverage and risk-based capital requirements be imposed on bank holding companies, and the Federal Reserve Board has indicated
that, in regulating bank holding companies, it will take appropriate action at the holding company level based on an assessment of the effectiveness of supervisory actions imposed upon any subsidiary
depository institution pursuant to such provisions and regulations.

Payment of Dividends.The Corporation is a legal entity separate and distinct from its banking and other subsidiaries. The principal
source of cash
flow to the Corporation, including cash flow to pay dividends to holders of trust preferred securities of the Corporation's trusts, holders of the Fixed Rate Cumulative Perpetual Preferred Stock of
the Corporation Series A ("Series A Preferred Stock") and to the holders of the Corporation's common stock, is derived from dividends that the Bank pays to the Corporation as its sole
shareholder. Under Tennessee law, the Corporation is not permitted to pay dividends if, after giving effect to such payment, the Corporation would not be able to pay the Corporation's debts as they
become due in the usual course of business or the Corporation's total assets would be less than the sum of the Corporation's total liabilities plus any amounts needed to satisfy any preferential
rights if the Corporation were dissolving. In addition, in deciding whether or not to declare a dividend of

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any
particular size, the Corporation's board of directors must consider the Corporation's current and prospective capital, liquidity, and other needs.

In
addition to the limitations on the Corporation's ability to pay dividends under Tennessee law, the Corporation's ability to pay dividends on the Corporation's common stock is also
limited by the Corporation's participation in the Troubled Asset Relief Program ("TARP") Capital Purchase Program ("CPP") and by certain statutory or regulatory limitations. See
"Emergency Economic Stabilization Act of 2008."The terms of the Series A Preferred Stock issued to the U.S. Department of the Treasury
("Treasury") under the TARP-CPP include a restriction against increasing the Corporation's common stock dividends from levels at the time of the initial investment by Treasury and prevent
the Corporation from redeeming, purchasing or otherwise acquiring its common stock other than pursuant to certain stated exceptions. Historically, the Corporation has paid no dividends on its common
stock. Therefore, the Corporation would have to seek Treasury's consent to pay any dividends on shares of Corporation common stock. These restrictions will terminate on the earlier of the third
anniversary of the date of issuance of the Series A Preferred Stock to Treasury (which is December 19, 2011) and the date on which the Series A Preferred Stock issued to Treasury
is redeemed in whole or Treasury has transferred all of its Series A Preferred Stock to third parties. In addition, the Corporation will be unable to declare or pay dividends or make
distributions on, or repurchase, redeem or otherwise acquire for consideration, shares of its common stock or other stock ranking junior to, or in parity with, the Series A Preferred Stock if
the Corporation fails to declare and pay full dividends (or declare and set aside a sum sufficient for payment thereof) on the Series A Preferred Stock. A failure to pay dividends on our
Series A Preferred Stock for six quarters (whether or not consecutive) would permit the Treasury to appoint up to two directors to the Corporation's board of directors.

The
payment of dividends by the Corporation and the Bank may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory
guidelines and debt covenants. In addition to the foregoing restrictions, the Federal Reserve Board has the power to prohibit the payment of dividends by bank holding companies if such payment would
constitute unsafe or unsound practices. The Federal Reserve Board has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve Board's
view that a bank holding company experiencing earnings weaknesses should not pay cash dividends that exceed its net income or that could only be funded in ways that weaken the bank holding company's
financial health, such as increasing indebtedness by borrowing. Furthermore, the TDFI and the FDIC also each have authority to restrict or prohibit the payment of dividends by a bank when either
regulator determines that such payment constitutes an unsafe or unsound banking practice. See "Bank RegulationLimitation on Capital
Distributions."

Transactions with Affiliates Restrictions.Transactions between the Bank and the Corporation and its subsidiaries are subject to
various conditions
and limitations under federal laws, as described in "Bank RegulationTransactions with Affiliates." Specifically, the Bank is subject to
restrictions under federal laws which limit the transfer of funds by the Bank to the Corporation or its subsidiaries, whether in the form of loans, extensions of credit, investments or asset
purchases. Such transfers by the Bank to the Corporation or its subsidiaries are limited in amount to 10% of the Bank's capital and surplus and, with respect to the Corporation and the Bank, to an
aggregate of 20% of the Bank's capital and surplus. Furthermore, such loans and extensions of credit are required to be secured in specified amounts. See "Bank
RegulationTransactions with Affiliates."

Activities Restrictions.In approving acquisitions by bank holding companies of banks and companies engaged in the banking-related
activities
described above, the Federal Reserve Board considers a number of factors, including the expected benefits to the public such as greater convenience, increased competition, or gains in efficiency, as
weighed against the risks of possible adverse effects such as undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking

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practices.
The Federal Reserve Board is also empowered to differentiate between new activities and activities commenced through the acquisition of a going concern.

The
United States Department of Justice may, within 30 days after approval by the Federal Reserve Board of an acquisition, bring an action challenging such acquisition under the
federal antitrust laws, in which case the effectiveness of such approval is stayed pending a final ruling by the courts. Failure of the Attorney General to challenge an acquisition does not, however,
exempt the holding company from complying with both federal and applicable state antitrust laws after the acquisition is consummated or immunize the acquisition from future challenge under the
anti-monopolization provisions of the Sherman Act.

Change of Control.The BHC Act and Change in Bank Control Act require, with few exceptions, Federal Reserve Board approval (or, in some
cases, notice
and effective clearance) prior to any acquisition of control of the Corporation. Among other criteria, under the BHC Act, Change in Bank Control Act, and Federal Reserve Board regulations thereunder,
"control" is conclusively presumed to exist if a person or company acquires, directly or indirectly, more than 25% of any class of voting stock of a bank or its holding company. Under Federal Reserve
Board regulations, control is presumed to exist, subject to rebuttal, if a person or company acquires, directly or indirectly, more than 10% of any class of voting stock of a bank or its holding
company if (i) the bank or holding company has registered securities under section 12 of the Securities Exchange Act of 1934, or (ii) no other person will own, control, or hold
the power to vote a greater percentage of that class of voting stock immediately after the transaction.



The Bank is a Tennessee state-chartered bank and is subject to the regulations of and supervision by the FDIC as well as the
Commissioner of the TDFI (the "Commissioner"), Tennessee's state banking authority. Given that the Bank is not a member of the Federal Reserve System, its primary federal regulator is the FDIC. The
Bank is also subject to various requirements and
restrictions under federal and state law, including without limitation, restrictions on permitted activities, requirements to maintain reserves against deposits, restrictions on the types and amounts
of loans that may be granted and the interest that may be charged thereon and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer
laws and regulations also affect the operations of the Bank.

Although
the Bank is not a member of the Federal Reserve System, it is nevertheless subject to certain regulations of the Federal Reserve Board. In addition to such regulation,
commercial banks are affected significantly by the actions of the Federal Reserve Board, which attempts to control the money supply and credit availability in order to influence the economy.

The
FDIC and the Commissioner periodically conduct examinations of the Bank. If, as a result of an examination of the Bank, the FDIC determines that 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, the Bank could be subjected to various remedial actions including enforcement actions to:



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Violation
of a formal enforcement order also would be grounds for the assessment of civil money penalties against the Bank, the Corporation and/or any or all of their respective officers
or directors contributing to the violation. The Commissioner has many of the same remedial powers, including the power to appoint the FDIC as receiver of any insured state bank that has been closed on
account of the bank's inability to meet the demands of its depositors, or otherwise is operating in an unlawful, unsafe, or unsound manner, which includes operating with impaired capital. On
March 17, 2011, the Commissioner and the FDIC advised the Bank that each agency will be seeking enforcement orders against the Bank. Management is currently in discussions with the FDIC and
TDFI and any consent enforcement agreements would be subject to negotiation before issuance.For more information regarding the potential scope and terms of the enforcement
actions, see the discussion under "Enforcement" below.

Moreover,
as of March 17, 2011, the Bank has been deemed to be in troubled condition. As a result, the Bank is now required to seek prior FDIC written approval for the appointment
of a new director or senior executive officer, or any change in a current senior executive officer's responsibilities. Moreover, the Bank and the Corporation are subject to restrictions under the
FDIC's Golden Parachute and Indemnification Regulation, which generally precludes entering into and paying certain severance payments to directors and senior executive officers, without prior FDIC
approval in the case of the Bank and Federal Reserve Board, and FDIC approval in the case of the Corporation. In addition, the Bank would be unable to bid on any failed banks from the FDIC.

The
deposits of the Bank are insured by the FDIC in the manner and to the extent provided by law. For this protection, the Bank pays an assessment. See the discussion on
"Insurance of Deposit Accounts" below.

Capital Requirements and Prompt Corrective Action Regulations.The FDIC evaluates capital, as an essential component, in determining
the safety and
soundness of state nonmember banks it supervises and/or insures the deposits of. Accordingly, the FDIC has established certain criteria and standards for calculating the minimum leverage capital
requirement applicable to banks and in determining a bank's capital adequacy. The FDIC also must evaluate an institution's capital for purposes of determining whether the institution is subject to the
prompt corrective action ("PCA") provisions set forth in section 38 of the FDIA.

Section 38
of the FDIA, as amended by FDICIA, requires regulators to classify depository institutions into one of five capital categories based on their level of capital and take
increasingly severe actions, known as "prompt corrective action," as an institution's capital deteriorates. Under the FDIC's "prompt corrective action" regulations, the FDIC is required to take
certain, and is authorized to take other,

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supervisory
actions against undercapitalized banks. For this purpose, a bank is placed in one of the following five categories based on the bank's capital level under three measures:

Capital Category

Total Risk-Based Capital

Tier 1 Risk-Based Capital

Leverage CapitalWell capitalized*

10% or more and

6% or more and

5% or moreAdequately capitalized

8% or more and

4% or more and

4% (3% for 1-rated institutions) or moreUndercapitalized

Less than 8% or

Less than 4% or

Less than 4%Significantly undercapitalized

Less than 6% or

Less than 3% or

Less than 3%Critically undercapitalized

An institution is critically undercapitalized if its tangible equity is 2% or less regardless of its other capital ratios.


*In
addition to meeting or exceeding the applicable target ratios, in order to be considered well capitalized, an institution also may not be subject to a
formal written order concerning capital. An institution that satisfies the capital measures for a well-capitalized institution but is subject to a formal enforcement action that requires
it to meet and maintain a specific capital level is considered to be adequately capitalized for PCA purposes.


Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System. In addition, undercapitalized
depository institutions are subject to growth limitations and are required to submit capital restoration plans. A depository institution's holding company must guarantee the capital plan, up to an
amount equal to the lesser of 5% of the depository institution's assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the
plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the
depository institution's capital. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.

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

As
a banking institution's capital position deteriorates, it is subject to varying and increasingly restorative enforcement actions. These sanctions may include compliance with a capital
plan or agreement with the regulator, limitations on activities and, ultimately, a termination of deposit insurance. As implemented by the FDIC, where it determines that the financial history or
condition, managerial resources and/or the future earnings prospects of a bank are inadequate, or where a bank has sizable off-balance sheet or funding risks, significant risks from
concentrations of credit or nontraditional activities, excessive interest rate risk exposure, or a significant volume of assets classified substandard, doubtful or loss or otherwise criticized, the
FDIC will take these other factors into account in analyzing the bank's capital adequacy and may determine that the minimum amount of capital for that bank is greater than the generally-imposed
minimum standards for all banks.

Moreover,
under the rules and regulations of the FDIC, as a Bank deemed to be in troubled condition, the Bank is required to seek prior FDIC written approval for the appointment of a new
director or senior executive officer, or any change in a current senior executive officer's responsibilities. Moreover, the Bank and the Corporation would be subject to restrictions under the FDIC's
Golden Parachute and Indemnification Regulation, which generally precludes entering into and paying certain severance payments to directors and senior executive officers, without prior FDIC approval
in the case of the Bank and Federal Reserve Board, and FDIC approval in the case of the Corporation. In addition, the Bank would be unable to bid on any failed banks from the FDIC.

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Limitation on Capital Distributions.Federal and state statutory and regulatory requirements can restrict the payment of dividends by
the Bank to the
Corporation, as well as by the Corporation to its shareholders. Under the FDIA, the Bank may not make any capital distributions (including the payment of dividends) or pay any management fees to its
holding company or pay any dividend if it is undercapitalized or if such payment would cause it to become undercapitalized. The FDIA prohibits a state bank, the deposits of which are insured by the
FDIC, from paying dividends if the bank is in default in the payment of any assessments due the FDIC. The Bank is also subject to the minimum capital requirements of the FDIC, which impact the Bank's
ability to pay dividends. If the Bank fails to meet these standards, it may not be able to pay dividends or accept additional deposits pursuant to regulatory requirements.

If,
in the opinion of the FDIC or the Federal Reserve Board, a depository institution or a holding company is engaged in or is about to engage in an unsafe or unsound, such authority may
require that the institution or holding company cease and desist from such practice. The FDIC and the Federal Reserve Board have each indicated that paying dividends that deplete a depository
institutions or
holding company's capital base to an inadequate level would be such an unsafe and unsound banking 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 Bank is also restricted from paying dividends under certain
circumstances by the Tennessee Banking Act and implementing regulations, under which the board of directors of a state bank may not declare dividends in any calendar year that exceeds the total of its
retained net income of the preceding two years without the prior approval of the TDFI.

Liquidity.The Bank is required to maintain a sufficient amount of liquidity to ensure its safe and sound operation. The FDIC expects
institutions to
use liquidity measurement tools that match their funds management strategies and that provide a comprehensive view of an institution's liquidity risk. The guidance further provides that risk limits
should be approved by an institution's Board of Directors and should be consistent with the measurement tools used.

Insurance of Deposit Accounts.The deposits of the Bank are insured by the FDIC in the manner and to the extent provided by law. For
this protection,
the Bank is required to pay deposit insurance assessments into the FDIC's Deposit Insurance Fund ("DIF"). The FDIC maintains the DIF by assessing depository institutions an insurance premium. The
amount each institution is assessed is based upon statutory factors that include the balance of insured deposits as well as the degree of risk the institution poses to the DIF. The FDIC uses a
risk-based premium system that assesses higher rates on those institutions that pose greater risks to the DIF. As a result of increased bank failures and a decrease in the DIF, in December
2009, the FDIC required all insured depository institutions to prepay three years' worth of insurance premiums with the prepayment including an assumed 5% annual growth rate in the projected
assessment base and a three basis point increase in the annual assessment rate for 2011 and 2012. The FDIC has stated that its requirement for prepaid assessments does not preclude the FDIC from
changing assessment rates or from further revising the risk-based assessment system in future years, pursuant to notice-and-comment rulemaking procedures provided
by statute. Therefore, continued actions by the FDIC could significantly increase the Bank's noninterest expense in fiscal 2011 and for the foreseeable future.

On
February 7, 2011, the FDIC Board approved a final rule that implements a revised deposit insurance assessment system mandated by the Dodd-Frank Act, including a new
pricing structure for institutions with more than $10 billion in assets. The new assessment structure modifies an institution's current deposit insurance assessment base from adjusted domestic
deposits to an institution's average consolidated total assets minus average tangible equity, as required by the Dodd-Frank Act. Under the new system, Tier 1 capital is used as the
measure for tangible equity. Depository institutions with less than $1 billion in assets will report average weekly balances during the calendar quarter, unless they elect to report daily
averages. Since the new assessment base would be larger than the current base, the new assessment structure includes revisions to the total base assessment rate schedule by lowering assessment

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rates,
after adjustments, to a range between 2.5 and 9 basis points for depository institutions in the lowest risk category, and 30 to 45 basis points for institutions in the highest risk category.
The various adjustments incorporated into the schedule take into account the heightened risk with respect to certain types of funding such as unsecured debt and brokered deposits. The new system
eliminates the secured liability adjustment and includes a new adjustment requirement for long-term debt held by an insured depository institution where the debt is issued by another
insured depository institution. Furthermore, the new system calls for the indefinite suspension of dividends whenever the fund reserve ratio exceeds 1.50%. In lieu of dividends, however, the new
system permits additional rate schedules with progressively lower rates that would go into effect without further action by the FDIC Board when the fund reserve ratio reaches certain milestones.
Importantly, the final rule retains the FDIC Board's flexibility to adopt actual rates that are higher or lower than total base assessment rates without requiring further
notice-and-comment rulemaking, but provides that: (1) the FDIC Board cannot increase or decrease rates from one quarter to the next by more than two basis points; and
(2) cumulative increases and decreases cannot be more than two basis points higher or lower than the total base assessment rates.

The
changes will generally take effect as of April 1, 2011 and would be reflected in the June 30, 2011 fund balance and the invoices for assessments due
September 30, 2011. The Corporation and Bank are currently evaluating the impact that the new assessment base final rule will have on our financial position and results of operations. While the
new system is expected to have a positive effect on small institutions (those with less than $10 billion in assets) such as the Bank given that, in the aggregate, the large bulk of such
institutions are expected to see a decrease in assessments, the impact of the final rule, and/or additional FDIC special assessments or other regulatory changes affecting the financial services
industry could negatively affect the Bank's and, therefore, the Corporation's liquidity and financial results in future periods.

Brokered Deposits and Pass-Through Insurance.The FDIC has adopted regulations governing the receipt of brokered deposits and
pass-through insurance. Under the regulations, a bank cannot accept or rollover or renew brokered deposits unless (i) it is well capitalized or (ii) it is adequately
capitalized and receives a waiver from the FDIC. A bank that cannot receive brokered deposits also cannot offer "pass-through" insurance on certain employee benefit accounts. Whether or
not it has obtained such a waiver, an adequately capitalized bank may not pay an interest rate on any deposits in excess of 75 basis points over the prevailing national or local (if
approved) average market rate, as specified by regulation. There are no such restrictions on a bank that is well capitalized. The Dodd-Frank Act requires that the FDIC submit a study to
Congress by July 21, 2011, recommending statutory changes to the brokered deposit restrictions, which could impact the Bank's future ability to accept deposits deemed to be brokered as well as
any related deposit insurance premiums on such deposits.

Loans to One Borrower.Under Tennessee banking law, state banks are generally prohibited from lending to any one person, firm or
corporation
(including loans to a firm or loans to the several members thereof) more than 15% of the bank's capital, surplus and undivided profits. However, the loans may be in excess of that percent, but
generally not above 25%, if each specific loan in excess of 15% is first submitted to and approved in advance in writing by the bank's board of directors or a committee thereof, and a record is kept
of the written approval. For any situation or circumstance in which no loan limit is applicable to a national bank, Tennessee law offers the same treatment for state-chartered banks, and therefore no
loan limit would be applicable to any state bank in such situations or circumstances to the same extent as a national bank.

Transactions with Affiliates.The Bank's authority to engage in transactions with its affiliates is limited by Sections 23A and 23B
of the
Federal Reserve Act and Regulation W adopted thereunder by the Federal Reserve Board, as made applicable to state-chartered nonmember banks by the FDIA. In general, these transactions must be
on terms which are as favorable to the Bank as comparable transactions with non-affiliates. In addition, certain types of these transactions, referred to as "covered transactions," are

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subject
to quantitative limits based on a percentage of the Bank's capital, thereby restricting the total dollar amount of transactions the Bank may engage in with each individual affiliate and with
all affiliates in the aggregate. Affiliates must pledge qualifying collateral in amounts between 100% and 130% of the covered transaction in order to receive loans from the Bank.

Loans to Insiders.The Bank's authority to extend credit to "insiders," which include the Bank's directors, executive officers and
principal
shareholders, as well as to entities controlled by such persons, is governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal
Reserve Board, as made applicable to the Bank under Tennessee banking law. Among other things, these provisions require that extensions of credit to insiders:



In
addition, extensions of credit in excess of certain limits must be approved by the Bank's board of directors.

Consumer Protection and Other Laws and Regulations.The Bank is subject to various laws and regulations dealing generally with consumer
protection
matters, and may be subject to potential liability under these laws and regulations for material violations. The Bank's lending operations are also subject to federal laws applicable to consumer
credit transactions, such as the:



The
Bank's deposit operations are subject to federal laws applicable to deposit transactions, such as the:



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Community Reinvestment Act.Under the Community Reinvestment Act ("CRA"), as implemented by FDIC regulations, the Bank has a continuing
and
affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for the Bank, nor does it limit the Bank's discretion to develop the types of products and services that it believes are best suited to its particular
community, consistent with the CRA. Rather, the CRA requires the FDIC, in connection with its periodic examinations of the Bank, to assess the association's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain applications by the Bank. In particular, CRA regulations rate an institution based on its actual performance in meeting
community needs by means of an assessment system that focuses on three tests:



The
CRA also requires all institutions to publicly disclose their CRA ratings. The Bank received a rating of "Satisfactory" at its most recent CRA examination.

Prohibitions Against Tying Arrangements.The Bank and Corporation are subject to prohibitions on certain tying arrangements involving
products or
services offered by its holding company affiliates. The Bank, as well as the Corporation and its subsidiaries, is prohibited, subject to certain exceptions, from extending credit to or offering any
other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional product or service from the institution or its
affiliates rather than from a competitor of the institution or its affiliates.

Privacy Provisions.The Bank has a privacy policy in place and is required to disclose its privacy policy, which includes identifying
parties with
whom it shares a customer's "non-public personal information," to customers at the time of establishing the customer relationship and annually thereafter. The Bank is required to provide
its customers with the ability to "opt-out" of having their personal information shared with unaffiliated third parties except under limited circumstances, such as the processing of
transactions requested by the consumer or when the financial institution is jointly sponsoring a product or service with a nonaffiliated third party. Additionally, financial institutions generally may
not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing to consumers.

Identity Theft Prevention.The federal banking agencies, including the FDIC, issued a joint rule implementing Section 315 of the
FACT Act,
requiring each financial institution or creditor to develop and implement a written Identity Theft Prevention Program (a "Program") to detect, prevent, and mitigate

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identity
theft in connection with the opening of certain accounts or certain existing accounts. Among the requirements under the rule, the Bank is required to adopt "reasonable policies and
procedures" to:



Anti-Money Laundering/Combating Terrorist Financing Requirements.The Corporation and the Bank are subject to the Bank Secrecy Act, as
amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act ("USA PATRIOT Act"), which gives the federal government powers to
address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers, and mandatory transaction reporting obligations. By way of example, the Bank
Secrecy Act imposes an affirmative obligation on the Bank to report currency transactions that exceed certain thresholds and to report other transactions determined to be suspicious.

Title
III of the USA PATRIOT Act takes measures intended to encourage information sharing among financial institutions, bank regulatory agencies and law enforcement bodies. Further,
certain provisions of Title III impose affirmative obligations on a broad range of financial institutions, including banks, thrifts, brokers, dealers, credit unions, money transfer agents and parties
registered under the Commodity Exchange Act. Among other requirements, the USA PATRIOT Act imposes the following obligations on financial institutions:



The
Office of Foreign Assets Control ("OFAC"), which is a division of Treasury, is responsible for helping to ensure that United States entities do not engage in transactions with
"enemies" of the United States, as defined by various Executive Orders and Acts of Congress. The Bank and the Company, like all United States companies and individuals, are prohibited from transacting
business with the individuals and entities named on OFAC's list of Specially Designated Nationals and Blocked Persons. If the Bank finds a name on any transaction account or wire transfer that is on
an OFAC list, the Bank is required to

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investigate,
and if the match is confirmed, the Bank must take additional actions including freezing such account, filing a suspicious activity report and notifying the FBI. Failure to comply may
result in fines and other penalties. OFAC has issued guidance directed at financial institutions in which it asserted that it may, in its discretion, examine institutions determined to be
high-risk or to be lacking in their efforts to comply with these prohibitions.

Enforcement.The TDFI and FDIC have primary enforcement responsibility over the Bank. This
enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist orders and to remove directors and officers. In general, these enforcement
actions may be initiated in response to violations of laws and regulations, or other unsafe or unsound practices. Moreover, insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by
a federal bank regulatory agency. On March 17, 2011, the Bank was notified that both the TDFI and FDIC would be seeking enforcement actions against the Bank as a result of their recently
completed joint examination. Management is currently in discussions with the FDIC and TDFI and any consent enforcement agreements would be subject to negotiation before issuance. Based on the joint
examination and these discussions to date, any enforcement action to which the Bank may become subject could include, but would not be limited to, a varying degree of requirements, including, among
other things, a requirement that the Bank increase its capital ratios, improve asset quality, increase earnings, improve liquidity, improve sensitivity to market risk, alter our capital adequacy
category, increase the level of our loan and lease loss allowance, dispose certain assets and liabilities within a prescribed period of time or both, develop a strategic plan governing the Bank's
future operations, address potential regulatory violations as well as management's performance in addressing the foregoing perceived deficiencies. Moreover, the FDIC and TDFI have advised the Bank
because of perceived inadequacies in its allowance for loan and lease losses, and loan impairment methodologies, the Bank may also need to restate its allowance for loan losses in one or more prior
periods and restate prior regulatory reports. FDIC and TDFI have proposed an increase in our allowance for loan and lease losses of up to approximately $16 million, an amount not recognized in
the financial statements to this annual report. We do not concur with this amount and our regulators have not provided us with their methodology. Accordingly, if ultimately required, the increase to
our allowance for loan and lease losses may differ from the amount our regulators are requiring.

Depositor Preference.The Omnibus Budget Reconciliation Act of 1993 sets forth a national depositor preference framework that provides
that if an
insured depository institution is placed into receivership by the FDIC, all receivership claimants are subject to the following general preference scheme:



This
means that, in the event that an insured depository institution is placed into receivership, claims of the FDIC for administrative expenses, secured creditors, and domestic depositors, would be
afforded payment priority from the assets of the failed institution over general unsecured claims, including federal funds and letters of credit, as well as claims of subordinated creditors and
shareholders, in the "liquidation or other resolution" of such an institution by the FDIC as receiver.

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Actions taken by Congress and bank regulatory agencies in response to recent market instability.In response to volatility in
the U.S. financial
system in recent years, Congress as well as the federal banking agencies, have taken various actions as part of a comprehensive strategy to stabilize the financial system and housing markets, and to
strengthen U.S. financial institutions. The following discussion is intended to provide a general summary of major governmental actions initiated in recent years that have affected the Corporation and
Bank and are likely to continue.

Emergency Economic Stabilization Act of 2008.The Emergency Economic Stabilization Act of 2008 ("EESA"), enacted on October 3,
2008, provided
the Secretary of the Treasury with authority to, among other things, establish the Troubled Asset Relief Program ("TARP") to purchase from financial institutions up to $700 billion of troubled
assets, including residential or commercial mortgages and related securities, obligations, or other instruments. As a component of the TARP program, on October 14, 2008, the Treasury announced
the Capital Purchase Program ("CPP") under EESA, pursuant to which the Treasury would purchase up to $250 billion of senior preferred shares from qualifying financial institutions on
standardized terms. The Corporation applied for, and Treasury approved, a capital purchase in the amount of $30 million under the TARP-CPP. The
TARP-CPP transaction closed on December 19, 2008, on which date the Corporation entered into a Letter Agreement with Treasury, pursuant to which the Corporation issued and sold to
Treasury, for an aggregate purchase price of $30 million in cash, (i) 30,000 shares of Series A Preferred Stock having a liquidation preference of $1,000 per share, and
(ii) a ten-year warrant to purchase up to 461,538 shares of common stock, at an exercise price of $9.75 per share, subject to certain anti-dilution and other
adjustments. The Series A Preferred Stock will pay cumulative dividends at a rate of 5% per annum for the first five years and 9% per annum thereafter. As a participant in the
TARP-CPP, the Corporation is required to comply with a number of restrictions and provisions, including limits on executive compensation, stock redemptions and declaration of dividends and
can be subject to the appointment of new directors to our board if we miss six dividend payments on such securities.

American Recovery and Reinvestment Act of 2009.On February 17, 2009, the President signed the American Recovery and Reinvestment
Act of 2009
("ARRA") into law as a $787 billion dollar economic stimulus. The stimulus includes discretionary spending for among other things, infrastructure projects, increased unemployment benefits and
food stamps, as well as tax relief for individuals and businesses. Among other things, the ARRA amended certain provisions of EESA, including replacing Section 111 of EESA in its entirety. The
new Section 111 allows a TARP recipient, subject to consultation with the appropriate federal banking agency, to repay any assistance previously received pursuant to the program without regard
to the source of replacement funds or any waiting period. Under Section 111 of EESA, as amended, and the implementing regulations of the SEC and Treasury, the Corporation and its subsidiaries
must comply with certain standards and requirements regarding executive compensation and corporate governance, including a requirement to permit at each annual or other meeting of the Company's
shareholders, a separate shareholder vote to approve, on a non-binding advisory basis, the executive compensation paid by the Corporation for as long as TARP funds remain outstanding.

Legislative and Agency Programs Being Phased Out.Various recovery programs implemented in connection with legislative and agency
efforts described
above in response to deteriorating economic conditions during 2007-2009 have either been phased out in 2010 or are in the course of being phased out. For example, the FDIC established the
Temporary Liquidity Guarantee Program ("TLGP") in October 2008 to (i) guarantee certain debt issued by FDIC-insured institutions and certain holding companies on or after
October 14, 2008 through June 30, 2009, which was extended to October 31, 2009; and (ii) provide unlimited insurance coverage for non-interest bearing
transaction accounts through December 31, 2009, which was extended to December 31, 2010. The Debt Guarantee Program ("DGP") component of the TLGP was intended to provide liquidity to the
inter-bank lending market and promote stability in the unsecured funding market. Entities issuing guaranteed debt under the DGP were bound by the program's requirements, which included the
payment of assessments that are determined by multiplying the amount

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of
FDIC-guaranteed debt times the term of the debt (expressed in years) times an annualized assessment rate.

Under
the Transaction Account Guarantee Program ("TAGP") component of the TLGP, non-interest bearing transaction accounts were fully insured through December 31, 2010.
Non-interest bearing transaction accounts are generally defined as any deposit accounts with respect to which interest is neither accrued nor paid and on which the insured depository
institution does not reserve the right to require advance notice of an intended withdrawal, including traditional demand deposit checking accounts that allow for an unlimited number of deposits and
withdrawals at any time. However, for purposes of the TAGP, the FDIC included in the definition of noninterest-bearing transaction account: (i) accounts commonly known as Interest on Lawyers
Trust Accounts ("IOLTAs") and functionally equivalent accounts; and (ii) NOW accounts with interest rates no higher than 0.50 percent through June 30, 2010 and 0.25 percent
after June 30, 2010 for which the insured depository institution at which the account is held has committed to maintain the interest rate at or below 0.50 percent through June 30,
2010 and 0.25 percent after June 30, 2010. As a participant in the TAGP, the Bank was bound by the requirements of the program, including the quarterly payment of an annualized
assessment, depending on its risk category, on any deposit amounts exceeding the deposit insurance limit of $250,000. For a discussion on deposit insurance assessment requirements applicable to the
Bank, see "Bank RegulationInsurance of Deposit Accounts."

Effective
January 1, 2011, and as a result of the Dodd-Frank Act (discussed below), the FDIC offers a temporary modified program that provides full deposit insurance
coverage for noninterest-bearing transaction accounts for a two-year period ending December 31, 2012. The new law applies to all insured depository institutions and, unlike the
TAGP, no opt outs are permitted and neither low-interest NOW accounts nor IOLTAs are covered. There is no separate assessment applicable on these covered accounts but all institutions are
required to report qualifying accounts beginning on December 31, 2010, for purposes of quantifying the FDIC's exposure under this program.

Dodd-Frank Act.On July 21, 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the "Dodd-Frank Act"). This new law significantly changes the current bank regulatory structure and affects the lending, deposit, investment, trading and operating
activities of financial institutions and their holding companies.

The
Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations, and to prepare various studies and reports for Congress. The federal
agencies are given significant discretion in drafting such rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for
months or years.

Certain
provisions of the Dodd-Frank Act are expected to have a near term impact on the Company. For example, effective July 21, 2011, a provision of the
Dodd-Frank Act eliminates the federal prohibitions on paying interest on corporate demand deposits, thus allowing businesses to have interest bearing checking accounts. Depending on
competitive responses, this significant change to existing law could have an adverse impact on the Company's interest expense.

Bank
holding companies with assets of less than $15 billion as of December 31, 2009, such as the Company, can continue to include as Tier 1 capital certain trust
preferred securities that were issued before May 19, 2010. However, trust preferred securities issued after May 19, 2010 by a holding company with assets of $500 million or more,
will no longer count as Tier 1 capital, but will be entitled to treatment as Tier 2 capital.

The
Dodd-Frank Act also requires publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called "golden
parachute" payments, and allow greater access by shareholders to the Company's proxy material by authorizing the SEC to promulgate rules that would allow stockholders to nominate their own candidates
using a company's proxy materials. The legislation

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also
directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded. The
Dodd-Frank Act creates a new Consumer Financial Protection Bureau ("CFPB") with broad powers to supervise and enforce consumer protection laws. The new bureau would have broad
rule-making authority for a wide range of consumer protection laws that apply to all providers of consumer financial products or services, including the authority to prohibit "unfair,
deceptive or abusive" acts and practices. The CFPB has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets, while depository
institutions with $10 billion or less in assets such as the Bank will continue to be examined for compliance with the consumer laws by their primary bank regulators. It is difficult to predict
at this time what specific
impact the Dodd-Frank Act and the yet-to-be-written implementing rules and regulations will have on community banks. However, it is expected that at a
minimum they will increase our operating and compliance costs and could increase our interest expense.

Small Business Act of 2010.As part of the Small Business Act of 2010, the Small Business Lending Fund (the "SBLF") was created within
the Treasury
Department. Under the program, the SBLF will buy preferred shares from banks, with the rate of return on these shares directly tied to the increase in small business lending undertaken at the bank. To
date, the Bank has not elected to participate in the SBLF.

Federal Securities Laws.The Corporation's common stock is registered with the SEC under Section 12(b) of the Securities Exchange
Act of 1934,
as amended (the "Exchange Act"). As a result, the Corporation is subject to information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.

Listing on Nasdaq.The Corporation's common stock is listed on the Nasdaq Global Market. In order to maintain such listing, the
Corporation is
subject to certain corporate governance requirements, including:



Sarbanes-Oxley Act of 2002.As a public company, the Corporation is subject to the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley
Act"), which
implements a broad range of corporate governance and accounting measures for public companies designed to promote honesty and transparency in corporate America and better protect investors from
corporate wrongdoing including:



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Section 402
of the Sarbanes-Oxley Act prohibits the extension of personal loans to directors and executive officers of issuers. The prohibition, however, does not apply to
mortgages advanced by an insured depository institution, such as the Bank, that are subject to the insider lending restrictions of Section 22(h) of the Federal Reserve Act.

Effect
of Governmental Policies

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

The
monetary policies of the Federal Reserve Board and other governmental policies have had a significant effect on the operating results of commercial banks in the past and are expected
to continue to do so in the future. Because of changing conditions in the national economy and in the money market, as well as the result of actions by monetary and fiscal authorities, it is not
possible to predict with certainty future changes in interest rates, deposit levels, loan demand or the business and earnings of the Bank or whether the changing economic conditions will have a
positive or negative effect on operations and earnings. Bills are pending before the United States Congress and the Tennessee General Assembly and proposed regulations are pending before the various
state and federal regulatory
agencies that could affect the business of the Corporation and the Bank. It cannot be predicted whether or in what form any of these or future proposals will be adopted or the extent to which the
business of the Corporation and the Bank may be affected thereby.

Availability
of Information

The
Corporation files periodic reports with the SEC, which maintains an Internet website, www.sec.gov that contains reports, proxy and information statements, and other information
regarding the Corporation that it files electronically with the SEC. The Corporation makes its annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports available free of charge on the Bank's website at www.tncommercebank.com under the "Investor Relations" heading.

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ITEM 1A.RISK FACTORS

The Bank is subject to periodic joint examinations by the FDIC and TDFI and the Corporation is subject to periodic inspections by the Federal Reserve Bank. The Bank's
regulators have proposed certain enforcement actions and are seeking the restatement of certain regulatory financial statements, which could result in the restatement of the Corporation's financial
statements for the same periods. These enforcement actions and requested restatements could have a material adverse effect on our business, operations, financial condition, results of operations and
the value of our common stock.

A joint examination of the Bank by the FDIC and TDFI occurred from August 2, 2010 to September 3, 2010 and the Federal
Reserve Bank of Atlanta has recently commenced a regular inspection of the Bank. As a result, the of the Bank examination, the Bank was been deemed to be in troubled condition on March 17,
2011. Accordingly, the Bank and Corporation are now subject to certain restrictions and limitations, which include seeking prior regulatory written approval for the appointment of a new director or
senior executive officer, or any change in a current senior executive officer's responsibilities. Moreover, the Bank and the Corporation are subject to restrictions under the FDIC's Golden Parachute
and Indemnification Regulation, which generally preclude entering into and paying certain severance payments to directors and senior executive officers, without prior FDIC approval in the case of the
Bank and Federal Reserve Board, and FDIC approval in the case of the Corporation. In addition, the Bank is unable to bid on any failed banks from the FDIC.

Based
upon the Bank examination, we have been advised that the FDIC and TDFI will be seeking formal enforcement actions. Management is currently in discussions with the FDIC and TDFI and
any consent enforcement agreements would be subject to negotiation before issuance. Based on the joint examination and these discussions to date, any enforcement action to which the Bank may become
subject could include, but would not be limited to, a varying degree of requirements, including, among other things, a requirement that the Bank increase its capital ratios, improve asset quality,
increase earnings, improve liquidity, improve sensitivity to market risk, alter our capital adequacy category, increase the level of our loan and lease loss allowance, dispose certain assets and
liabilities within a prescribed period of time or both, develop a strategic plan governing the Bank's future operations, address potential regulatory violations as well as management's performance in
addressing the foregoing perceived deficiencies. Moreover, the FDIC and TDFI have advised the Bank because of inadequacies in its allowance for loan and lease losses, and loan impairment
methodologies, a restatement of the Bank's allowance for loan and lease losses in its periodic reports to the regulators for the quarters ended December 31, 2009, March 31, 2010 and
June 30, 2010 should be restated. Although the FDIC and TDFI focused on these three reporting periods in the examination, we anticipate that any restatement could also include financial
statements for the period ending September 30, 2010. Restatement of the Bank's regulatory periodic reports likely will result in the restatement of the Corporation's financial statements for
the same periods and included in this annual report. We strongly disagree with many of the findings in the report of examination, especially the factors giving rise to the need to restate our prior
financial statements, primarily due to differences in our loan and lease loss impairment analysis. However, the changes that may be made in the restatement may be material in the quarter made and may
be material to the full year period in which the quarterly results are included. FDIC and TDFI have proposed an increase in our allowance for loan and lease losses of up to approximately
$16 million, an amount not recognized in the financial statements to this annual report. We do not concur with this amount and our regulators have not provided us with their methodology.
Accordingly, if ultimately required, the increase to our allowance for loan and lease losses may differ from the amount our regulators are requiring. In accordance with established procedures of the
FDIC and TDFI we plan to vigorously appeal what we believe to be the various inaccuracies contained in the report of examination, including the required impairment charges. While we have
60-days to file an appeal after the receipt of a material supervisory determination, we cannot predict the timing of a final regulatory determination or whether we will prevail. Moreover,
based on the ongoing inspection of the Corporation by the Federal Reserve Bank, it is possible that the Federal Reserve Bank would seek an enforcement action involving the Corporation with respect to
similar issues. The terms of any enforcement actions, or

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the
amount of any restatement could have a material adverse effect on our business, operations, financial condition, results of operations and the value of our common stock.

In the future we may be subject to regulatory actions that restrict our ability to satisfy our obligations under our Series A Preferred Stock and outstanding trust
preferred securities, which could result in defaults that could have a material adverse effect on our business, operations, financial condition, or results of operations.

In August 2010, pursuant to a request from the Federal Reserve Bank as a result of its 2009 inspection of us, our board of directors
adopted resolutions whereby we agreed to obtain the written approval of the Federal Reserve Bank prior to:



As
of February 9, 2011 and March 1, 2011, we were approved by the Federal Reserve Bank to make dividend payments on our Series A Preferred Stock that were due on
February 15, 2011 and distributions for our outstanding trust preferred securities that were due on March 15, 2011 and March 31, 2011. However, the Federal Reserve Bank advised
the Corporation that approval of future payments will be dependent upon noticeable improvement in the Corporation's consolidated financial condition and performance as determined by the Bank's primary
regulators and the Federal Reserve Bank. Based upon the Bank's recent examination findings, we can provide no assurance, however, that the Federal Reserve Bank will approve future dividend and
distribution payments on these securities.

If
we are prohibited by the Federal Reserve Bank from making future dividend and distribution payments, we may experience a default under our Series A Preferred Stock or
outstanding trust preferred securities, which could give the holders of such stock and securities the right to enforce remedies available to them under the terms of the Series A Preferred Stock
or trust preferred securities, including, for the trust preferred securities, the right to institute a legal proceeding against the Company to enforce the full and unconditional guarantee of the
Company for payment of distributions due to the holders of such securities on specified dates. Any such actions could have a material adverse effect on our business, operations, financial condition or
results of operations. As noted above, if the Corporation fails to declare and pay full dividends (or declare and set aside a sum sufficient for payment thereof) on the Series A Preferred
Stock, it will be unable to declare or pay dividends or make distributions on, or repurchase, redeem or otherwise acquire for consideration, shares of its common stock or other stock ranking junior
to, or in parity with, the Series A Preferred Stock. Moreover, if we are unable to pay dividends on our Series A Preferred Stock for six quarters (whether or not consecutive), the
Treasury is authorized to appoint up to two directors to our board of directors.

Our concentration of commercial and industrial loans expose us to credit risks.

At December 31, 2010, our portfolio of commercial and industrial loans totaled $648.2 million, or 52.7% of total loans.
This type of loans generally exposes us to a greater risk of nonpayment and loss than other non-commercial loans because repayment of such loans often depends on the successful operations
and income stream of the borrowers. Additionally, such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to other non-commercial
loans and many of our borrowers have more than one such loan outstanding. Consequently, an adverse development with respect

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to
one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to other non-commercial loans. Further, we
could sustain losses if we incorrectly assess the creditworthiness of such borrowers or fail to detect or respond to deterioration in asset quality in a timely manner. Problems with asset quality
could cause our interest income and net interest margin to decrease and our provision for loan losses to increase, which could adversely affect our results of operations and financial condition.

Commercial
and industrial loans are generally secured by a variety of forms of collateral related to the underlying business, such as equipment, accounts receivable and inventory. Should
a loan require us to foreclose on the underlying collateral, the foreclosure expense may be significant if the collateral is of a unique nature. The collateral may be difficult to liquidate, and weak
market conditions may depress the value of such collateral, increasing the risk to us of recovering the principal amount of the loan. Accordingly, our financial condition may be adversely affected by
defaults in this portfolio.

We have a concentration of credit exposure to borrowers in the transportation industry.

At December 31, 2010, we had total credit exposure to borrowers in the transportation industry of $127.9 million, or
10.4% of our total loans. Our borrowers in this industry are primarily small businesses and owner-operators. This industry is experiencing adversity in the current economic environment and, as a
result, some borrowers in this industry have been unable to perform their obligations under their loan agreements with us, which has negatively impacted our results of operations. When any of these
borrowers default on the corresponding loans, we typically repossess the transportation-related collateral, primarily over-the-road tractors, and endeavor to sell the asset at
retail value through selected dealers. During fiscal year 2010, we repossessed approximately 865 trucks in connection with defaulted loans in this industry and resold approximately 375 trucks we had
repossessed. If the current recessionary environment continues, additional borrowers in this industry may be unable to meet their obligations under existing loan agreements, which could cause our
earnings to be negatively impacted. Further, we may not be able to sell repossessed assets in this industry at favorable prices, which could have an adverse effect on our net income. Any of our large
credit exposures in this industry that deteriorate unexpectedly could cause us to have to make significant additional loan loss provisions, negatively impacting our earnings.

Our current sources of funds might not be sufficient to meet our future liquidity needs.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans and other sources
could have a substantial negative effect on our liquidity. The primary sources of our funds are loan repayments and customer deposits. Scheduled loan repayments are subject to the ability of borrowers
to repay the loans. The ability of borrowers to repay loans can be adversely affected by a number of factors, including changes in general economic conditions, adverse trends or events affecting
business industry groups, reductions in real estate values or markets, business closings or lay-offs, rising fuel prices, inclement weather, natural disasters and international
instability. Customer deposit levels may be affected by a number of factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative
investments and general economic conditions. We also rely on secondary sources of liquidity to meet withdrawal demands or otherwise fund operations. These sources include brokered deposits, internet
deposits, Federal Home Loan Bank advances and federal funds lines of credit from correspondent banks. There can be no assurance that these sources will be sufficient to meet future liquidity demands.
We may be required to slow or discontinue loan growth, capital expenditures or other investments or liquidate assets should these sources not be adequate.

Our
liquidity, at the parent level, would be adversely affected by regulatory restrictions on the ability of the Bank to pay dividends to us.

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Our use of internet and brokered deposits could adversely affect our liquidity and results of operations.

Over the last eight consecutive quarters, our loan demand has exceeded the rate at which we have been able to increase our deposits
and, as a result, internet and brokered deposits have been a source of funds with which to make loans and provide liquidity. We post rates to an internet-based program that retail and institutional
investors nationwide subscribe to in order to invest funds. As of December 31, 2010, internet and brokered deposits amounted to $395.8 million and $103.0 million, respectively,
totaling $498.8 million, or 38.4% of total deposits.

Generally,
brokered deposits may not be as stable as other types of deposits and, in the future, those depositors may not renew their time deposits when they mature, or we may have to
pay a higher rate of interest to keep those deposits or to replace them with other deposits or with funds from other sources. Additionally, if the Bank ceases to be deemed to be well capitalized for
bank regulatory purposes or if an enforcement action imposes capital requirements, we may not be able to accept, renew or rollover brokered deposits without a waiver from the FDIC, or may be
restricted completely from accepting, renewing or rolling over brokered deposits if the Bank becomes undercapitalized. Moreover, if the Bank is no longer deemed to be well-capitalized,
interest rates the Bank is authorized to pay on all of its deposit products are limited to 75 basis points above the prevailing national average rates (local rate may be used, if approved by the
FDIC). An inability to maintain or replace these brokered deposits as they mature or pay market rates in lieu of national interest rates could adversely affect our liquidity. Further, paying higher
interest rates to maintain or replace these deposits could adversely affect our net interest margin and our results of operations.

The
availability of noncore funding sources is subject to broad economic conditions and, therefore, the cost of funds may fluctuate significantly, impacting our net interest income, our
immediate liquidity and our access to additional liquidity.

Capital constraints may affect our pace of growth and our ability to raise additional capital when needed is dependent on conditions outside our control.

Notwithstanding our recent capital raise in 2010, our pace of growth may require us to raise additional capital in the future, but that
capital may not be available when it is needed. We are required by federal and state regulatory authorities to maintain specific levels of capital to support our operations, so we may at some point
need to raise additional capital to support any continued growth.

Our
ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and other factors, including investor perceptions regarding the
banking industry and market conditions and government activities. These factors are outside our control. Accordingly, we cannot provide any assurance that we will be able to raise additional capital
if needed on terms acceptable to us. If we cannot raise additional capital when needed, we might not be able to meet capital and other regulatory requirements. Further, our ability to continue our
growth could be materially impaired.

An inadequate allowance for loan losses would reduce our earnings.

The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loan being made, the
creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan. The credit quality of our borrowers
has deteriorated as a result of the economic downturn in our markets. If the credit quality of our customer base or the risk profile of a market, industry or group of our customers declines further,
consumer debt service behavior changes in a manner adverse to us, weaknesses in the real estate markets and other economics persist or worsen or our allowance for loan losses is not adequate, our
business, financial condition, including our liquidity and capital, and results of operations could be significantly and adversely affected.

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Management
maintains an allowance for loan losses based upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and
loan portfolio quality. Based upon such factors, management makes various assumptions and judgments about the ultimate collectability of the loan portfolio, provides an allowance for loan losses based
upon a percentage of the outstanding balances and takes a charge against earnings with respect to specific loans when their ultimate collectability is considered questionable. If management's
assumptions and judgments
prove to be incorrect and the allowance for loan losses is inadequate to absorb losses, or if the bank regulatory authorities require us to increase the allowance for loan losses as a part of their
examination process, our earnings and capital could be significantly and adversely affected.

Nonperforming assets adversely affect our results of operations and financial condition.

Our nonperforming assets adversely affect our net income in various ways. We do not realize interest income on nonaccrual loans or
other real estate owned, thereby adversely affecting our income and increasing our loan administration costs. When we take collateral in foreclosures and similar proceedings, we are required to mark
the related loan to the then fair market value of the collateral, which may result in a loss. Nonaccrual loans and other real estate owned also increase our risk profile, which could result in an
increase in the capital that our regulators believe is appropriate in light of such risks. In addition, the resolution of nonperforming assets requires significant commitments of time from management,
which can be detrimental to the performance of their other responsibilities.

We rely on the services of key personnel.

We depend substantially on the strategies and management services of certain of our officersMichael R. Sapp, Chairman,
Chief Executive Officer and President; Frank Perez, Chief Financial Officer; and H. Lamar Cox, Chief Operating Officer. The loss of the services of any of these officers could have a material adverse
effect on our business, results of operations and financial condition. We are also dependent on certain other key officers who have important customer relationships or are instrumental to our
operations. Changes in key personnel and their responsibilities may be disruptive to our business and could have a material adverse effect on our business, financial condition and results of
operations. Management believes that our future results will also depend in part upon our attracting and retaining highly skilled and qualified management, as well as sales and marketing personnel. We
compete with a large number of other financial institutions in the Nashville MSA for such personnel, and we cannot assure you that we will be successful in attracting or retaining such personnel.

Higher FDIC deposit insurance premiums and assessments could adversely affect our financial condition.

Market developments have significantly depleted the DIF and reduced the ratio of reserves to insured deposits. The FDIC Board recently
approved a final rule that implements a new deposit insurance assessment system for insured depository institutions. Among other things, the new assessment structure modifies an institution's current
deposit insurance assessment base from adjusted domestic deposits to an institution's average consolidated total assets minus average tangible equity, as required by the Dodd-Frank Act.
The new assessment base would be larger than the current base, however the new assessment structure includes revisions to the total base assessment rate schedule by lowering assessments rates, after
adjustments, to a range between 2.5 and 45 basis points depending on an institution's risk category, subject to progressively lower rates as the DIF reserve ratio reaches certain milestones.
Importantly, the final rule retains flexibility for the FDIC Board to adopt actual rates that are higher or lower than total base assessment rates without requiring further
notice-and-comment rulemaking, subject to limitations providing that: (1) the FDIC Board cannot increase or decrease rates from one quarter to the next by more than 2
basis points; and (2) cumulative increases and decreases cannot be more than 2 basis points higher or lower than the total base assessment rates. The impact of the final rule, and/or additional
FDIC special assessments or other regulatory changes affecting the financial services industry could negatively affect the Corporation's liquidity and financial results in future periods.

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Our business is subject to the financial health of certain local economies.

Our success significantly depends upon the growth in population, income levels, deposits and new businesses in the Nashville MSA and
the other markets in which we have significant loan production efforts. If the communities in which we operate do not grow or if prevailing local or national economic conditions are unfavorable, our
business may not succeed. Adverse economic conditions in our market areas could reduce our growth rate, affect the ability of our customers to repay their loans to us and generally affect our
financial condition and results of operations. Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic conditions in our market areas if they do occur.

National market funding outside of the Nashville MSA has unique risks related to the potential disposition of collateral upon foreclosure.

At December 31, 2010, approximately 21.2% of our loan portfolio was composed of national market funding loans to businesses
located outside of the Nashville MSA that were made through a small network of equipment vendors and financial service companies with which we have had historical relationships. This lending creates
somewhat different risks from those typical for community banks. The geographic diversity of our loan portfolio as well as the collateral securing loans within that portfolio may result in longer time
periods to locate collateral and higher costs to dispose of collateral in the event that the collateral is used to satisfy the loan obligation.

Our business strategy includes the continuation of growth plans, and our financial condition and results of operations could be negatively affected if our business
strategies are not effectively executed.

We intend to continue pursuing a growth strategy for our business through organic growth of the loan portfolio. Our prospects must be
considered in light of the risks, expenses and difficulties that can be encountered by financial service companies in rapid growth stages, which include the risks associated with the
following:



There
can be no assurance that we will maintain or achieve deposit levels, loan balances or other operating results necessary to avoid losses or produce profits. Our growth will cause
growth in overhead expenses as we add staff. As a result, historical results may not be indicative of future results. Failure to successfully address these issues identified above could have a
material adverse effect on our business, future prospects, financial condition or results of operations.

Competition from financial institutions and other financial service providers may adversely affect our profitability by reducing our ability to attract and retain deposits
and originate loans.

The banking business is highly competitive and we experience competition in our markets from many other financial institutions. We
compete with other commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market
funds and other mutual funds, as well as other community banks and super-regional and national financial institutions that operate in the Nashville MSA and elsewhere. We not only compete with these
companies in the Nashville MSA, but also in the regional and national markets in which we engage in our indirect funding programs.

We
expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services
industry. Our profitability

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depends
upon our continued ability to successfully compete with an array of financial institutions in the Nashville MSA, and regionally and nationally with respect to our indirect funding programs.

Changes in interest rates could adversely affect our results of operations and financial condition.

Changes in interest rates may affect our level of interest income, the primary component of our gross revenue, as well as the level of
our interest expense. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and the policies of various governmental and regulatory
authorities. Accordingly, changes in interest rates could decrease our net interest income. Changes in the level of interest rates also may negatively affect our ability to originate loans, the value
of our assets and our ability to realize gains from the sale of our assets, all of which ultimately affect our earnings.

We may experience significant fluctuations in non-interest income from period to period.

Historically, a substantial portion of our non-interest income has been derived from the sale of loans. We sell loans from
time to time, particularly loans generated for our national market funding portfolio. The timing and extent of these loan sales may not be predictable, and could cause material variation in our
non-interest income on a period-to-period basis.

Our results of operation may be affected by seasonal factors.

Certain of our commercial customers operate in industries that are seasonal in nature, most notably the transportation industry.
Operating results in the transportation industry have been historically weakest during the first quarter because of reduced shipping demand after the holiday season and inclement weather, which
reduces demand and impedes the ability to transport freight. As a result, both the demand for new loans by customers in seasonal industries, including the transportation industry, and the ability of
existing customers in these industries to service loans may be reduced during the first quarter, which may in turn have an adverse effect on our interest income, loan losses and results of operation
during that quarter.

In
addition, our ability to realize gain on repossessed collateral, including transportation-sensitive assets, may be subject to the seasonality of demand for consumer goods and
transportation services, which is typically lowest during the first quarter. Accordingly, we may obtain less favorable prices for such repossessed collateral that we sell during the first quarter or
we may extend the holding period of such collateral to enhance the recovery value, which may in turn have an adverse effect on our non-interest income and results of operation during that
quarter.

Difficult market conditions have adversely affected and may continue to affect our industry.

We are exposed to downturns in the U.S. economy, and particularly the local markets in which we operate. Declines in the housing
markets over the past several years, including falling home prices and sales volumes, and increasing foreclosures, have negatively affected the credit performance of mortgage loans and resulted in
significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs have caused many financial
institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Many lenders and institutional investors have reduced or ceased providing funding
to borrowers, including other financial institutions. This market turmoil and the tightening of credit have led to increased levels of commercial and consumer delinquencies, lack of consumer
confidence, increased market volatility and reductions in business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets has adversely
affected our business, financial

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condition
and results of operations. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and other financial institutions. In
particular:



Failures
of other depository institutions in our markets and increasing consolidation of financial services companies as a result of current market conditions could increase our deposits and assets,
necessitating additional capital, and may have unexpected adverse effects upon our ability to compete effectively.

We are subject to extensive regulation that could limit or restrict our activities.

We operate in a highly regulated industry and are subject to examination, supervision and comprehensive regulation by various federal
and state agencies including the Federal Reserve Board, the FDIC and the TDFI. Ensuring regulatory compliance is costly and serves to restrict certain of our activities, including payment of
dividends, mergers and acquisitions, investments, loans and interest rates charged, and interest rates paid on deposits. We are also subject to capitalization guidelines established by our regulators,
which require us to maintain adequate capital to support our growth. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Most
recently, the Dodd-Frank Act enacted in July 2010 calls for sweeping reforms to the financial services industry. A number of provisions of the Dodd-Frank Act remain to be
implemented through the rulemaking process at various regulatory agencies. We are unable to predict what the final form of these rules will be when implemented by the respective agencies, but
management believes that certain aspects of the new legislation, including without limitations, the additional cost of higher deposit insurance and the costs of compliance with disclosure and
reporting requirements and examinations by the new Bureau of Consumer Financial Protection, could have a significant impact on our business, financial condition and results of operations.

It
is possible that there will be continued changes to the banking and financial institutions regulatory regimes in the future. Changes to statutes, regulations or regulatory policies,
including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs,
limit the types of financial services

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and
products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. We cannot predict the extent to which the
government and governmental organizations may change any of these laws or controls. We also cannot predict how such changes would adversely affect our business and prospects.

Our issuance of securities to Treasury may be dilutive to the holders of our common stock and may result in other restrictions to our operations.

Pursuant to the CPP under TARP, we issued and sold to Treasury, for an aggregate purchase price of $30 million in cash,
(i) 30,000 shares of our Series A Preferred Stock, having a liquidation preference of $1,000, and (ii) a ten-year warrant to purchase up to 461,538 shares of common
stock, at an exercise price of $9.75 per share, subject to certain anti-dilution and other adjustments. The dilutive impact of the warrant may have a negative effect on the market price of
our common stock and may be dilutive of our earnings per share. In addition, we are required to pay cumulative dividends at a rate of 5% per annum for the first five years, and thereafter at a rate of
9% per annum on the Series A Preferred Stock. Depending on our financial condition at the time, these dividends could have a negative effect on our liquidity. The shares of Series A
Preferred Stock will receive preferential treatment in the event of our liquidation, dissolution or winding up.

The
rules and policies applicable to recipients of capital under the TARP CPP continue to evolve, and their scope, timing and effect cannot be accurately predicted. Any redemption of the
securities sold to Treasury to avoid these restrictions would require prior approval by the Federal Reserve Board and Treasury.

The TARP CPP and the American Recovery and Reinvestment Act of 2009, or the ARRA, impose, and other proposed rules may impose additional, executive compensation and
corporate governance requirements that may adversely affect us and our business, including our ability to recruit and retain qualified employees.

The agreements that we entered into in connection with our participation in the TARP CPP required us to adopt Treasury's standards for
executive compensation and corporate
governance while Treasury holds the equity issued pursuant to the TARP CPP. These standards generally apply to our chief executive officer, chief financial officer and the three next most highly
compensated senior executive officers. The standards include:



In
particular, the change to the deductibility limit on executive compensation may increase the overall cost of our compensation programs in future periods.

The
ARRA imposed further limitations on compensation during the period in which Treasury holds the equity issued pursuant to the TARP CPP, including:



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The
compensation and corporate governance standards and requirements of Section 111 of EESA, as amended by the ARRA, are set forth in the implementing regulations of the Treasury
and SEC, which further expand the limitations and restrictions imposed on executive compensation and corporate governance by the TARP CPP and the ARRA. These rules also prohibit any tax
gross-up payments to senior executive officers and the next 20 highest paid executives; require a "say on pay" vote at annual shareholders' meetings; and restrict stock or stock units
granted to executives that may vest or become transferable.

Moreover,
the Board of Directors of the FDIC recently approved a joint proposed rulemaking to implement Section 956 of the Dodd-Frank Act, which prohibits
incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions and are deemed to be excessive, or that may lead to material losses for the
financial institution. The proposed rule covers banks with total consolidated assets of $1 billion or more, and contains heightened standards for institutions with $50 billion or more in
total consolidated assets.

These
provisions and any future rules issued by Treasury, the Federal Reserve Board, the FDIC or any other regulatory agencies could adversely affect our ability to attract and retain
management sufficiently capable and motivated to manage and operate our business through difficult economic and market conditions. If we are unable to attract and retain qualified employees to manage
and operate our business, we may not be able to successfully execute our business strategy.

Lending goals of the TARP CPP may not be attainable.

The Corporation participates in the TARP CPP. Congress and the bank regulators have encouraged recipients of capital under the TARP CPP
to use such capital to make loans and it may not be possible to safely, soundly and profitably make sufficient loans to creditworthy persons in the current economy to satisfy such goals. Recipients of
TARP CPP capital are subject to Congressional and regulatory demands for additional lending and requirements that they demonstrate and report such lending. Specific lending requirements are unclear
and uncertain, and the Bank could be forced to make loans that involve risks or terms that we would not otherwise find acceptable or in our shareholders' best interest. Such loans could adversely
affect our results of operation and financial condition, and may be in conflict with bank regulations and requirements as to liquidity and capital. The profitability of funding such loans using
deposits may be adversely affected by increased FDIC insurance premiums.

Changes to the TARP CPP program and future rules applicable to TARP CPP recipients could adversely affect our operations, financial condition and results of operations.

The rules and policies applicable to recipients of capital under the TARP CPP continue to evolve and their scope, timing and effect
cannot be predicted. Any redemption of the securities sold to Treasury to avoid these restrictions would require prior approval of the Federal Reserve Board and Treasury. Therefore, it is uncertain if
we will be able to redeem such securities even if we have sufficient financial resources to do so.

In
addition, the government is contemplating potential new programs under the TARP CPP and other governmental initiatives, including programs to promote small business lending, among
others. It is uncertain whether we will qualify for those new programs and whether those new programs may impose additional restrictions on our operation and affect our financial condition in the
future.

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The soundness of other financial institutions could adversely affect us.

Our ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial soundness of
other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. As a result, defaults by, or even rumors or
questions about, one or more financial services institutions, or the financial services industry generally, have led to market-wide liquidity problems, losses of depositor, creditor and
counterparty confidence and could lead to losses or defaults by us or by other institutions. We could experience increases in deposits and assets as a result of other banks' difficulties or failure,
which would increase the capital we need to support such growth.

Changes to accounting and tax rules applicable to us could adversely affect our financial conditions and results of operations.

From time to time, the Financial Accounting Standards Board and the SEC change the financial accounting and reporting standards that
govern the preparation of our financial statements. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some
cases, we could be required to apply a new or revised standard retroactively, resulting in us restating prior period financial statements.

Our ability to utilize certain net operating losses ("NOLs") may be limited under Section 382 of the Internal Revenue Code and certain state and federal law
provisions.

As of December 31, 2010, we had NOLs of $52.0 million for U.S. federal income tax purposes and $13.6 million for
state income tax purposes. State NOLs exist in the jurisdictions of Tennessee, Alabama, Georgia and Minnesota. These NOLs will expire at various dates beginning in 2017 if not previously utilized.
Utilization of U.S. federal and certain state NOLs may be subject to a substantial annual limitation if the ownership change thresholds under Section 382 of the Internal Revenue Code are
triggered by changes in the ownership of our capital stock. Such an annual
limitation could result in the expiration of our NOLs before utilization. In the event we merge into another company, certain of the state NOLs remaining at such time may be lost. As a TARP CPP
participant, we are not permitted to make the special election for one taxable year ending after December 31, 2007 and beginning before January 1, 2010 to carry-back losses
for five years for federal income tax purposes as otherwise permitted generally under the Worker, Homeownership, and Business Assistance Act of 2009.

Even though our common stock is currently listed on the NASDAQ Global Market, the trading volume of our common stock has been low and the sale of substantial amounts of our
common stock in the public market could depress the price of our common stock.

While our common stock is listed on the NASDAQ Global Market, the trading volume of our common stock is relatively low and we cannot be
certain if or when a more active and liquid trading market for our common stock will develop or whether such a market could be sustained. Because of this, our shareholders may not be able to sell
their shares at the volumes, prices or times that they desire.

We
cannot predict the effect, if any, that future sales of our common stock, or availability of shares of our common stock for sale, will have on the market price of our common stock. We
therefore can give no assurance that sales of substantial amounts of our common stock, or the potential for large amounts of sales, would not cause the price of our common stock to decline or impair
our ability to raise capital through sales of our common stock.

The
market price of our common stock may fluctuate in the future, and these fluctuations may be unrelated to our performance. General market price declines or overall market volatility
in the future could adversely affect the price of our common stock, and the current market price may not be indicative of future market prices.

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Holders of the Series A Preferred Stock may, under certain circumstances, have the right to elect two directors to our board of directors.

In the event that we fail to pay dividends on the Series A Preferred Stock for an aggregate of six quarterly dividend periods or
more (whether or not consecutive), the authorized number of directors then constituting our board of directors will be increased by two. Holders of the Series A Preferred Stock, together with
the holders of any outstanding parity stock with like voting
rights voting as a single class, will then be entitled to elect the two additional members of our board of directors at the next annual meeting (or at a special meeting called for the purpose of
electing such directors prior to the next annual meeting) and at each subsequent annual meeting until all accrued and unpaid dividends for all past dividend periods have been paid in full.

Holders of our subordinated debentures have rights that are senior to those of our common shareholders.

In 2005 and 2008, we issued trust preferred securities from two affiliated special purpose trusts and accompanying subordinated
debentures. At December 31, 2010, we had outstanding trust preferred securities and accompanying subordinated debentures totaling $23.2 million. Subject to the receipt of any required
regulatory approval, our board of directors may decide to issue additional tranches of trust preferred securities in the future if markets for these securities are favorable. We conditionally
guarantee payments of the principal and interest on the trust preferred securities. Further, the accompanying subordinated debentures we issued to the trust are senior to our shares of common stock.
As a result, we must make payments on the subordinated debentures before any dividends can be paid on our common stock and, in the event of our bankruptcy, dissolution or liquidation, the holders of
the subordinated debentures must be satisfied before any distributions can be made on our common stock. We have the right to defer distributions on our subordinated debentures (and the related trust
preferred securities) for a period not to exceed 20 consecutive quarters, during which time we may not pay dividends on our common stock.

We may issue additional common stock or other equity securities in the future which could dilute the ownership interest of existing shareholders.

We are currently authorized to issue 20,000,000 shares of common stock, of which 12,194,884 shares were issued and outstanding as of
December 31, 2010, and 1,000,000 shares of preferred stock, of which 30,000 shares of Series A Preferred Stock were issued and outstanding as of December 31, 2010. To maintain our
capital at desired levels or required regulatory levels, or to fund future growth, our board of directors may decide from time to time, without any action by or a vote of our shareholders, to issue
additional shares of common stock, or securities convertible into, exchangeable for or representing rights to acquire shares of our common stock. In addition, the sale of securities issued under our
2007 Equity Plan may dilute our shareholders' ownership interest as a shareholder and the market price of our common stock. New investors in other equity securities issued by us in the future may also
have rights, preferences and privileges senior to our current shareholders which may adversely impact our current shareholders.

We do not expect to pay dividends on our common stock in the foreseeable future.

We have never declared or paid dividends on our common stock. We currently intend to retain earnings and increase capital in
furtherance of our overall business objectives. In addition, the CPP under TARP imposes certain limitations on our ability to pay dividends. Until the earlier of December 19, 2011 or when
Treasury no longer holds any shares of the Series A Preferred Stock, we will not be able to pay dividends without the approval of Treasury, with limited exceptions. We are restricted from
paying any dividends on our common stock unless we are current on our dividend payments on the Series A Preferred Stock.

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Further,
we derive our income solely from dividends on the shares of common stock of the Bank, and the Bank's ability to declare and pay dividends to us is limited by its obligations to
maintain sufficient capital and by other general restrictions on its dividends that are applicable to banks that are regulated by the FDIC and the TDFI. Accordingly, no assurances can be given that we
will declare any dividend or, if declared, what the amount of such dividend would be or whether such dividends would continue in the future. Any future determination as to the payment of dividends on
our common stock will be made by our board of directors in its discretion, subject to applicable regulatory and contractual limitations, and will depend upon our earnings, financial condition, capital
requirements and other relevant factors. Investors in shares of our common stock must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a
gain on their investment.

Anti-takeover provisions in our organizational documents could discourage, delay or prevent a change of control of our company and diminish the value of our
common stock.

Some of the provisions of our charter and bylaws could make it difficult for our shareholders to change the composition of our board of
directors, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that our shareholders may consider
favorable. These provisions include:



These
anti-takeover provisions could impede the ability of our common shareholders to benefit from a change of control and, as a result, could have a material adverse effect
on the market price of our common stock and your ability to realize any potential change-in-control premium.

ITEM 1B.UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.PROPERTIES

The Corporation's main office is located in Williamson County at 381 Mallory Station Road, Suite 207, Franklin, Tennessee 37067,
which is also the main office of the Bank. This location is centrally located and in a high traffic/exposure area. The Bank leases 66,167 square feet at a competitive rate and the term of the lease
expires in December 2017. The Bank provides services throughout the community by use of a network of couriers, third party ATMs and
state-of-the-art electronic banking. As of January 31, 2011, the Corporation closed its three loan production offices located at One Chase Corporate Center,
Suite 400, Birmingham, Alabama 35244, at 7900 International Drive, Suite 200, Bloomington, Minnesota 55425 and at 125 TownPark Drive, Suite 300, Kennesaw,
Georgia 30144. All three loan production office facilities were leased.

ITEM 3.LEGAL PROCEEDINGS

The Company and its subsidiaries are engaged in lines of business that are heavily regulated and involve a large volume of financial
transactions with numerous customers. Although the Company and its subsidiaries have developed policies and procedures to minimize the impact of legal noncompliance and other disputes, litigation
presents an ongoing risk.

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The
Company and its subsidiaries are defendants in various lawsuits arising out of the normal course of business. In the opinion of management, the ultimate resolution of such matters
should not have a material adverse effect on the Company's consolidated financial position or results of operations. Litigation is, however, inherently uncertain, and the Company cannot make
assurances that it will prevail in any of these actions, nor can it estimate with reasonable certainty the amount of damages that it might incur.



PART II



ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Corporation's common stock has been listed on The NASDAQ Global Market since June 2006. The number of shareholders of record at
March 1, 2011, was 365. The table below shows the quarterly range of high and low sale prices for the Corporation's common stock during the fiscal years 2010 and 2009.

Year

High

Low2009

First Quarter

$
11.74

$
5.43Second Quarter

$
9.39

$
4.76Third Quarter

$
5.70

$
4.00Fourth Quarter

$
6.00

$
3.072010

First Quarter

$
8.18

$
3.96Second Quarter

$
11.15

$
6.40Third Quarter

$
7.33

$
3.91Fourth Quarter

$
4.95

$
3.68


Dividends

The Corporation has never declared or paid dividends on its common stock. The payment of cash dividends is subject to the discretion of
the Board of Directors, the Bank's ability to pay dividends and the priority of holders of the Corporation's subordinated debentures and Series A Preferred Stock. The Bank's ability to pay
dividends is also restricted by applicable regulatory requirements. For more information on these restrictions, see ITEM 1 "BUSINESSSupervision and RegulationPayment of
Dividends" of this Annual Report on Form 10-K. 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 the future.

Recent Sales of Unregistered Securities

During 2010, Corporation did not sell any of its securities which were not registered under the Securities Act of 1933.

Purchases of Equity Securities by the Registrant and Affiliated Purchasers

The Corporation made no repurchases of its equity securities, and no Affiliated Purchasers (as defined in
Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) purchased any shares of the Corporation's equity securities during the fourth quarter of the fiscal year ended
December 31, 2010.

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ITEM 6.SELECTED FINANCIAL DATA

The following selected financial data for the years ended December 31, 2010, 2009, 2008, 2007 and 2006 should be read in
conjunction with the financial statements included in Item 8 of this Annual Report on Form 10-K:

2010

2009

2008

2007

2006(Dollars in thousands except share data)Operating Data:Total interest income

$
81,378

$
81,108

$
75,978

$
62,206

$
41,245Total interest expense


28,873


36,192


41,027


34,934


21,868Net interest income


52,505


44,916


34,951


27,272


19,377Provision for loan losses


(20,011
)

(31,039
)

(9,111
)

(6,350
)

(4,350
)Net interest income after provision for loan losses


32,494


13,877


25,840


20,922


15,027Non-interest income:Investment securities gains


887


1,118


447


26


Gain (loss) on sale of loans


917


(1,928
)

3,750


2,687


2,025Other income (loss)


579


(747
)

97


167


(262
)Non-interest expense


(29,665
)

(21,305
)

(17,608
)

(13,263
)

(9,056
)Income (Loss) before income taxes


5,212


(8,985
)

12,526


10,539


7,734Income tax (expense) benefit


(1,768
)

3,407


(4,772
)

(3,643
)

(2,985
)Net income (loss)


3,444


(5,578
)

7,754


6,896


4,749CPP preferred dividends


(1,500
)

(1,546
)







Net income (loss) available to common shareholders

$
1,944

$
(7,124
)
$
7,754

$
6,896

$
4,749Per Share Data:Net income, basic

$
0.24

$
(1.50
)
$
1.64

$
1.49

$
1.24Net income, diluted


0.24


(1.50
)

1.60


1.41


1.14Book value

$
9.79

$
17.05

$
21.50

$
13.36

$
11.51Financial Condition Data:Assets

$
1,453,166

$
1,383,432

$
1,218,084

$
900,153

$
623,518Loans, net


1,208,348


1,151,388


1,023,271


784,001


538,550Investments


127,650


93,668


101,290


73,753


56,943Cash and due from financial institutions


6,521


22,864


5,260


5,236


177Federal funds sold


14,214


15,010


35,538


9,573


13,820Premises and equipment, net


2,335


1,967


2,330


1,413


1,633Deposits


1,299,051


1,242,542


1,069,143


815,053


560,567Federal funds purchased











2,000


Long-term debt


25,421


23,198


23,198


8,248


8,248Other liabilities


9,357


21,400


15,100


11,592


3,479Shareholders' equity

$
119,337

$
96,292

$
101,747

$
63,121

$
51,224Selected Ratios:Overhead ratio(1)


2.11
%

1.63
%

1.52
%

1.76
%

1.80
%Efficiency ratio(2)


54.05


49.14


44.87


43.99


42.84Net yield on earning assets


6.27


6.62


7.45


8.50


8.46Cost of funds


2.24


3.00


4.16


5.18


4.94Net Interest margin


4.05


3.66


3.43


3.72


3.98Operating expenses to average earning assets


2.29


1.74


1.73


1.81


1.86Return on average assets


0.14


(0.54
)

0.73


0.91


0.95Return on average common equity


2.50


(10.86
)

11.34


12.13


12.68Average common equity to average assets


5.52


5.02


6.48


7.53


7.46Ratio of nonperforming assets to average assets(3)


4.18


1.63


3.42


1.14


0.94Ratio of allowance for loan losses to average assets


1.52


1.52


1.27


1.37


1.39Ratio of allowance for loan losses to nonperforming assets(3)


36.49
%

93.52
%

37.21
%

119.04
%

146.91
%


(1)Operating
expenses divided by average assets.(2)Operating
expenses divided by net interest income and noninterest income.(3)Nonperforming
assets are made up of non-accruing loans, accruing loans 90 days past due repossessions and other real estate owned.


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ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Forward-Looking Statements

Certain statements contained in this report may not be based on historical facts and are "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may be identified
by reference to a future period or by the use of forward-looking terminology, such as "expect," "anticipate," "believe," "estimate," "foresee," "may," "might," "will," "intend," "could," "would,"
"plan," "target," "predict," "should," or future or conditional verb tenses and variations or negatives of such terms. These forward-looking statements include, without limitation, those relating to
our operating results and financial condition, the impact of recent developments in the financial services industry, and recently adopted accounting standards, fair value measurements, allowance for
loan losses, Business Bank strategy, dividends, management's review of the loan portfolio, loan classifications, interest rate risk, economic value of equity model, loan sale transactions, liquidity,
legislation and regulations affecting banks or bank holding companies, rate sensitivity gap analysis, maturities of debt securities, growth of our market area, the impact of the economic environment,
competition for loans, hiring of employees, ratio of assets per employee, accessing the wholesale deposit market by means of an electronic bulletin board, engagement of deposit brokers, cost of funds,
loan loss reserve, capital adequacy, informal corrective actions, interest-only strips receivable, servicing assets and liabilities, available-for-sale securities,
maturities of time deposits, commitments to extend credit, tax benefits and credits, net operating loss carry-forward, and our future growth and profitability. We caution you not to place undue
reliance on the forward-looking statements contained in this report because actual results could differ materially from those indicated in such forward-looking statements as a result of a variety of
factors. These factors include, but are not limited to, our concentration of commercial and industrial loans, our concentration of credit exposure to borrowers in the transportation industry, the
sufficiency of our current sources of funds, our reliance on internet and brokered deposits, the effect of capital constraints on our pace of growth and our ability to raise additional capital when
needed, the adequacy of our allowance for loan losses, the impact of our non-performing assets, informal or formal enforcement actions to which we may become subject, the prepayment of
FDIC insurance premiums and higher FDIC assessment rates, the success of the local economies in which we do business, the potential disposition of collateral upon foreclosure with respect to our
national market funding outside of the Nashville MSA, the execution of our business strategies, competition from financial institutions and other financial service providers, changes in interest
rates, the impact of seasonal factors, the impact of market conditions, the limitation or restriction of our activities as a result of the extensive regulation to which we are subject, our ability to
satisfy lending goals of the TARP CPP, changes to the TARP CPP program and rules applicable to TARP recipients, enforcement actions by our regulators, the soundness of other financial institutions,
our ability to utilize certain net operating losses, and other factors detailed from time to time in our press releases and filings with the SEC. We undertake no obligation to update these
forward-looking statements to reflect the occurrence of changes or unanticipated events, circumstances or results that occur after the date of this report.

Overview

(Dollars in thousands except share data in this Item 7.)

The results of operations for the year 2010 compared to 2009 reflected a 127.29% increase in net income (loss) available to
shareholders and a 116.0% increase in diluted earnings per share. The increase in earnings resulted primarily from a decreased provision for loan losses as well as a reduction of interest expense. The
net interest margin for 2010 was 4.05% compared to 3.66% for 2009. The year 2010 reflected the Bank's management of asset growth, increasing by $69,734 or 5.04% from $1,383,432 at December 31,
2009 to $1,453,166 at December 31, 2010. Net loans increased by 4.95% or $56,960 from December 31, 2009 to December 31, 2010, while total deposits increased by 4.55% or $56,509
during that same period.

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The
Corporation's growth in assets was a result of growth in the market area and effective marketing. The improvement in results including net income available to common shareholders and
earnings per share was a result of the business focus of the Bank. From 2000 to 2010, the Bank's market area experienced explosive growth. In Williamson County, demographic information shows a 44.86%
growth in the number of households from 2000 to 2010. Estimates from SNL Financial LC show that by 2015 the number of households in this county will have grown by another 17.83%. Although estimates of
growth are not guaranteed and actual growth may be affected by factors beyond the Corporation's control, management believes that the projected growth of the Bank's market area will positively impact
the Bank's future growth.

The
Bank has also grown by marketing to business owners that have been left without a long standing banking relationship. The Middle Tennessee area has experienced several bank mergers
or acquisitions in the last ten years resulting in the termination of many long standing relationships. These acquisitions also resulted in loan funding decisions being made
out-of-state, creating unpredictability for local lending personnel and uncertainty for local businesses. The Bank has taken advantage of this uncertainty by offering loans at
a fair rate and funded locally in a timely manner. Management believes the competitive advantage created by this environment will continue to positively impact results from operations.

The
Business Bank operating strategy has enabled management to focus on managing results. Rather than focusing on building a multi-branch infrastructure including hiring and construction
of buildings, management focuses on managing net interest margin aggressively and controlling non-interest expense. This has resulted in a 0.07 basis point or a 1.76% increase in the net
interest margin from 2006 to 2010. Non-interest expense is controlled by efficiently staffing the Bank's operations. In 2010, that resulted in $14,678 in assets per employee at year end.
Management believes that the Business Bank operating strategy will continue to be an effective model in the future.

Changes in Results of Operations

Net IncomeNet income available to common shareholders for 2010 was $1,944, an increase of $9,068, or 127.29%, compared to net loss available to
common shareholders of $7,124 for 2009. The increase was primarily attributable to a 35.53% decrease in the provision for loan losses from $31,039 in 2009 to $20,011 in 2010. The decrease of $11,028
in the provision for loan losses was the result of lower charge-offs and repossessions. Non-interest income increased by $3,940, or 253.05%, from a loss of $1,557 to a gain of
$2,383, primarily a result of increased income associated with leveraged leases. The increase in non-interest expense was primarily a result of the increase in salaries and collections
expense. In 2010, salaries and employee benefits and collections expense increased $2,222, or 22.56%, and $1,174, or 70.22%, respectively, from the 12 months ended December 31, 2009.

Net
loss available to common shareholders for 2009 was $7,124, a decrease of $14,878, or 191.88%, compared to net income available to common shareholders of $7,754 for 2008. The decrease
was primarily attributable to a 240.68% increase in the provision for loan losses from $9,111 in 2008 to $31,039 in 2009. The increase of $21,928 in the provision for loan losses was the result of
higher charge-offs and repossessions. Non-interest income decreased by $5,851, from $4,294 to a loss of $1,557, or 136.26%, primarily a result of losses in the sale of loans
and repossessions. These negative effects were partially offset by a 150.11% increase in the gain on the sale of securities, from $447 in 2008 to $1,118 in 2009, and an increase of $5,130 in interest
income, up 6.75% to $81,108 in 2009 compared to $75,978 in 2008. The increase in non-interest expense was a result of the increase in FDIC premiums and the FDIC special assessment. In
2009, the Bank paid FDIC deposit insurance assessments totaling approximately $1,920, including a special assessment of $300 paid during the third quarter of 2009 and a prepaid assessment of $8,050
paid in the fourth quarter of 2009, as compared to an aggregate payment of approximately $682 in 2008.

Net Interest IncomeThe primary source of earnings for the Bank is net interest income, which is the difference between the interest earned on
interest earning assets and the interest paid on interest bearing

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liabilities.
The major factors which affect net interest income are changes in volumes and yield on earning assets as well as the volumes and the cost of interest bearing liabilities. Management's
ability to respond to changes in interest rates by effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of the Bank's
primary source of earnings.

During
2010, the Federal Reserve Open Market Committee ("FOMC") maintained the federal funds target rate, which is the interest rate at which depository institutions lend balances to
each other overnight, at zero to twenty-five basis points. During 2010, $48,186 of the Corporation's net loan growth occurred in real estate loans, which are comprised of
non-owner occupied, owner occupied and multi-family. Management expects to continue its practice of competing for loans based on providing superior service rather than the lowest price.

Net
interest income for 2010 was $52,505 compared to $44,916 for 2009, a gain of $7,589 or 16.90%. The increase in net interest income was largely attributable to a reduction in interest
expense. Interest expense on deposits decreased from $34,213 at December 31, 2009 to $27,162 for the 12 months ended December 31, 2010, a decrease of $7,051 or 20.61% while total
deposits increased $56,509 or 4.55% for the same period. Net interest income was also impacted by a 17.72% decrease in the Bank's indirect funding program for small transactions. These loans, which
are purchased at a minimum rate of 8%, decreased from $166,969 at year-end 2009 to $137,376 at the end of 2010.

Net
interest income for 2009 was $44,916 compared to $34,951 for 2008, a gain of $9,965 or 28.51%. The increase in net interest income was largely attributable to strong loan growth. Net
loans increased from $1,023,271 at December 31, 2008 to $1,151,388 at December 31, 2009, an increase of $128,117 or 12.52%. Net interest income was favorably impacted by a 3.87% decrease
in the Bank's indirect funding program for small transactions. These loans, which are purchased at a minimum rate of 8%, decreased from $173,438 at year-end 2008 to $166,969 at the end of
2009. The loan growth was matched by an increase in deposits from $1,069,143 at December 31, 2008 to $1,242,542 at December 31, 2009, an increase of $173,399 or 16.22%.

InvestmentsThe Bank views the investment portfolio as a source of income and liquidity. Management's investment strategy is to accept a lower
immediate yield in the investment portfolio by targeting shorter term investments. The Bank's investment policy requires a minimum portfolio level equal to 7% of total assets and a maximum portfolio
level of 20% of total assets. Management has
maintained the portfolio at the lower end of the policy guidelines with the portfolio at 8.78%, 6.77% and 8.32% of total assets at year-end in 2010, 2009 and 2008, respectively.

The
investment portfolio at December 31, 2010 was $127,650 compared to $93,668 at year-end 2009. The interest earned on investments declined from $5,325 in 2009 to
$3,387 in 2010, as a result of higher average portfolio balances in 2009. The average yield on the investment portfolio investments fell from 5.14% in 2009 to 3.65% in 2010, or 149 basis points.

The
investment portfolio at December 31, 2009 was $93,668, compared to $101,290 at year-end 2008. The average yield on the investment portfolio was 5.14% in 2009
compared to 5.59% in 2008.

Net Interest Margin AnalysisThe net interest margin is impacted by the average volumes of interest sensitive assets and interest sensitive
liabilities and by the difference between the yield on interest sensitive assets and the cost of interest sensitive liabilities (spread). Loan fees collected at origination represent an additional
adjustment to the yield on loans. The Bank's spread can be affected by economic conditions, the competitive environment, loan demand and deposit flows. The net yield on earning assets is an indicator
of the effectiveness of a bank's ability to manage the net interest margin by managing the overall yield on assets and the cost of funding those assets.

The
two factors that make up the spread are the interest rates received on loans and the interest rates paid on deposits. The Bank has been disciplined in raising interest rates on
deposits only as the market demands and thereby managing the cost of funds. Also, the Bank has not competed for new loans on

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interest
rate alone but has relied on effective marketing to business customers. Business customers are not influenced by interest rates alone but are influenced by other factors such as timely
funding.

The
net interest margin increased from 3.66% in 2009 to 4.05% in 2010 because the yield on earning assets decreased less than the cost of funds. Interest income increased by $270, or
0.33%, from $81,108 in 2009 to $81,378 in 2010. Average earning assets increased from $1,224,775 in 2009 to $1,297,316 in 2010, an increase of $72,541 or 5.92%. The increase in earning assets was a
result of loan growth. Average loans increased $69,586 or 6.24% from 2009 to 2010. The average yield on earning assets decreased from 6.62% in 2009 to 6.27% in 2010, or 35 basis points. The decrease
in the Bank's average securities portfolio unfavorably impacted the average yield on earning assets. The average yield on this type of asset in 2010 was 3.65%. The average federal funds sold increased
226.06% from $5,955 at year-end 2009 to $19,417 in 2010. Interest expense decreased from $36,192 in 2009 to $28,873 in 2010. The decrease of $7,319, or 20.22%, in interest expense was a
result of a lower cost of
funds. Average deposits increased from $1,157,759 in 2009 to $1,251,656 in 2010, an increase of $93,897 or 8.11%. The cost of funds decreased from 3.00% in 2009 to 2.24% in 2010, or 76 basis points.

The
net interest margin increased from 3.43% in 2008 to 3.66% in 2009 because the yield on earning assets decreased less than the cost of funds. Interest income increased by $5,130, or
6.75%, from $75,978 in 2008 to $81,108 in 2009. The increase was primarily a result of increased loan volume. Average earning assets increased from $1,019,887 in 2008 to $1,224,775 in 2009, an
increase of $204,888 or 20.09%. The increase in earning assets was a result of loan growth. Average loans increased $187,485 or 20.19% from 2008 to 2009. The average yield on earning assets decreased
from 7.45% in 2008 to 6.62% in 2009, or 83 basis points. The decrease in the Bank's federal funds sold unfavorably impacted the average yield on earning assets. The average yield on this type of asset
in 2009 was 0.22%. The federal funds sold decreased 19.24% from $7,374 at year-end 2008 to $5,955 in 2009. Interest expense decreased from $41,027 in 2008 to $36,192 in 2009. The decrease
of $4,835, or 11.78%, in interest expense was a result of a lower cost of funds. Average deposits increased from $949,005 in 2008 to $1,157,759 in 2009, an increase of $208,754 or 22.00%. The cost of
funds decreased from 4.17% in 2008 to 3.00% in 2009, or 117 basis points.

Allowance for Loan Losses and Provision for Loan LossesThe allowance for loan losses represents the Corporation's estimate of probable losses
inherent in the loan portfolio, the largest asset category on the consolidated balance sheet. Determining the amount of the allowance for loan losses is considered a critical accounting policy because
it requires significant judgment and the evaluation of several factors: the ongoing review and grading of the loan portfolio; consideration of the Corporation's and relevant banking industry's past
loan loss experience; trends in past-due and nonperforming loans; risk characteristics of the various classifications of loans; existing economic conditions; the fair value of underlying
collateral; the size and diversity of individual large credits; and other qualitative and quantitative factors that could affect probable credit losses. Other considerations include the use of
estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on the Corporation's historical loss experience and
additional qualitative factors for various issues. Additionally, an allocation of reserves is established for special situations that are unique to the measurement period with consideration of current
economic trends and conditions. Because economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the
adequacy of the allowance, could change significantly.

The
Corporation's allowance for loan loss methodology is based on generally accepted accounting principles ("GAAP"). Portions of the allowance may be allocated for specific credits;
however, the entire allowance is available for any credit that, in management's judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate
adequacy of the allowance is dependent upon a variety of factors beyond the Corporation's control, including the performance of the Corporation's loan portfolio, the economy, changes in interest rates
and the view of the regulatory authorities toward loan classifications. The allowance for loan losses is currently being reviewed by our regulators, who may disagree with our allowance and require us
to increase the amount. The additions to

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our
allowance for loans losses would be made through increased provisions for loan losses and would negatively affect our results of operations.

The
Corporation's allowance for loan losses consists of three elements: (i) specific allocated allowances based on probable losses on specific commercial or commercial real estate
loans or restructured residential mortgage or consumer loans; (ii) risk allocated allowance, which is comprised of several loan pool valuation allowances, based on the Corporation's historical
quantitative loan loss experience for similar loans with similar risk characteristics, including additional qualitative risks; and (iii) general valuation allowances based on existing regional
and local economic factors, including deterioration in commercial and residential real estate values, a macroeconomic adjustment factor used to calibrate for the current economic cycle the Corporation
is experiencing, and other subjective factors supported by qualitative documentation.

Specific
allocated allowances are established in cases where management has identified significant conditions or circumstances related to a credit that management believes indicates that
it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan. The specific credit allocations are based on a regular analysis of all
commercial and commercial real estate loans over a fixed dollar amount where the internal credit rating is at or below a predetermined classification and on all restructured residential mortgage and
consumer loans over a fixed dollar amount.

The
Corporation's risk allocated allowance, which is comprised of several loan pool valuation allowances is calculated based on historical data with additional qualitative risk
determined by the judgment of management. Qualitative factors, both internal and external to the Corporation, considered by management include: (i) the experience, ability and effectiveness of
the Corporation's lending management and staff; (ii) the effectiveness of the Corporation's loan policies, procedures and internal controls; (iii) changes in asset quality;
(iv) changes in loan portfolio volume; (v) the composition and concentrations of credit; (vi) the impact of competition on loan structuring and pricing; (vii) the
effectiveness of the internal loan review function; (viii) the impact of environmental risks on the portfolio; (ix) the impact of rising interest rates on the portfolio; and
(x) the impact of loan modification programs. The Corporation evaluates the degree of risk that these components have on the quality of the loan portfolio on a quarterly basis. Based upon the
Corporation's analysis, appropriate estimates for qualitative risks are established. Included in the qualitative valuations are allocations for groups of similar loans with risk characteristics that
exceed certain concentration limits. Concentration risk guidelines
have been established, among other things, for certain industry concentrations, large balance and highly leveraged credit relationships, and loans originated with policy exceptions. Qualitative
allowances may also include estimates of inherent but undetected losses within the portfolio because of uncertainties in economic conditions, delays in obtaining information, including unfavorable
information about a borrower's financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet manifested
themselves in loss allocation factors. The historical losses used may not be representative of actual losses inherent in the portfolio that have not yet been realized.

The
general valuation allowance is based on management's estimate of the effect of current general economic conditions on current loan pools and the inherent imprecision in loan loss
projection models. The uncertainty surrounding the strength and timing of economic cycles, including concerns over the effects of the prolonged economic downturn for the Corporation's market area in
the current cycle, also affects the estimates of loss.

Continuous
credit monitoring processes and the analysis of loss components are the principal methods relied upon by management to ensure that changes in estimated credit loss levels are
reflected in the Corporation's allowance for loan losses on a timely basis. The Corporation utilizes regulatory guidance and its own experience in this analysis. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require additions to the allowance, or require an adjustment to a
previously allocated allowance through a restatement of financial statements for prior reporting periods, or restatements of regulatory reports from

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prior
periods based on their judgment on information available to them at the time of their examination. Based upon the most recent completed examination, the FDIC and TDFI have proposed an increase
in our allowance for loan and lease losses of up to approximately $16 million, an amount not recognized in the financial statements to this annual report. We do not concur with this amount and
our regulators have not provided us with their methodology. Accordingly, if ultimately required, the increase to our allowance for loan and lease losses may differ from the amount our regulators are
requiring.

Actual
loss ratios experienced in the future may vary from those projected. In the event that management overestimates future cash flows or underestimates losses on loan pools, the
Corporation may be required to increase the allowance for loan losses through the provision for loan losses, which would have a negative impact on the results of operations in the period in which the
increase occurred. Note 1 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K describes the methodology used to determine
the allowance for loan losses.

The
provision for loan losses in 2010 was $20,011, a decrease of $11,028, or 35.53%, below the provision of $31,039 expensed in 2009. Of this provision, $1,550, or 7.75%, was
attributable to loan growth
recorded during 2010. The remainder of the loan loss provision in 2010 funded net charge-offs of $18,461.

The
provision for loan losses in 2009 was $31,039, an increase of $21,928, or 240.68%, above the provision of $9,111 expensed in 2008. Of this provision, $6,459, or 20.81%, was
attributable to loan growth recorded during 2009. The remainder of the loan loss provision in 2009 funded net charge-offs of $24,580.

The
Bank targets small and medium sized businesses as loan customers. Because of their size, these borrowers may be less able to withstand competitive or economic pressures than larger
borrowers in periods of economic weakness. If loan losses occur to a level where the loan loss reserve is not sufficient to cover actual loan losses, the Bank's earnings will decrease. The Bank uses
an independent accounting firm to review its loans semi-annually for quality in addition to the reviews that may be conducted by bank regulatory agencies as part of their usual examination
process.

The
following table presents information regarding non-accrual, past due and restructured loans at December 31, 2010, 2009, 2008, 2007 and 2006:

December 31,(Dollars in thousands)

2010

2009

2008

2007

2006Non-accrual loans:Number


512


225


188


130


60Amount

$
52,315

$
19,151

$
11,603

$
6,465

$
2,689Accruing loans which are contractually past due 90 days or more as to principal and interest paymentsNumber


68


30


51


44


18Amount

$
3,608

$
1,328

$
18,788

$
1,992

$
940Loans defined as troubled debt restructurings:(1)Number


3


1


1


1


3Amount

$
1,705

$
111

$
130

$
148

$
1,144Gross income lost to non-accrual loans

$
3,255

$
2,708

$
870

$
436

$
174Interest income included in net income on the accruing loans

$
401

$
112

$
1,674

$
605

$
73


(1)Four
loans previously reported as "troubled debt restructurings" for 2008 were found to be classified incorrectly. The number and amount for 2008 is
correctly reported in the table above.


As
of December 31, 2010, there were no loans which represent trends or uncertainties that management reasonably expects will materially impact future operating results, liquidity,
or capital resources that

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have
not been disclosed in the above table and classified for regulatory purposes as doubtful or substandard.

The
Bank had no tax-exempt loans during the years ended December 31, 2010 and December 31, 2009. The Bank had no loans outstanding to foreign borrowers at
December 31, 2010 and December 31, 2009.

An
analysis of the Bank's loss experience is furnished in the following table for December 31, 2010, 2009, 2008, 2007 and 2006, and the years then ended:

December 31,(Dollars in thousands)

2010

2009

2008

2007

2006Allowance for loan losses at beginning of period

$
19,913

$
13,454

$
10,321

$
6,968

$
4,399Charge-offs:Real estate:Construction


1,592


2,918


288


32


1 to 4 family residential


377


346


9





Other


8


346


102





Commercial, financial and agricultural


16,854


22,462


5,620


3,262


2,026Consumer


37


13


80


16


11Tax leases














Total Charge-offs


18,868


26,085


6,099


3,310


2,037Recoveries:Real estate:Construction


77











1 to 4 family residential














Other


90











Commercial, financial and agricultural


220


1,504


118


313


234Consumer


20


1


3





22Tax leases














Total Recoveries


407


1,505


121


313


256Net Charge-offs


18,461


24,580


5,978


2,997


1,781Provision for loan losses


20,011


31,039


9,111


6,350


4,350Allowance for loan losses at end of period

$
21,463

$
19,913

$
13,454

$
10,321

$
6,968Net charge-offs as a percentage of average total loans outstanding during the period


1.53
%

2.17
%

0.64
%

0.45
%

0.41
%Ending allowance for loan losses as a percentage of total loans outstanding at end of the period


1.75
%

1.70
%

1.30
%

1.30
%

1.28
%


The
allowance for loan losses is established by charges to operations based on management's evaluation of the loan portfolio, past due loan experience, collateral values, current
economic conditions and other factors considered necessary to maintain the allowance at an adequate level. Management believes that the allowance was adequate at December 31, 2010.

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At
December 31, 2010, 2009, 2008, 2007 and 2006, the allowance for loan losses was allocated as follows:

2010

2009

2008

2007

2006(Dollars in thousands)

Amount

Percent of
loan in
each
category
to total
loans

Amount

Percent of
loan in
each
category
to total
loans

Amount

Percent of
loan in
each
category
to total
loans

Amount

Percent of
loan in
each
category
to total
loans

Amount

Percent of
loan in
each
category
to total
loansReal estate:Construction

$
2,205


10.27
%
$
1,419


12.13
%
$
1,816


17.52
%
$
1,132


14.15
%
$
745


13.65
%1 to 4 family residential


304


1.42
%

288


3.62
%

384


3.65
%

335


4.22
%

229


4.19
%Other


7,204


33.56
%

3,501


22.13
%

1,919


16.51
%

1,440


18.13
%

840


15.40
%Commercial, financial and agricultural


10,414


48.53
%

14,021


55.45
%

8,766


56.86
%

7,130


60.14
%

5,048


64.89
%Consumer


1,321


6.15
%

20


0.30
%

39


0.35
%

56


0.50
%

37


0.60
%Tax leases


15


0.07
%

664


6.37
%

530


5.11
%

228


2.86
%

69


1.27
%Total

$
21,463


100.00
%
$
19,913


100.00
%
$
13,454


100.00
%
$
10,321


100.00
%
$
6,968


100.00
%


Non-interest IncomeNon-interest income is income that is not related to interest-earning assets. In a typical retail bank,
non-interest income consists primarily of service charges and fees on deposit accounts and mortgage origination fees. Because of the business focus of the Bank and its lack of a large
retail customer base, revenues from these traditional sources will remain modest.

The
Bank earned $31 in mortgage origination fees in 2009 and none in 2010, primarily as a result of management's decision to cease mortgage loan originations for sale in the secondary
market.

The
Bank gained $917 in 2010 on a series of loan sale transactions, compared to a loss of $1,928 in 2009. In addition to lending in the local marketplace, the Bank provides
collateral-based loans to business borrowers in other states through two types of indirect funding programs. Management has identified a network of community banks eager to purchase quality assets.
Management has installed appropriate systems and a process to sell assets to other banks located in slower growing markets and believes that loan sales will be a recurring source of revenue. The
Bank's gains on sales of securities decreased by $231, or 20.66% from $1,118 in 2009 to $887 in 2010.

The
Bank lost $1,928 in 2009 on a series of loan sale transactions compared to a gain of $3,750 in 2008. In addition to lending in the local marketplace, the Bank provides
collateral-based loans to business borrowers in other states through two types of indirect funding programs. Management has identified a network of community banks eager to purchase quality assets.
Management has installed appropriate systems and a process to sell assets to other banks located in slower growing markets and believes that loan sales will be a recurring source of revenue. Gains on
sales of securities increased by $671, or 150.11% from $447 in 2008 to $1,118 in 2009.

Non-interest ExpenseNon-interest expense includes salaries and benefits expense, occupancy costs and other operating expenses
including data processing, professional fees, supplies, postage, telephone and other items. Management views the control of operating expense as a critical element in the success of the Business Bank
strategy. The Bank operates more efficiently than most peer banks because it conducts business from a single location and does not provide banking services for many retail customers with high
transaction volume.

Management
targets $10,000 in assets per full-time employee as a measure of staffing efficiency. Management believes that the growth of the Bank will offer additional
opportunities to leverage personnel resources. The Bank does not expect to hire employees in 2011, so salaries and benefits expense may increase slightly, but the target for assets per employee will
remain at $10,000.

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Non-interest expense for 2010 was $29,665, an increase of $8,360 or 39.24%, over the $21,305 expensed in 2009. Approximately 13.88% of the increase
was attributable to professional services, approximately 26.58% of the increase was attributable to the addition of new employees during the year and approximately 14.04% of the increase was
attributable to increased collection efforts. The Bank ended 2010 with 99 full-time employees. Assets per employee were $14,678 at year-end 2010 compared to $15,203 at
year-end 2009.

Non-interest
expense for 2009 was $21,305, an increase of $3,697 or 21.00%, over the $17,608 expensed in 2008. Approximately 33.54% of the increase was attributable to the
increased FDIC premiums, approximately 20.26% of the increase was attributable to the addition of new employees during the year and approximately 13.34% of the increase was attributable to increased
collection efforts. The Bank ended 2009 with 91 full-time employees. Assets per employee were $15,203 at year-end 2009 compared to $14,676 at year-end 2008.

Income TaxesThe Corporation's effective tax rate in 2010 was 33.92% compared to 37.92% in 2009 and 38.10% in 2008. Management anticipates that
tax
rates in future years will approximate the rates paid in 2010.

Changes in Financial Condition

AssetsTotal assets at December 31, 2010 were $1,453,166, an increase of $69,734 or 5.04%, over total assets of $1,383,432 at
December 31, 2009. Average assets for 2010 were $1,408,299, an increase of $101,094, or 7.73% over average assets in 2009. Loan growth was the primary reason for these increases. Net loans were
$1,208,348 at year-end 2010, up $56,960, or 4.95% over the year-end 2009 total net loans of $1,151,388.

Total
assets at December 31, 2009 were $1,383,432, an increase of $165,348 or 13.57%, over total assets of $1,218,084 at December 31, 2008. Average assets for 2009 were
$1,307,205, an increase of $251,346, or 23.80% over average assets in 2008. Loan growth was the primary reason for these increases. Net loans were $1,151,388 at year-end 2009, up $128,117,
or 12.52% over the year-end 2008 total net loans of $1,023,271.

The
Bank's Business Bank model of operation results in a higher level of earning assets than most peer banks. Earning assets are defined as assets that earn interest income. Earning
assets include short-term investments, the investment portfolio and net loans. The Bank maintains a relatively high level of earning assets because few assets are allocated to facilities,
cash and due-from bank accounts used for transaction processing. Earning assets at December 31, 2010 were $1,350,212, or 92.92% of total assets of $1,453,166. Earning assets at
December 31, 2009 were $1,260,066, or 91.08% of total assets of $1,383,432. Management targets an earning asset to total asset ratio of 90% or higher. This ratio is expected to generally
continue at these levels, although it may be affected by economic factors beyond the Bank's control.

LiabilitiesThe Bank relies on increasing its deposit base to fund loan and other asset growth. The Williamson County marketplace is highly
competitive with 30 financial institutions and 93 banking facilities (as of June 30, 2010). The Bank competes for local deposits by offering attractive products with premium rates. The Bank
expects to have a higher average cost of funds for local deposits than most competitor banks because of its single location and lack of a branch network.
Management's strategy is to offset the higher cost of funding with a lower level of operating expense and firm pricing discipline for loan products. The Bank has promoted electronic banking services
by providing them without charge and by offering in-bank customer training.

The
Bank also obtains funding in the wholesale deposit market which is accessed by means of an electronic bulletin board. This electronic market links banks and sellers of deposits to
deposit purchasers such as credit unions, school districts, labor unions, and other organizations with excess liquidity. Deposits

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may
be raised in $99 or $100 increments with maturities ranging from two weeks to five years. Management believes the utilization of the electronic bulletin board is highly efficient and the average
rate has been generally less than rates paid in the local market. Participants in the electronic market pay a modest annual licensing fee and there are no transaction charges. Management has
established policies and procedures to govern the acquisition of funding through the wholesale market. Wholesale deposits are categorized as "Purchased Time Deposits" on the detail of deposits shown
in this Item 7. Management may also, from time to time, engage the services of a deposit broker to raise a block of funding at a specified maturity date.

Total
average deposits in 2010 were $1,251,656, an increase of $93,897, or 8.11% over the total average deposits of $1,157,759 in 2009. Average non-interest bearing deposits
decreased by $266, or 1.09%, from $24,372 in 2009 to $24,106 in 2010. Average savings deposits increased by $177,754 from $92,510 in 2009 to $270,264 in 2010. Average purchased deposits decreased by
$28,680, or 5.36%, from $534,942 in 2009 to $506,262 in 2010. The average rate paid on purchased deposits in 2010 was 2.35% compared to 3.29% in 2009. Purchased time deposit funding represented 38.4%
of total funding in 2010 compared to 42.36% in 2009.

Total
average deposits in 2009 were $1,157,759, an increase of $208,754, or 22.00% over the total average deposits of $949,005 in 2008. Average non-interest bearing deposits
increased by $1,028, or 4.40%, from $23,344 in 2008 to $24,372 in 2009. Average savings deposits increased by $85,979 from $6,531 in 2008 to $92,510 in 2009. Average purchased deposits increased by
$79,888, or 17.56%, from $455,054 in 2008 to $534,942 in 2009. The average rate paid on purchased deposits in 2009 was 3.29% compared to 4.50% in 2008. Purchased Time Deposit funding represented
42.36% of total funding in 2009 compared to 47.95% in 2008. As a result of regulatory actions, the Bank could be required to limit its use of Purchased Time Deposits in the future, which could impact
the Bank's liquidity.

Information regarding the Corporation's return on assets, return on equity and equity to asset ratio is located in Item 6 of this Annual Report on
Form 10-K.

Loan PolicyLending activity is conducted under guidelines defined in the Bank's Loan Policy. The Loan Policy establishes guidelines for analyzing
financial transactions including an evaluation of a borrower's credit history, repayment capacity, collateral value, and cash flow. Loans may be at a fixed or variable rate, with the maximum maturity
of fixed rate loans set at five years.

All
lending activities of the Bank are under the direct supervision and control of the Direct Loan Committee, the Indirect Loan Committee, the President's Committee and, in some cases,
the full Board of Directors of the Bank. The Direct and Indirect Loan Committees are chaired by senior lenders John Burton and Doug Rogers, respectively. The Chief Credit Officer and the Chief
Operating Officer serve as permanent members of both committees. These two committees approve any new loans in an amount up to 15% of Tier I Capital. Any new loan in an amount equal to or above
$5,000 is sent for approval to the President's Loan Committee, which is chaired by Chairman/CEO/President Mike Sapp and consists of the members of the Direct or Indirect Loan Committees and the Senior
Vice President of Risk Management. The Bank's Board of Directors must ratify all proposed extensions of credit made by management that are in excess of $10,000. In addition, the full Board must
approve all extensions of credit to the Bank's directors, executive officers and their related parties.

Management
of the Bank periodically reviews the loan portfolio, particularly non-accrual and renegotiated loans. The review may result in a determination that a loan should
be placed on a non-accrual status for income recognition. In addition, to the extent that management identifies potential losses in the loan portfolio, it reduces the book value of such
loans, through charge-offs, to their estimated collectible value. The Bank's policy is that accrual of interest is discontinued on a loan when management of the Bank determines that
collection of interest is doubtful based on consideration of economic and business factors affecting collection efforts.

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

The
Bank's underwriting guidelines are applied to three major categories of loans, commercial and industrial, consumer, and real estate which includes residential, construction and
development and certain other real estate loans. The Bank requires its loan officers and loan committee to consider the borrower's character, the borrower's financial condition, the economic
environment in which the loan will be repaid, as well as, for commercial loans, the borrower's management capability and the borrower's industry. Before approving a loan, the loan officer or committee
must determine that the borrower is creditworthy, is a capable manager, understands the specific purpose of the loan, understands the source and plan of repayment, and determine that the purpose, plan
and source of repayment as well as collateral are acceptable, reasonable and practical given the normal framework within which the borrower operates.

The
maintenance of an adequate loan loss reserve is one of the fundamental concepts of risk management for every financial institution. Management is responsible for ensuring that
controls are in place to monitor the adequacy of the loan loss reserve in accordance with GAAP, the Bank's stated policies and procedures, and regulatory guidance. Quantification of the level of
reserve which is prudently conservative, but not excessive, involves a high degree of judgment.

Management's
assessment of the adequacy of the loan loss reserve considers a wide range of factors including portfolio growth, mix, collateral and geographic diversity, and terms and
structure. Portfolio performance trends, including past dues and charge-offs, are monitored closely. Management's assessment includes a continuing evaluation of current and expected market
conditions and the potential impact of economic events on borrowers. Management's assessment program is monitored by an ongoing loan review program conducted by an independent accounting firm and
periodic examinations by bank regulators.

Management
uses a variety of financial methods to quantify the level of the loan loss reserve. At inception, each loan transaction is assigned a risk rating that ranges from
"RR1Excellent" to "RR4Average." The risk rating is determined by an analysis of the borrower's credit history and capacity, collateral, and cash flow. The weighted average
risk rating of the portfolio provides an indication of overall risk and identifies trends. The portfolio is additionally segmented by loan type, collateral, and purpose. Loan transactions that have
exhibited signs of increased risk are downgraded to a "Watch," "Critical," or "Substandard" classification, i.e., RR5, RR6 and RR7, respectively. These loans are closely monitored for
rehabilitation or potential loss and the loan loss reserve is adjusted accordingly.

It
is management's intent to maintain a loan loss reserve that is adequate to absorb current and estimated losses which are inherent in a loan portfolio. The historical loss ratio (net
charge-offs as a percentage of average loans) was 1.53%, 2.17% and 0.64% for the years ended December 31, 2010, 2009 and 2008, respectively. The year-end loan loss
reserve as
a percentage of the end of period loans was 1.75%, 1.70% and 1.30%, respectively, for the same years. Because of the commercial emphasis of the Bank's operation, management has kept a reserve level in
excess of historical results.

The
provision for loan losses for 2010 was $20,011, a decrease of $11,028 over the $31,039 provision for 2009. In 2010, expenses reflected the impact of $18,461 in net
charge-offs during the year and the incremental provision required as a result of the $56,960 increase in loan volume. The Bank's provision for loan losses is subject to increase as a
result of management's determination or if directed by regulators for prior periods as a result of ongoing regulatory examinations.

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Credit Risk Management and Reserve for Loan Losses

Credit risk and exposure to loss are inherent parts of the banking business. Management seeks to manage and minimize these risks
through its loan and investment policies and loan review procedures. Management establishes and continually reviews lending and investment criteria and approval procedures that it believes reflect the
risk sensitive nature of the Bank. The loan review procedures are set to monitor adherence to the established criteria and to ensure that on a continuing basis such standards are enforced and
maintained. Management's objective in establishing lending and investment standards is to manage the risk of loss and provide for income generation through pricing policies.

The
Bank targets small- and medium-sized businesses as loan customers. Because of their size, these borrowers may be less able to withstand competitive or economic pressures than larger
borrowers in periods of economic weakness. If loan losses occur to a level where the loan loss reserve is not sufficient to cover actual loan losses, the Bank's earnings will decrease. The Bank uses
an independent accounting firm to review its loans for quality in addition to the reviews that may be conducted by bank regulatory agencies as part of their usual examination process.

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

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The financial information below regarding the Corporation and the Bank should be read in conjunction with the Corporation's financial
statements included in Item 8 of this Annual Report on Form 10-K.

Average Balance Sheets, Net Interest Income and Changes in Interest Income and Interest Expense

The following tables present the average yearly balances of each principal category of assets, liabilities and shareholders' equity of
the Corporation and the Bank. The tables are presented on a taxable equivalent basis, as applicable.

Twelve Months Ended
December 31, 2010(Dollars in thousands)

Average
Balance

Interest

Average
RateASSETSInterest earning assetsSecuritiesTaxable(1)

$
92,320

$
3,387


3.65
%Tax-exempt








Total Securities


92,320


3,387


3.65
%Loans(2)(3)


1,185,579


77,920


6.57
%Federal funds sold


19,417


71


0.37
%Total interest earning assets


1,297,316


81,378


6.27
%Non-interest earning assetsCash and due from banks


13,268Net fixed assets and equipment


2,235Accrued interest and other assets


95,480Total assets

$
1,408,299LIABILITIES AND SHAREHOLDERS' EQUITYInterest-bearing liabilitiesDeposits (other than demand)

$
1,227,550

$
27,162


2.21
%Federal funds purchased


6,369


21


0.33
%Subordinated debt and other borrowings


31,580


1,690


5.35
%Total interest-bearing liabilities


1,265,499


28,873


2.28
%Non-interest bearing liabilitiesNon-interest bearing demand deposits


24,106Other liabilities


10,789Shareholders' equity


107,905Total liabilities and shareholders' equity

$
1,408,299Net interest spread


3.99
%Net interest margin


4.05
%


---

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Twelve Months Ended
December 31, 2009(Dollars in thousands)

Average
Balance

Interest

Average
RateASSETSInterest earning assetsSecuritiesTaxable(1)

$
102,827

$
5,325


5.14
%Tax-exempt








Total Securities


102,827


5,325


5.14
%Loans(2)(3)


1,115,993


75,770


6.79
%Federal funds sold


5,955


13


0.22
%Total interest earning assets


1,224,775


81,108


6.62
%Non-interest earning assetsCash and due from banks


8,452Net fixed assets and equipment


2,160Accrued interest and other assets


71,818Total assets

$
1,307,205LIABILITIES AND SHAREHOLDERS' EQUITYInterest-bearing liabilitiesDeposits (other than demand)

$
1,133,387

$
34,213


3.02
%Federal funds purchased


14,467


89


0.62
%Subordinated debt and other borrowings


33,198


1,890


5.69
%Total interest-bearing liabilities


1,181,052


36,192


3.06
%Non-interest bearing liabilitiesNon-interest bearing demand deposits


24,372Other liabilities


6,626Shareholders' equity


95,155Total liabilities and shareholders' equity

$
1,307,205Net interest spread


3.56
%Net interest margin


3.66
%


---

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Twelve Months Ended
December 31, 2008(Dollars in thousands)

Average
Balance

Interest

Average
RateASSETSInterest earning assetsSecuritiesTaxable(1)

$
84,005

$
4,717


5.59
%Tax-exempt








Total Securities


84,005


4,717


5.59
%Loans(2)(3)


928,508


71,101


7.66
%Federal funds sold


7,374


160


2.17
%Total interest earning assets


1,019,887


75,978


7.45
%Non-interest earning assetsCash and due from banks


3,732Net fixed assets and equipment


1,918Accrued interest and other assets


30,322Total assets

$
1,055,859LIABILITIES AND SHAREHOLDERS' EQUITYInterest-bearing liabilitiesDeposits (other than demand)

$
925,661

$
39,271


4.24
%Federal funds purchased


10,380


269


2.59
%Subordinated debt and other borrowings


25,268


1,487


5.88
%Total interest-bearing liabilities


961,309


41,027


4.27
%Non-interest bearing liabilitiesNon-interest bearing demand deposits


23,344Other liabilities


2,825Shareholders' equity


68,381Total liabilities and shareholders' equity

$
1,055,859Net interest spread


3.18
%Net interest margin


3.43
%


---

48

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Table of Contents

The following tables provide an analysis of the impact of changes in volume and rate on interest income and interest expense from 2010 to 2009 and 2009 to 2008:

December 31, 2010 change from
December 31, 2009 due to:(Dollars in thousands)

Volume

Rate

TotalInterest incomeLoans

$
4,625

$
(2,475
)
$
2,150Securities (taxable)(1)


(499
)

(1,439
)

(1,938
)Federal funds sold


45


13


58Total interest income


4,171


(3,901
)

270Interest expenseDeposits (other than demand)


2,662


(9,713
)

(7,051
)Federal funds purchased


(37
)

(31
)

(68
)Subordinated debt


(90
)

(110
)

(200
)Total interest expense


2,535


(9,854
)

(7,319
)Net interest income

$
1,636

$
5,953

$
7,589




December 31, 2009 change from
December 31, 2008 due to:(Dollars in thousands)

Volume

Rate

TotalInterest incomeLoans

$
13,314

$
(8,645
)
$
4,669Securities (taxable)(1)


990


(382
)

608Federal funds sold


(26
)

(121
)

(147
)Total interest income


14,278


(9,148
)

5,130Interest expenseDeposits (other than demand)


7,700


(12,758
)

(5,058
)Federal funds purchased


78


(258
)

(180
)Subordinated debt


453


(50
)

403Total interest expense


8,231


(13,066
)

(4,835
)Net interest income

$
6,047

$
3,918

$
9,965


---

Liability and Asset Management

The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate sensitivity "gap." An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice
within that time period. The interest rate sensitivity gap is defined as the difference between the dollar amount of rate sensitive assets re-pricing during a period and the volume of rate
sensitive liabilities re-pricing during the same 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

49

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Table of Contents

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

The
Bank's Asset Liability and Investment Committee, which consists of the Corporation's non-independent board members and executive officers and certain other bank officers,
Arthur F. Helf, Michael R. Sapp, H. Lamar Cox and Frank Perez, is charged with monitoring the liquidity and funds position of the Bank. The committee regularly reviews (a) the rate sensitivity
position on a three-month, six-month and one-year time horizon; (b) loans to deposit ratios; and (c) average maturity for certain categories of liabilities. The
Bank operates an asset/liability management model. At December 31, 2010, the Bank had a positive cumulative re-pricing gap between four and 12 months of approximately $6,716
or 0.46% of total year-end assets. See Item 7A of this Annual Report on Form 10-K for additional information.

Deposits

The Bank's primary source of funds is interest-bearing deposits. The following tables present the average amount of and average rate
paid on each of the following deposit categories for 2010, 2009 and 2008:

Year Ended December 31,2010

2009

2008(Dollars in thousands)

Average
Balance

Average
Rate
Paid

Average
Balance

Average
Rate
Paid

Average
Balance

Average
Rate
PaidTypes of Deposits:Non-interest-bearing demand deposits

$
24,106



%
$
24,372



%
$
23,344



%Interest-bearing demand deposits


5,773


0.19


6,693


0.13


6,517


0.74Money market accounts


48,921


1.84


42,030


0.90


65,269


2.04Savings accounts


270,264


2.14


92,510


2.22


6,531


2.71IRA accounts


37,090


2.63


37,711


3.62


25,363


4.66Purchased time deposits


506,262


2.35


534,942


3.29


455,054


4.50Time deposits


359,240


2.12
%

419,501


3.05
%

366,926


4.37
%Total deposits

$
1,251,656




$
1,157,759




$
949,004


The
following table indicates amount outstanding of time certificates of deposit of $100 thousand or more and respective maturities as of December 31, 2010:

(Dollars in thousands)

2010Three months or less

$
112,933Over three months through six months


40,635Over six months through 12 months


42,456More than 12 months


171,532Total

$
367,556


50

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Table of Contents

Investment Portfolio

The Bank's investment portfolio at December 31, 2010, 2009 and 2008 consisted of the following:

(Dollars in thousands)

Fair Value

Gross Unrealized Gains

Gross Unrealized Losses

Amortized CostDecember 31, 2010U.S. Government agencies

$
58,472

$


$
(5,231
)
$
63,703U.S. Treasuries


20,495





(1,661
)

22,156Municipal bonds


8,232


7


(244
)

8,469Corporate debt securities


34,651


17


(314
)

34,948Other


5,800








5,800$
127,650

$
24

$
(7,450
)
$
135,076December 31, 2009U.S. Government agencies

$
82,843

$
57

$
(2,138
)
$
84,924Corporate debt securities


188


6





182Other


10,637








10,637$
93,668

$
63

$
(2,138
)
$
95,743December 31, 2008U.S. Government agencies

$
95,195

$
1,197

$
(51
)
$
94,049Corporate debt securities


650


2


(82
)

730Other


5,445


228





5,217$
101,290

$
1,427

$
(133
)
$
99,996


51

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Table of Contents

The
following table presents the estimated maturities and weighted average yields of investment securities of the Bank at December 31, 2010:

Obligations of U.S. Government agenciesDue in less than one year

$


$




%Due after one through five years









%Due after five through ten years


23,066


21,791


2.73
%Due after ten years


40,637


36,681


3.20
%Total obligations of U.S. Government agencies


63,703


58,472Obligations of U.S. treasuriesDue in less than one year









%Due after one through five years









%Due after five through ten years


22,156


20,495


2.69
%Due after ten years









%Total obligations of U.S. treasuries


22,156


20,495Obligations of Municipal securitiesDue in less than one year









%Due after one through five years









%Due after five through ten years


1,001


970


4.33
%Due after ten years


7,468


7,262


5.28
%Total municipal securities


8,469


8,232Corporate debt securitiesDue in less than one year









%Due after one through five years


34,948


34,651


2.31
%Due after five through ten years









%Due after ten years









%Total corporate debt securities


34,948


34,651Other securities


5,800


5,800


8.10
%Total securities available for sale

$
135,076

$
127,650


The
Bank owned no tax-exempt securities during the period ended December 31, 2010.

Investment Policy

The objective of the Bank's investment policy is to invest funds not otherwise needed to meet the loan demand of its market area to
earn the maximum return for the Bank, yet still maintain sufficient liquidity to meet fluctuations in the Bank's loan demand and deposit structure.
In doing so, the Bank balances the market and credit risks against the potential investment return, makes investments compatible with the pledge requirements of the Bank's deposits of public funds,
maintains compliance with regulatory investment requirements and assists the various public entities with their financing needs. The asset liability and investment committee has full authority over
the investment portfolio and makes decisions on purchases and sales of securities. The entire portfolio, along with all investment transactions occurring since the previous Board of Director's
meeting, is reviewed by the Board at each monthly meeting. The investment policy allows portfolio holdings to include short-term securities purchased to provide the Bank's needed liquidity
and longer term securities purchased to generate level income for the Bank over periods of interest rate fluctuations.

52

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Table of Contents

Loan Portfolio

The Bank had net loans of $1,208,348 at December 31, 2010. As the loan portfolio is concentrated in Davidson County and
Williamson County, there is a risk that the borrowers' ability to repay the loans could be affected by changes in local economic conditions. The following schedule details the outstanding loans of the
Bank at December 31, 2010, 2009, 2008, 2007 and 2006:

(Dollars in thousands)

2010

2009

2008

2007

2006Real estateConstruction

$
115,882

$
142,109

$
181,638

$
112,405

$
74,4821 to 4 family residential


42,101


42,425


37,822


33,560


22,873Other


307,406


259,220


171,150


143,973


83,985Commercial, financial and agricultural


648,187


649,475


589,518


477,666


353,996Consumer


3,692


3,476


3,572


3,966


3,246Tax leases


112,543


74,596


53,025


22,752


6,936Total loans


1,229,811


1,171,301


1,036,725


794,322


545,518Less: allowance for loan losses


(21,463
)

(19,913
)

(13,454
)

(10,321
)

(6,968
)Net loans

$
1,208,348

$
1,151,388

$
1,023,271

$
784,001

$
538,550


The
following table reflects the composition of the Bank's loan portfolio by type at December 31 of the years presented:

(Dollars in thousands)

2010

2009

2008

2007

2006Real estateConstruction


9.42
%

12.13
%

17.52
%

14.15
%

13.65
%1 to 4 family residential


3.42
%

3.62
%

3.65
%

4.22
%

4.19
%Other


25.00
%

22.13
%

16.51
%

18.13
%

15.40
%Commercial, financial and agricultural


52.71
%

55.45
%

56.86
%

60.14
%

64.89
%Consumer


0.30
%

0.30
%

0.34
%

0.50
%

0.60
%Tax leases


9.15
%

6.37
%

5.12
%

2.86
%

1.27
%Total loans


100.00
%

100.00
%

100.00
%

100.00
%

100.00
%


The
following table reflects the composition of the Bank's commercial loan portfolio by sourcing program type at December 31 of the years presented:

As of December 31,2010

2009

2008(Dollars in thousands)

Amount

%

Amount

%

Amount

%Direct funding

$
416,519


64.26
%
$
351,933


54.19
%
$
267,542


45.38
%Indirect fundingLarge


94,292


14.55


130,573


20.10


148,538


25.20Small


137,376


21.19


166,969


25.71


173,438


29.42Total

$
648,187


100.00
%
$
649,475


100.00
%
$
589,518


100.00
%


53

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Table of Contents

The
following table details maturities and sensitivity to interest rates changes for outstanding loans of the Bank at December 31, 2010:

(Dollars in thousands)

Due in 1 year
or less

Due in 1
to 5 years

Due after
5 years

TotalReal estateConstruction

$
48,143

$
45,004

$
22,735

$
115,8821 to 4 family residential


21,371


17,414


3,316


42,101Other


104,180


190,206


13,020


307,406Commercial, financial and agricultural


225,275


388,911


34,001


648,187Consumer


2,329


1,363





3,692Tax leases


1,557


37,895


73,091


112,543Total loans


402,855


680,793


146,163


1,229,811Less: allowance for loan losses











(21,463
)Net loans

$
402,855

$
680,793

$
146,163

$
1,208,348Interest rate sensitivity:Fixed interest rates


212,898


572,954


35,936


821,788Floating or adjustable rates


189,957


107,839


110,227


408,023Total

$
402,855

$
680,793

$
146,163

$
1,229,811


Capital Resources / Liquidity



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

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

At
December 31, 2010, the Bank had outstanding loan commitments of $98.67 million. The Corporation monitors the Bank's liquidity position and expects to have sufficient
funds to meet its current funding commitments.



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

54

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Table of Contents

Capital Adequacy

Capital adequacy refers to the level of capital required to sustain asset growth over time and to absorb losses. To continue to grow,
the Bank must increase capital by generating earnings, issuing equity securities, borrowing funds or a combination of those activities. If growth exceeds expectations, the Bank may need to raise
capital in the capital markets. The Bank's ability to raise capital will depend in part on conditions in the capital markets which are outside the Bank's control. If the Bank cannot raise capital on
terms acceptable to it, the Bank's ability to continue growing would be materially impaired.

The
objective of the Bank's management is to maintain a level of capitalization that is sufficient to take advantage of profitable growth opportunities while meeting regulatory
requirements including remaining well capitalized. This is achieved by improving profitability through effectively allocating resources to more profitable businesses, improving asset quality,
strengthening service quality and streamlining costs. The primary measures used by management to monitor the results of these efforts are the ratios of average equity to average assets, average
tangible equity to average tangible assets and average equity to net loans.

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

The
Corporation and the Bank are required to maintain certain capital ratios. These include Tier I, Total Capital and Leverage Ratios. Certain ratios for the Corporation and the
Bank for 2010 and 2009 are set forth below:

Corporation

BankCapital Level Meeting
Regulatory Definition of
"Well Capitalized"2010

2009

2010

2009(%)

(%)

(%)

(%)

(%)Tier I Capital Ratio


6.00


11.37


9.57


10.05


9.37Total Risk-Based Ratio


10.00


12.62


10.83


11.30


10.63Leverage Ratio


5.00


9.94


8.93


8.80


8.74


Based
solely on analysis of federal banking regulatory categories, on December 31, 2010 the Corporation and the Bank both fell within the "well capitalized" categories under the
regulations.

The
TDFI and the FDIC performed a regularly scheduled joint examination of the Bank from August 2, 2010 to September 3, 2010, and a Joint Report of Examination was issued
to the Bank on March 17, 2011.

During
the course of the Bank examination and management of the Bank has been cooperating and actively engaged in dialogue with the FDIC and TDFI on various issues raised during the
examination, including the classification of loans and the adequacy of the Bank's allowance for loan and lease losses. However, the Bank has been notified that both the TDFI ad FDIC will be seeking
enforcement actions against the Bank as a result of their recently completed joint examination. Management is currently in discussions with the FDIC and TDFI and any consent enforcement agreements
would be subject to negotiation before issuance. Based on the joint examination and these discussions to date, any enforcement action to which the Bank may become subject could include, but would not
be limited to, a varying degree of requirements, including, among other things, a requirement that the Bank increase its capital ratios, improve asset quality, increase earnings, improve liquidity,
improve sensitivity to market risk, alter our capital adequacy category, increase the level of our loan and lease loss allowance, dispose certain assets and liabilities within a prescribed period of
time or both, develop a strategic plan governing the Bank's future operations, address potential regulatory violations as well as management's performance in

55

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Table of Contents

addressing
the foregoing perceived deficiencies. As a result of certain criticisms, primarily of our allowance for loan and lease losses, our regulators, the FDIC and TDFI, have proposed an increase
in our allowance for loan and lease losses of up to approximately $16 million, an amount not recognized in the financial statements to this annual report. We do not concur with this amount and
our regulators have not provided us with their methodology. Accordingly, if ultimately required, the increase to our allowance for loan and lease losses may differ from the amount our regulators are
requiring. The Federal Reserve Bank has recently commenced a regular inspection of the Corporation and has the authority to issue an enforcement action against the Corporation for similar
deficiencies. The terms of any such enforcement actions could have a material adverse effect on our business, operations, financial condition, results of operations and the value of our common stock.

Off-Balance Sheet Arrangements

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Bank has in those particular financial instruments.

The
Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument is represented by the contractual or notional amount of those
instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Financial
instruments for which contract amounts represented credit risk as of December 31:

2010

2009

2008(Dollars in thousands)

Fixed
Rate

Variable
Rate

Fixed
Rate

Variable
Rate

Fixed
Rate

Variable
RateCommitments to extend credit

$
31,346

$
67,327

$
23,457

$
71,800

$
39,529

$
137,950Standby letters of credit and financial guarantees





10,919





9,106





16,239


Commitments
to make loans are generally made for periods of one year or less. The fixed rate loan commitments have interest rates ranging from 3.25% to 11% and maturities ranging from
two months to five years.

Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Bank upon extension of credit is based on management's credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.

Standby
letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. All letters of credit are due within one year or less of the original commitment date.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

56

---



Table of Contents

Contractual Obligations

At December 31, 2010, the Bank had certain contractual obligations as shown below.

Contractual Obligations(1)

Total

Less Than
1 Year

1-3
Years

3-5
Years

More
Than
5 Years(Dollars in thousands)Deposits without stated maturity

$
395,166

$
395,166

$


$


$
Certificates of deposit


888,299


451,865


363,374


73,060


Subordinated long-term debt


25,421





2,223





23,198Short-term debt














Operating lease obligations


6,821


904


2,705


1,880


1,332Purchase obligations














Other long term liabilities














Total

$
1,315,707

$
847,935

$
368,302

$
74,940

$
24,530


---

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Table of Contents

Recent Accounting Pronouncements

Accounting Standards Updates are located starting on page F-12, within Note 1 to the Corporation's
Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Analysis of Market Risk

Like all financial institutions, the Corporation is subject to market risk from changes in interest rates. Interest rate risk is
inherent in the balance sheet because of the mismatch between the maturities of rate sensitive assets and rate sensitive liabilities. If rates are rising, and the level of rate sensitive liabilities
exceed the level of rate sensitive assets, the net interest margin will be negatively impacted. Conversely, if rates are falling, and the level of rate sensitive liabilities is greater than the level
of rate sensitive assets, the impact on the net interest margin will be favorable. Managing interest rate risk is further complicated by the fact that all rates do not change at the same pace; in
other words, short-term rates may be rising while longer term rates remain stable. In addition, different types of rate sensitive assets and rate sensitive liabilities react differently to
changes in rates.

To
manage interest rate risk, the Corporation must take a position on the expected future trend of interest rates. Rates may rise, fall or remain the same. The Asset-Liability Committee
of the Bank develops its view of future rate trends by monitoring economic indicators, examining the views of economists and other experts, and understanding the current status of the Corporation's
balance sheet. The Corporation's annual budget reflects the anticipated rate environment for the next 12 months. The Asset-Liability Committee conducts a quarterly analysis of the rate
sensitivity position. The results of the analysis are reported to the Bank's Board.

The
Asset-Liability Committee uses a computer model to analyze the maturities of rate sensitive assets and liabilities. The model measures the "gap," which is the difference between the
dollar amount of rate sensitive assets re-pricing during a period and the volume of rate sensitive liabilities re-pricing during the same period. Gap is also expressed as the
ratio of rate sensitive assets divided by rate sensitive liabilities. If the ratio is greater than one, the dollar value of assets exceeds the dollar value of liabilities and the balance sheet is
"asset sensitive." Conversely, if the value of liabilities exceeds the value of assets, the ratio is less than one and the balance sheet is "liability sensitive." Policy requires management to
maintain the gap within a range of 0.75 to 1.25.

The
model measures scheduled maturities in periods of three months, four to 12 months, one to five years and over five years. The chart below illustrates the Corporation's rate
sensitive position at
December 31, 2010. Management uses the one year gap as the appropriate time period for setting strategy.

58

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Table of Contents

Rate Sensitivity Gap Analysis

(Dollars in thousands)

Floating

13
Months

412
Months

15
Years

Over 5 years

TotalMaturities:Interest-Earnings AssetsFederal funds sold

$


$
14,214

$


$


$


$
14,214SecuritiesU.S. government agencies





(146
)

(441
)

(2,533
)

25,276


22,156U.S. Treasuries





(264
)

(806
)

(4,632
)

76,248


70,546Corporate bonds





7


16


100


34,825


34,948Total securities





(403
)

(1,231
)

(7,065
)

136,349


127,650Total loans





171,122


400,342


586,682


71,665


1,229,811Total interest-earning assets





184,933


399,111


579,617


208,014


1,371,675Other assets














81,491


81,491Total assets





184,933


399,111


579,617


289,505


1,453,166Interest-bearing liabilitiesDepositsInterest checking

$


$
421

$
1,069

$
2,745

$
956

$
5,191Money market and savings





37,488


86,386


183,009


57,606


364,489Time deposits





172,595


279,369


446,920


5,001


903,885Total deposits





210,504


366,824


632,674


63,563


1,273,565Federal funds purchasedShort-term debt

















Subordinated debt and other borrowings











2,223


23,198


25,421Total interest-bearing liabilities





210,504


366,824


634,897


86,761


1,298,986Other liabilities














34,843


34,843Shareholders' equity














119,337


119,337Total liabilities and shareholders' equity

$


$
210,504

$
366,824

$
634,897

$
240,941

$
1,453,166Rate sensitive gap by period

$


$
(25,571
)
$
32,287

$
(55,280
)
$
121,253Cumulative gap




$
(25,571
)
$
6,716

$
(48,564
)
$
72,689Cumulative gap as a percentage of total assets





(1.76
)%

0.46
%

(3.34
)%

5.00
%Rate sensitive assets / rate sensitive liabilities (cumulative)





0.88


1.01


0.96


1.06


In 2010, the FOMC maintained the federal funds target rate at zero to twenty-five basis points. As of December 31, 2010, the
Corporation was positioned for an increasing rate environment with assets re-pricing more rapidly than liabilities. At year-end 2010, the Corporation's one-year
ratio was 1.01.

The
interest rate risk model that defines the gap position also performs a "rate shock" test of the balance sheet. The rate shock procedure measures the impact on the economic value of
equity ("EVE") which is a measure of long-term interest rate risk. EVE is the difference between the market value of the assets and the liabilities and is the liquidation value of the
bank. In this analysis, the model calculates the discounted cash flow or market value of each category on the balance sheet. The percent change in EVE is a measure of the volatility of risk.
Regulatory guidelines specify a maximum change of 30% for a 200 basis points rate change. At December 31, 2010, the percent change in EVE for a plus or minus 200 basis points was well within
that range at (22.5)% and 27.7%, respectively.

The
one year gap of 1.01 indicates that the Bank would show an increase in net interest income in a falling rate environment, and the EVE rate shock shows that the EVE would rise in a
falling rate environment. The EVE simulation model is a static model that provides information only at a certain point in time. For example, in a rising rate environment, the model does not take into
account actions that

59

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management
might take to change the impact of rising rates on the Bank. Given that limitation, it is still useful is assessing the impact of an unanticipated movement in interest rates.

The
above analysis may not on its own be an entirely accurate indicator of how net interest income or EVE will be affected by changes in interest rates. Income associated with interest
earning assets and costs associated with interest bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates
may have a significant impact on net interest income. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other
types may lag behind changes in general market rates. The Asset-Liability Committee develops its view of future rate trends by monitoring economic indicators, examining the views of economists and
other experts, and understanding the current status of the Corporation's balance sheet, and conducts a quarterly analysis of the rate sensitivity position. The results of the analysis are reported to
the Bank's Board.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The report of independent accountants, consolidated financial statements and supplementary data required by Item 8 are set forth
on pages F-1 through F-45 of this Annual Report on Form 10-K and are incorporated herein by reference.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.CONTROLS AND PROCEDURES

a)Evaluation of Disclosure Controls and Procedures. The Corporation maintains disclosure controls and procedures, as defined
in Rule 13a-15(a) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are designed to ensure that information required to be disclosed by it
in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms and that such information
is accumulated and communicated to the Corporation's management, including its Chief Executive Officer and Chief Financial Officer. The Corporation carried out an evaluation, under the supervision and
with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures
as of the end of the period covered by this report. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the
Corporation's disclosure control and procedures were effective in ensuring that information required to be disclosed in the reports that the Corporation files or submits to the SEC under the Exchange
Act is recorded, processed, summarized and reported on a timely basis.

Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, the Corporation has included a report of management's assessment of the design and operating effectiveness of its
internal control over financial reporting as part of this Annual Report on Form 10-K. Management's report is included with the 2010 consolidated financial statements in
Item 8 of this Annual Report on Form 10-K under the caption entitled "Management's Report on Internal Control Over Financial Reporting."

This
Annual Report on Form 10-K does not include an attestation report of the Corporation's registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Corporation's registered public accounting firm pursuant to amendments to Section 404 of the Sarbanes-Oxley Act of 2002, as
a result of a permanent exemption granted under Section 989G of the Dodd-Frank Act.

60

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b)Changes in Internal Controls and Procedures. There were no changes in the Corporation's internal control over financial
reporting during the Corporation's fiscal quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, its internal control over financial
reporting.

ITEM 9B.OTHER INFORMATION

None.

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors

Information relating to our directors is incorporated by reference to the information contained under the caption "Proposal 1: Election
of Directors" included in our proxy statement relating to our 2011 annual meeting of shareholders.

Executive Officers

Information relating to our executive officers is incorporated by reference to the information contained under the caption "Executive
Officers" included in our proxy statement relating to our 2011 annual meeting of shareholders.

Compliance with Section 16(a) of the Exchange Act

Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated by
reference to the information contained under the caption "General InformationSection 16(a) Beneficial Ownership Reporting Compliance" included in our proxy statement relating to
our 2011 annual meeting of shareholders.

Code of Ethics

Information with respect to our Code of Ethics is incorporated by reference to the information contained under the caption "Corporate
GovernanceCode of Ethics" included in our proxy statement relating to our 2011 annual meeting of shareholders.

Shareholder Nominees

Information with respect to procedures by which shareholders may recommend nominees to the Board of Directors is incorporated by
reference to the information contained under the caption "Corporate GovernanceShareholders Nomination of Directors" included in our proxy statement relating to our 2011 annual meeting of
shareholders.

Audit and Compliance Committee

Information relating to the Audit and Compliance Committee is incorporated by reference to the information contained under the caption
"Audit Committee Report" included in our proxy statement relating to our 2011 annual meeting of shareholders.

ITEM 11.EXECUTIVE COMPENSATION

Information regarding the Executive Compensation is incorporated by reference to the information contained under the captions
"Compensation Discussion and Analysis," "Executive Compensation," "Director Compensation," "Compensation Committee Report" and "Compensation Committee Interlocks and Insider Participation" included in
our proxy statement relating to our 2011 annual meeting of shareholders.

61

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Table of Contents

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners and Management

This information is incorporated by reference to the information contained under the caption "Security Ownership of Certain Beneficial
Owners and Management" included in our proxy statement relating to our 2011 annual meeting of shareholders.

Equity Compensation Plan Information

The following table provides information as of December 31, 2010, with respect to compensation plans under which shares of
Corporation common stock are authorized for issuance:

Plan Category

Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
(a)

Weighted-average
Exercise Price of
Outstanding Option,
Warrants and Rights
(b)

Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected
in Column
(a))(c)Equity Compensation Plans Approved by Shareholders(1)


304,888


20.38


1,695,112Equity Compensation Plans Not Approved by Shareholders (incentive options for executive officers, directors and incorporators)(2)


410,000


11.93


Total


714,888


15.53


1,695,112


(1)Includes
the Tennessee Commerce Bancorp, Inc. 2007 Equity Plan, as amended.(2)Includes
various stock option agreements entered into with employees of the Bank between January 14, 2000 and November 1, 2005. For additional
information regarding the terms of these stock options, see Note 13 to the Corporation's Consolidated Financial Statements included in Item 8 of this Annual Report on
Form 10-K.


ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

This information is incorporated by reference to the information contained under the caption "Certain Relationships and Related
Transactions" and "Corporate Governance-Director Independence" included in our proxy statement relating to our 2011 annual meeting of shareholders.

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

This information is incorporated by reference to the information contained under the caption "Proposal 2: Ratification of the
Appointment of Independent Registered Accounting Firm" included in our proxy statement relating to our 2011 annual meeting of shareholders.

62

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PART IV



ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)(1)
Financial Statements: See Part II, Item 8 "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

(2)   Schedules
required by Article 12 of Regulation S-X are either omitted because they are not applicable or because the required information is
shown in the financial statements or the notes thereto.

(3)   Exhibits:

Exhibit No.

Description3.1

Charter of Tennessee Commerce Bancorp, Inc., as amended(1)3.2

Bylaws of Tennessee Commerce Bancorp, Inc.(2)3.3

Amendment to Bylaws of Tennessee Commerce Bancorp, Inc.(3)4.1

Form of Stock Certificate(4)4.2

Indenture, dated as of June 20, 2008, between Tennessee Commerce Bancorp, Inc. and Wilmington Trust Company, as trustee(5)4.3

Amended and Restated Declaration of Trust, dated as of June 20, 2008, among Tennessee Commerce Bancorp, Inc., as sponsor, Wilmington Trust Company, as institutional and Delaware trustee, and Arthur F. Helf,
H. Lamar Cox and Michael R. Sapp, as administrators(5)4.4

Guarantee Agreement, dated as of June 20, 2008, between Tennessee Commerce Bancorp, Inc. and Wilmington Trust Company(5)4.5

Form of Certificate of Series A Preferred Stock(6)4.6

Warrant for Purchase of Shares of Common Stock, dated December 19, 2008(6)10.1

Tennessee Commerce Bancorp, Inc. Stock Option PlanEmployees(2)(12)10.2

Form of Tennessee Commerce Bancorp, Inc. 1999 Stock OptionDirectors(2)(13)10.3

Form of Tennessee Commerce Bancorp, Inc. 1999 Stock OptionIncorporators(2)(13)10.4

Form of Tennessee Commerce Bancorp, Inc. 2003 Stock OptionDirectors(2)(13)10.5

Tennessee Commerce Bancorp, Inc. 1999 Stock Option Agreement with Arthur F. Helf(2)(13)10.6

Tennessee Commerce Bancorp, Inc. 1999 Stock Option Agreement with Michael R. Sapp(2)(13)10.7

Tennessee Commerce Bancorp, Inc. 1999 Stock Option Agreement with H. Lamar Cox(2)(13)10.8

Amended and Restated Employment Agreement, dated as of May 19, 2009, between Tennessee Commerce Bank and Michael R. Sapp(7)(13)10.9

Amended and Restated Employment Agreement, dated as of May 19, 2009, between Tennessee Commerce Bank and H. Lamar Cox(7)(13)10.10

Offer of Employment, dated as of August 5, 2008, between Tennessee Commerce Bancorp, Inc. and Frank Perez(8)(13)


63

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Table of Contents

Exhibit No.

Description10.11

Tennessee Commerce Bancorp, Inc. 2007 Equity Plan(9)(13)10.12

Amendment to the Tennessee Commerce Bancorp, Inc. 2007 Equity Plan(10)10.13

Letter Agreement, dated as of December 19, 2008, between the United States Department of the Treasury and Tennessee Commerce Bancorp, Inc.(6)(13)10.14

Form of Split Dollar Agreement, dated as of May 19, 2009, by and among Tennessee Commerce Bancorp, Inc., Tennessee Commerce Bank and each of Arthur F. Helf, Michael R. Sapp and
H. Lamar Cox.(7)(13)10.15

Form of Salary Continuation Plan, dated as of May 19, 2009, by and among Tennessee Commerce Bancorp, Inc., Tennessee Commerce Bank and each of Michael R. Sapp and H. Lamar Cox.(7)(13)10.16

Form of Consulting and Non-Competition Agreement, dated as of May 19, 2009, by and among Tennessee Commerce Bancorp, Inc., Tennessee Commerce Bank and each of Arthur F. Helf and H. Lamar Cox.
(7)(13)10.17

Amendment to freeze benefit accruals under the Salary Continuation Plan, dated as of December 31, 2010, by and among Tennessee Commerce Bancorp, Inc., Tennessee Commerce Bank and Michael R. Sapp.(11)(13)10.18

Supplemental Salary Continuation Plan, dated as of December 31, 2010, by and among Tennessee Commerce Bancorp, Inc., Tennessee Commerce Bank and Michael R. Sapp.(11)(13)10.19

Tennessee Commerce Bancorp, Inc. Deferred Compensation Plan(12)(13)21.1

Subsidiaries23.1

Consent of Independent Registered Public Accounting Firm*31.1

Certification of Chief Executive Officer of Tennessee Commerce Bancorp, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*31.2

Certification of Chief Financial Officer of Tennessee Commerce Bancorp, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*32.1

Certification of Chief Executive Officer of Tennessee Commerce Bancorp, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*32.2

Certification of Chief Financial Officer of Tennessee Commerce Bancorp, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*99.1

Certification pursuant to Section 111 (b) (4) of the Emergency Economic Stabilization Act of 2008 as amended by the American Recovery and Reinvestment Act of 2009*99.2

Certification pursuant to Section 111 (b) (4) of the Emergency Economic Stabilization Act of 2008 as amended by the American Recovery and Reinvestment Act of 2009*


(1)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Quarterly Report on Form 10-Q, as filed with the Securities
and Exchange Commission on November 6, 2009 and incorporated herein by reference.(2)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Registration Statement on Form 10, as filed with the Securities and
Exchange Commission on April 29, 2005 and incorporated herein by reference.


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Table of Contents

(3)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on February 5, 2008 and incorporated herein by reference.(4)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on December 31, 2007 (Registration No. 333-148415), and incorporated herein by reference.(5)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on June 23, 2008 and incorporated herein by reference.(6)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on December 23, 2008 and incorporated herein by reference.(7)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on May 26, 2009, and incorporated herein by reference.(8)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on August 5, 2008 and incorporated herein by reference.(9)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Quarterly Report on Form 10-Q, as filed with the Securities
and Exchange Commission on August 14, 2007 and incorporated herein by reference.(10)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Quarterly Report on Form 10-Q, as filed with the Securities
and Exchange Commission on August 12, 2010 and incorporated herein by reference.(11)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Registration Statement on Form 8-k, as filed with the
Securities and Exchange Commission on January 6, 2011 and incorporated herein by reference.(12)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on July 26, 2010 and incorporated herein by reference.(13)Compensatory
plans or arrangements


65

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Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

TENNESSEE COMMERCE BANCORP, INC.By:

/s/ MICHAEL R. SAPP Michael R. Sapp, Chairman and Chief Executive Officer (Principal Executive Officer)Date: March 31, 2011


Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated.

By:

/s/ H. LAMAR COX

By:

/s/ PAUL W. DIERKSENH. Lamar Cox, Chief Operating Officer and Director



Paul W. Dierksen, DirectorDate: March 31, 2011

Date: March 31, 2011By:

/s/ DENNIS L. GRIMAUD

By:

/s/ ARTHUR F. HELFDennis L. Grimaud, Director



Arthur F. Helf, DirectorDate: March 31, 2011

Date: March 31, 2011By:

/s/ WILLIAM W. MCINNES

By:

/s/ THOMAS R. MILLERWilliam W. McInnes, Director



Thomas R. Miller, DirectorDate: March 31, 2011

Date: March 31, 2011By:

/s/ DARREL REIFSCHNEIDER

By:

/s/ MICHAEL R. SAPPDarrel Reifschneider, Director



Michael R. Sapp, Chairman, Chief Executive Officer and DirectorDate: March 31, 2011

Date: March 31, 2011By:

/s/ FRANK PEREZFrank Perez, Chief Financial Officer (Principal Financial and Accounting Officer)Date: March 31, 2011


66

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.        CONSOLIDATED FINANCIAL STATEMENTS        As of December 31, 2010 and 2009  and for the three-year period ended December 31, 2010

CONTENTS



MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

F-2REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

F-3FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETS

F-4CONSOLIDATED STATEMENTS OF INCOME

F-5CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

F-6CONSOLIDATED STATEMENTS OF CASH FLOWS

F-7NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-8


F-1

---





Table of Contents

Management's Report on Internal Control Over Financial Reporting

Management of the Corporation is responsible for establishing and maintaining adequate internal control over financial reporting, (as
defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended) that is designed to produce reliable financial statements in conformity with
accounting principles generally accepted in the United States. The Corporation's internal control over financial reporting includes those policies and procedures that: (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Corporation
are being made only in accordance with authorizations of management and directors of the Corporation; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Corporation's assets that could have a material effect on the financial statements.

The
system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a
program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including
the possibility that a control can be circumvented or overridden, and misstatements resulting from error or fraud may occur and not be detected. Also, because of changes in conditions, internal
control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management,
with the participation of the Corporation's Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of the Corporation's system of
internal control over financial reporting as of December 31, 2010, based on criteria for effective internal control over financial reporting described in "Internal
ControlIntegrated Framework," issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that the Corporation maintained
effective internal control over financial reporting as of December 31, 2010.

This
annual report does not include an attestation report of the Corporation's registered public accounting firm regarding internal control over financial reporting. Management's report
was not subject to attestation by the Corporation's registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Corporation to provide only
management's report in this annual report.

F-2

---





Table of Contents

Report of Independent Registered Public Accounting Firm

To
the Board of Directors and Shareholders
Tennessee Commerce Bancorp, Inc.

We
have audited the accompanying consolidated balance sheets of Tennessee Commerce Bancorp, Inc. and Subsidiaries (collectively, the "Company") as of December 31, 2010 and 2009, and the
related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2010. These consolidated financial statements
are the
responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

Due
to an unresolved report of examination from the Federal Deposit Insurance Corporation and Tennessee Department of Financial Institutions that could require adjustments to the
allowance for loan losses as discussed in Note 12, we were unable to satisfy ourselves about the valuation of the Company's allowance for loan losses as of December 31, 2010.

In
our opinion, except for the effects of such adjustments, if any, as might be determined necessary based on the outcome of the regulatory examination discussed in Note 12, the
consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tennessee Commerce Bancorp, Inc. and Subsidiaries as of December 31, 2010 and
2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting
principles.

We
were not engaged to examine management's assessment of the effectiveness of Tennessee Commerce Bancorp, Inc. and Subsidiaries' internal control over financial reporting as of
December 31, 2010, in accordance with the standards of the Public Company Accounting Oversight Board, included in the accompanying Management's Report on Internal Control Over Financial
Reporting and, accordingly, we do not express an opinion thereon.

/s/
KraftCPAs PLLC
Nashville, Tennessee
April 15, 2011

F-3

---





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TENNESSEE COMMERCE BANCORP, INC.        CONSOLIDATED BALANCE SHEETS        December 31, 2010 and 2009

(Dollars in thousands, except per share data)

2010

2009ASSETSCash and due from banks

$
6,521

$
22,864Federal funds sold


14,214


15,010Cash and cash equivalents


20,735


37,874Securities available for sale


127,650


93,668Loans


1,229,811


1,171,301Allowance for loan losses


(21,463
)

(19,913
)Net loans


1,208,348


1,151,388Premises and equipment, net


2,335


1,967Accrued interest receivable


8,746


9,711Restricted equity securities


2,459


2,169Income tax receivable


418


68Bank-owned life insurance


27,969


25,673Other real estate owned


2,888


814Reposessions


30,635


36,951Other assets


20,983


23,149Total assets

$
1,453,166

$
1,383,432LIABILITIES AND SHAREHOLDERS' EQUITYLiabilitiesDepositsNon-interest-bearing

$
25,486

$
30,111Interest-bearing


1,273,565


1,212,431Total deposits


1,299,051


1,242,542Accrued interest payable


1,408


1,430Accrued dividend payable


187


187Short-term borrowings





14,000Other liabilities


7,762


5,783Long-term subordinated debt and other borrowings


25,421


23,198Total liabilities


1,333,829


1,287,140Shareholders' equityPreferred stock, 1,000,000 shares authorized; 30,000 shares of $0.50 par value Fixed Rate Cumulative Perpetual, Series A issued and outstanding at
December 31, 2010 and December 31, 2009


15,000


15,000Common stock, $0.50 par value; 20,000,000 shares authorized at December 31, 2010 and at December 31, 2009; 12,194,884 and 5,646,368 shares issued
and outstanding at December 31, 2010 and December 31, 2009, respectively


6,097


2,823Common stock warrant


453


453Additional paid-in capital


84,391


63,247Retained earnings


18,000


16,056Accumulated other comprehensive loss


(4,604
)

(1,287
)Total shareholders' equity


119,337


96,292Total liabilities and shareholders' equity

$
1,453,166

$
1,383,432


See accompanying notes to consolidated financial statements.

F-4

---





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TENNESSEE COMMERCE BANCORP, INC.        CONSOLIDATED STATEMENTS OF INCOME        Years Ended December 31, 2010, 2009 and 2008

(Dollars in thousands, except per share data)

2010

2009

2008Interest incomeLoans, including fees

$
77,920

$
75,770

$
71,101Securities


3,387


5,325


4,717Federal funds sold


71


13


160Total interest income


81,378


81,108


75,978Interest expenseDeposits


27,162


34,213


39,271Other


1,711


1,979


1,756Total interest expense


28,873


36,192


41,027Net interest income


52,505


44,916


34,951Provision for loan losses


20,011


31,039


9,111Net interest income after provision for loan losses


32,494


13,877


25,840Non-interest incomeService charges on deposit accounts


122


157


122Securities gains


887


1,118


447Gain (loss) on sale of loans


917


(1,928
)

3,750Loss on repossession and other real estate


(5,369
)

(1,826
)

(230
)Other


5,826


922


205Total non-interest income (loss)


2,383


(1,557
)

4,294Non-interest expenseSalaries and employee benefits


12,071


9,849


9,100Occupancy and equipment


2,032


1,625


1,422Data processing fees


2,030


1,549


1,210FDIC expense


3,601


1,922


682Professional fees


3,011


1,851


2,012Other


6,920


4,509


3,182Total non-interest expense


29,665


21,305


17,608Income (loss) before income taxes


5,212


(8,985
)

12,526Income tax expense (benefit)


1,768


(3,407
)

4,772Net income (loss)


3,444


(5,578
)

7,754Preferred dividends


(1,500
)

(1,546
)

Net income (loss) available to common shareholders

$
1,944

$
(7,124
)
$
7,754Earnings (loss) per share (EPS):Basic EPS

$
0.24

$
(1.50
)
$
1.64Diluted EPS


0.24


(1.50
)

1.60Weighted average shares outstanding:Basic


8,212,929


4,738,638


4,731,204Diluted


8,212,929


4,738,638


4,852,065


See
accompanying notes to consolidated financial statements.

F-5

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TENNESSEE COMMERCE BANCORP, INC.        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY        Years Ended December 31, 2010, 2009 and 2008

(Dollars in thousands)

Preferred
Stock

Common
Stock

Warrants to
Purchase
Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Total
Shareholders
EquityBalance at December 31, 2007

$


$
2,362

$


$
45,024

$
15,426

$
309

$
63,121Comprehensive incomeNet income














7,754





7,754Other comprehensive income, net of income taxesUnrealized gains on securities available for sale during the period, net of $477 in tax

















770


770Reclassification adjustment for gains included in net income, net of $170 in tax

















(277
)

(277
)8,247Issuance of preferred stock


15,000








14,547








29,547Issuance of common stock warrant








453











453Exercise of stock options to purchase 7,500 common shares and related tax benefit





4





86








90Stock-based compensation expense











289








289Balance at December 31, 2008

$
15,000

$
2,366

$
453

$
59,946

$
23,180

$
802

$
101,747Comprehensive incomeNet loss














(5,578
)




(5,578
)Other comprehensive income, net of income taxesUnrealized losses on securities available for sale during the period, net of income tax benefit of $825

















(1,351
)

(1,351
)Reclassification adjustment for gains included in net income, net of $380 in tax

















(738
)

(738
)(7,667
)Common stock warrant accretion











85








85Preferred stock dividend














(1,546
)




(1,546
)Issuance of 903,424 shares of common stock





452





2,830








3,282Issuance of 11,248 shares of restricted stock and related tax benefit





5





51








56Stock-based compensation expense











335








335Balance at December 31, 2009

$
15,000

$
2,823

$
453

$
63,247

$
16,056

$
(1,287
)
$
96,292Comprehensive incomeNet income














3,444





3,444Other comprehensive income, net of income taxesUnrealized losses on securities available for sale during the period, net of income tax benefit of $1,402

















(2,731
)

(2,731
)Reclassification adjustment for gains included in net income, net of $301 in tax

















(586
)

(586
)127Common stock warrant accretion











93








93Preferred stock dividend














(1,500
)




(1,500
)Stock-based compensation expense











425








425Issuance of 2,016 shares of restricted stock and related tax benefit





1





6








7Issuance of 6,546,500 shares of common stock, net of issuance costs





3,273





20,620








23,893Balance at December 31, 2010

$
15,000

$
6,097

$
453

$
84,391

$
18,000

$
(4,604
)
$
119,337


See accompanying notes to consolidated financial statements.

F-6

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Table of Contents



TENNESSEE COMMERCE BANCORP, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        Years Ended December 31, 2010, 2009 and 2008

(Dollars in thousands)

2010

2009

2008Cash flows from operating activitiesNet income (loss)

$
3,444

$
(5,578
)
$
7,754Adjustments to reconcile net income (loss) to net cash provided by operating activitiesDepreciation


566


498


423Deferred loan fees


476


320


(210
)Provision for loan losses


20,011


31,039


9,111Stock-based compensation expense


425


335


289Deferred income tax (benefit) expense


2,067


(3,053
)

8,255Net amortization of investment securities


(53
)

182


(52
)Gain on sales of securities


(887
)

(1,118
)

(447
)Increase in cash surrender value of bank owned life insurance


(796
)




Loss on sale of other real estate


78


940


Loss on sale of repossessions


5,291


886


230Change in:Accrued interest receivable


965


(1,596
)

(2,214
)Accrued interest payable


(22
)

(1,885
)

1,023Income tax receivable


(350
)

4,362


(2,544
)Other assets


4,200


(7,353
)

(4,822
)Other liabilities


(88
)

(1,354
)

(314
)Net cash provided by operating activities


35,327


16,625


16,482Cash flows from investing activitiesPurchases of securities available for sale


(252,391
)

(162,533
)

(101,560
)Proceeds from sales of securities available for sale


105,613


97,466


46,603Proceeds from maturities, prepayments and calls on securities available for sale


108,385


70,255


28,713Proceeds from sale of other real estate


176


6,480


25Proceeds fron sale of repossessions


613


710


626Net change in loans


(79,363
)

(185,098
)

(262,493
)Purchase of bank-owned life insurance


(1,500
)

(25,673
)

Purchases of FHLB stock


(290
)

(484
)

(747
)Net purchases of premises and equipment


(934
)

(135
)

(1,340
)Net cash used by investing activities


(119,691
)

(199,012
)

(290,173
)Cash flows from financing activitiesNet change in deposits


56,509


173,399


254,090Net change in federal funds purchased and repurchase agreements








(2,000
)Payments on short-term debt


(10,000
)




(7,000
)Payments on long-term debt


(1,777
)




14,950Purchase of capital securities of unconsolidated subsidiary








(450
)Proceeds from issuance or preferred stock and common stock warrant








30,000Preferred stock dividends


(1,500
)

(1,359
)

Warrant accretion expense


93


85


Issuance of common stock, net of issuance costs


23,900


3,338


Proceeds from excersise of common stock options








38Proceeds from issuance of short-term debt





4,000


10,000Excess tax benefit from option exercises








52Net cash provided by financing activities


67,225


179,463


299,680Net change in cash and cash equivalents


(17,139
)

(2,924
)

25,989Cash and cash equivalents at beginning of period


37,874


40,798


14,809Cash and cash equivalents at end of period

$
20,735

$
37,874

$
40,798Supplemental cash flow information:Cash paid during period for interest

$
28,895

$
38,077

$
40,004Cash paid during period for income taxes


230


77


1,125Loans foreclosed upon with repossessions


26,725


58,887


35,641Loans originated from the sale of other real estate





550


180Loans originated from the sale of repossessions


14,623


24,803


12,633


See accompanying notes to consolidated financial statements.

F-7

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Table of Contents



TENNESSEE COMMERCE BANCORP, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting principles followed and the methods of applying those principles conform with accounting principles generally accepted in the United States of America and to general
practices in the banking industry. The significant policies are summarized as follows:

Principles of Consolidation:The accompanying consolidated financial statements include the accounts of Tennessee Commerce Bancorp,
 Inc. (the
"Corporation") and its wholly-owned subsidiaries, Tennessee Commerce Bank (the "Bank") and TCB Commercial Asset Services, Inc. ("TCB"). Tennessee Commerce Statutory Trust I and Tennessee
Commerce Statutory Trust II are not consolidated and are accounted for under the equity method. Material intercompany accounts and transactions have been eliminated.

Nature of Operations:The Corporation was formed in July 2000. The Bank received its charter as a state bank and opened for business in
January 2000.
Substantially all of the assets, liabilities and operations presented in the consolidated financial statements are attributable to the Bank. The Bank provides a variety of banking services to
individuals and businesses in Middle Tennessee. Its primary deposit products are demand and savings deposits and certificates of deposit, and its primary lending products are commercial, lease
financing, real estate mortgage and installment loans. In July 2008, TCB was formed as a wholly owned subsidiary of the Corporation. This subsidiary purchases, at fair market value, and then sells
assets for the Bank.

The
Bank's loans are generally secured by specific items of collateral including real property, consumer assets and business assets. Although the Bank has a diversified loan portfolio, a
substantial portion of its debtors' ability to honor their contracts is dependent on local economic conditions.

Use of Estimates:To prepare financial statements in conformity with accounting principles generally accepted in the United States of
America,
management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and
future results could differ. The allowance for loan losses and fair value of financial instruments are particularly subject to change.

Statement of Cash Flows:For purposes of presentation in the statements of cash flows, cash and cash equivalents include amounts due
from financial
institutions and federal funds sold. Net cash flows are reported for loan and deposit transactions.

Concentrations and Restrictions on Cash and Cash Equivalents:The Corporation maintains deposits with other financial institutions in
amounts that
exceed federal deposit insurance coverage. Furthermore, federal funds sold are essentially uncollateralized loans to other financial institutions. Management regularly evaluates the credit risk
associated with the counterparties to these transactions and believes that the Corporation is not exposed to any significant credit risks on cash and cash equivalents.

Cash
on hand or on deposit with other banks of approximately $304,000 and $468,000 was required to meet regulatory reserve and clearing requirements at year-end 2010 and
2009, respectively. These balances do not earn interest.

Securities:Certain debt securities that management has the positive intent and ability to hold to maturity are classified as "held to
maturity" and
recorded at amortized cost. Trading securities are recorded at fair value with changes in fair value included in earnings. Securities not classified as held to maturity or trading, including equity
securities with readily determinable fair values, are classified as

F-8

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

"available
for sale" and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. At December 31, 2010 and 2009, all
securities were classified as available for sale. The Bank had no trading securities or held to maturity securities as of December 31, 2010 and 2009.

Purchase
premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of
held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized
losses. In determining whether other-than-temporary impairment exists, management considers many factors, including (i) the length of time and the extent to which the
fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Corporation to retain its
investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are
determined using the specific identification method.

Mortgage Banking Activities:The Bank originates mortgage loans for sale and these loans are carried at the lower of cost or fair value,
determined
on an aggregate basis. Generally, a commitment is obtained from investors at origination in order to minimize market risk directly related to interest rate movements. Origination fees are recorded as
income when the loans are sold to third party investors. At the end of the year for each period presented there were no loans held for sale.

Loans:Loans that the Bank has the positive intent and ability to hold to maturity are stated at the principal amount outstanding.
Interest on loans
is computed daily based on the principal amount outstanding. Loan origination fees are deferred, to the extent they exceed direct origination costs, and recognized over the life of the related loans
as yield adjustments.

The
accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of
collection. Credit card loans and other personal loans are typically charged off no later than 180 days past due. Past due status is based on the contractual terms of the loan. In all cases,
loans are placed on nonaccrual or
charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans that are placed on nonaccrual or charged off
is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are
returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Management
periodically reviews the loan portfolio. A loan is placed on non-accrual status when it is 90 days or more past due and immediate collection is doubtful.
The non-accrual loans are reviewed periodically for impairment. A loan is impaired when full payment under the loan terms is not expected. Commercial and commercial real estate loans are
individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows or at the
fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans are collectively
evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Loans are charged-off at a time when the collection efforts are reasonably deemed
uncollectable.

F-9

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Tax Leases:Tax leases comprised approximately $112,543,000 and $74,596,000 of loans on the consolidated balance sheets at
December 31, 2010
and 2009, respectively. In accordance with FASB ASC 860, "Accounting For Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("FASB ASC 860"), at the time of investment,
the tax lease asset is recorded along with unearned interest income followed by periodic journal entries to record the interest income and maintain an accurate representation of the investment
balance. The current balance is part of "Loans" on the consolidated balance sheets and as "Tax leases" on the summary of loans in Note 3.

Allowance for Loan Losses:In accordance with FASB ASC Topic 310, "Receivables" and allowance allocations calculated in accordance with
ASC Topic
450, "Contingencies", the allowance for loan losses is maintained at a level that, 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 collectability of the loan portfolio, including the nature of the portfolio, credit concentrations and trends in historical loss experience,
impaired loans and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Because of uncertainties
associated with the 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 the provision for loan losses and reduced by charge-offs, net of recoveries.

The
allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired. The general component covers
non-classified loans and is based on historical loss experience and adjusted for current factors including the economic environment.

Management
considers a loan to be impaired when, based on current information and events, it is determined that the Corporation will not be able to collect all amounts due according to
the loan contract, including scheduled interest payments. Determination of impairment is treated the same across all classes of loans. When management identifies a loan as impaired, the impairment is
measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate, except when the sole (remaining) source of repayment for the loan is the operation
or liquidation of the collateral. In these cases, management uses the current fair value of the collateral, less selling costs, when foreclosure is probable. If management determines that the value of
the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized
through an allowance estimate or a charge-off to the allowance. Further information regarding the Corporation's policies and methodology used to estimate the allowance for possible loan
losses is presented in Note 4Allowance for Loan Losses.

Premises and Equipment:Premises and equipment are stated at cost, less accumulated depreciation and amortization. The provision for
depreciation is
computed principally on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the lease term or useful life of
the asset. Costs of major additions and improvements are capitalized. Expenditures for maintenance and repairs are charged to operations as incurred.

Other Real Estate and Repossessed Assets:Real estate acquired by foreclosure is carried at the lower of the recorded investment in the
property or
its fair value, less costs to sell, at the date of foreclosure, determined by appraisal. Declines in value indicated by reappraisals as well as losses resulting from disposition are charged to
operations. Subsequent costs are expensed as they occur after any

F-10

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

re-acquisitions.
Other real estate owned is included on the balance sheet, with a carrying value of approximately $2,888,000 and $814,000 at December 31, 2010 and 2009,
respectively. Repossessed assets acquired by foreclosure are carried at the lower of the recorded investment in the asset or its estimated fair value. Declines in value indicated by reappraisals as
well as losses resulting from disposition are charged to operations. These repossessed assets are either disposed of by the Bank or
sold to TCB for disposition. Subsequent costs are expensed as they occur after any re-acquisitions. The Bank's repossessions are included on the balance sheet, with a carrying value of
approximately $23,326,000 and $27,169,000 in 2010 and 2009, respectively. If a repossession of the Bank is not resold within the six month holding period allowed by Tennessee law, it is purchased by
TCB at fair market value. The sole purpose of TCB is the disposition of assets repossessed by the Bank after the six-month holding period. At December 31, 2010 and 2009, TCB carried
approximately $7,309,000 and $9,782,000, respectively. These assets are included in repossessions on the balance sheet.

Gain on Sale of Loans:Transfers of financial assets are accounted for as sales when control over the assets has been surrendered.
Control over
transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it
from taking advantage of the right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to
repurchase them before maturity. The Bank records the transfer by allocating the carrying amount of the financial asset between the assets sold, and the retained interests, if any, based on their
relative fair values at the date of transfer. Estimates of expected future cash flows are used to determine fair value on the date of transfer. The gain on sale is presented as a component of
non-interest income.

Interest-Only Strips Receivable:Interest-only strips receivable are related to loans originated and sold to others, and
represent the difference between the loan's coupon rate and the rate "passed through" to investors. The initial amount recorded as interest-only strips receivable ("I/O") is computed by
applying present value factors to the investors' expected cash flows compared to expected cash flows from the borrowers. I/Os are carried at fair value and unrealized losses or gains are recognized
into income. I/Os are included in other assets on the balance sheet.

When
the Bank sells loans to others, it may hold interest-only strips, which is an interest that continues to be held by the transferor in the securitized receivable. It may
also obtain servicing assets or assume servicing liabilities that are initially measured at fair value. Gain or loss on sale of the receivables depends in part on both (a) the previous carrying
amount of the financial assets involved in the transfer, allocated between the assets sold and the interests that continue to be held by the transferor based on their relative fair value at the date
of transfer, and (b) the proceeds received. To obtain fair values, quoted market prices are used if available. If quotes are not available for interests that continue to be held by the
transferor, the Bank estimates fair value based on the future expected cash flows estimated using management's best estimates of the key assumptionscredit losses and discount rates
commensurate with the risks involved.

Servicing Assets:Servicing assets are recognized as separate assets when rights are acquired through purchase or through sale of
financial assets.
When the Bank sells loans to others that it continues to service, a servicing asset is recorded at fair value. The Corporation values its servicing assets by allocating the carrying value of the
financial asset between the assets sold and the retained interests, if any, based on their relative fair values at the date of transfer. Capitalized servicing rights are reported in other assets and
are amortized over the life of the loan being serviced. Servicing assets totaled approximately $107,000 and

F-11

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

$80,000
as of December 31, 2010 and 2009, respectively. Servicing assets are included on the balance sheet with other assets.

The
Corporation initially measures all separately recognized servicing assets and servicing liabilities at fair value. The Corporation subsequently measures such assets and liabilities
using either the amortization method, where it amortizes servicing assets or servicing liabilities in proportion to and over the period of estimated net servicing income or net servicing loss, or the
fair value method, where it measures servicing assets or servicing liabilities at fair value at each reporting date. The Corporation reports fair value changes in its earnings during the period in
which they occur. Because of the nature of our servicing assets, quoted market prices may not be available, prohibiting the Corporation from using the fair value method. Therefore, if no quoted market
prices are available, the Corporation uses the amortization method. The Corporation assesses servicing assets or servicing liabilities for impairment or increased obligation based on the fair value at
each reporting date. After considering costs to service, the Corporation generally values the servicing assets at approximately 0.20% of the assets' fair value. The adoption of FASB ASC 860,
"Accounting for Servicing of Financial Assets" ("FASB ASC 860"), did not have a material effect on the valuation of the Corporation's servicing assets or servicing liabilities for the year ended
December 31, 2010.

Income Per Common Share:Basic income per share available to common stockholders ("EPS") is computed by dividing net income available
to common
stockholders by the weighted average common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common stock were exercised
or converted. The difference between basic and diluted weighted average shares outstanding was attributable to common stock options, common stock appreciation rights, warrants and restricted shares.
The dilutive effect of outstanding options, common stock appreciation rights, warrants and restricted shares is reflected in diluted EPS by application of the treasury stock method.

Stock-Based Compensation:Compensation expense for stock options and non-vested stock awards is based on the fair value of the award on
the measurement date, which, for the Corporation, is the date of the grant and is recognized ratably over the service period of the award. The fair value of
stock options is estimated using the Black-Scholes option-pricing model. The fair value of non-vested stock awards and deferred stock units is generally the market price of the
Corporation's common stock on the date of grant. Some amounts have been reclassified to be comparable to current year presentation.

In
June of 2007, the Tennessee Commerce Bancorp, Inc. 2007 Equity Plan (the "Equity Plan") was adopted and the Corporation reserved 1,000,000 shares of its common stock to be
issued, and not repurchased, in accordance with the provisions of the plan. In 2010, shareholders approved an amendment to the Equity Plan to, among other things, increase the number of shares of
Corporation common stock available for award under the Equity Plan to 2,000,000.

Income Taxes:Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets
and liabilities.
Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax
rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of
future taxable income and recoverable taxes paid in prior years.

F-12

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The
Corporation recognizes interest and/or penalties related to income tax matters in income tax expense.

Advertising Costs:Advertising costs are generally charged to operations in the year incurred and totaled approximately $96,000,
$100,000 and
$107,000 for the years ended December 31, 2010, 2009 and 2008, respectively.

Off-Balance Sheet Financial Instruments:Financial instruments include off-balance sheet credit instruments, such as
commitments to make loans, financial guarantees and standby letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before
considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Dividend Restrictions:Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to
the
Corporation, which would limit dividends payable by the Corporation to its shareholders. In addition, the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, of the Corporation
("Series A Preferred Stock") includes certain restrictions regarding the payment of dividends on the Corporation's common stock. For more information regarding these restrictions, see
Note 16.

Comprehensive Income:Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes
unrealized
gains and losses on securities available for sale which are also recognized as separate components of equity.

Fair Value of Financial Instruments:ASC Topic 820, "Fair Value Measurements and Disclosures," defines fair value, establishes a
framework for
measuring fair value in generally accepted accounting principles, and requires certain disclosures about fair value measurements. See Note 14Fair Values of Financial Instruments.
Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Operating Segments:While the chief decision-makers monitor the revenue streams of the various products and services, the Corporation
does not have
any identifiable segments.

Reclassifications:Some items in the prior year financial statements were reclassified to conform to the current presentation.

Recently Issued Accounting Standards:In the first quarter of 2010, the FASB issued Accounting Standards Update ("ASU")
No. 2010-09, "Subsequent Events (Topic 855)Amendments to Certain Recognition and Disclosure Requirements," which amended FASB ASC Topic 855, "Subsequent Events," so
that companies are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised
financial statements. Instead companies must evaluate subsequent events through the date the financial statements are issued.

ASU
No. 2009-16, "Transfers and Servicing (Topic 860)Accounting for Transfers of Financial Assets" ("ASU 2009-16"), amends prior accounting
guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. ASU
2009-16 eliminates the concept of a "qualifying special-purpose

F-13

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

entity"
and changes the requirements for derecognizing financial assets. ASU 2009-16 also requires additional disclosures about all continuing involvements with transferred financial
assets including information about gains and losses resulting from transfers during the period. ASU 2009-16 became effective on January 1, 2010 and did not have a significant impact
on the Corporation's financial statements.

ASU
No. 2010-06, "Fair Value Measurements and Disclosures (Topic 820)Improving Disclosures About Fair Value Measurements" ("ASU 2010-06"),
requires expanded disclosures related to fair value measurements including (i) the amounts of significant transfers of assets or liabilities between Levels 1 and 2 of the fair value
hierarchy and the reasons for the transfers, (ii) the reasons for transfers of assets or liabilities in or out of Level 3 of the fair value hierarchy, with significant transfers
disclosed separately, (iii) the policy for determining when transfers between levels of the fair value hierarchy are recognized and (iv) for recurring fair value measurements of assets
and liabilities in Level 3 of the fair value hierarchy, a gross presentation of information about purchases, sales, issuances and settlements. ASU 2010-06 further clarifies that
(i) fair value measurement disclosures should be provided for each class of assets and liabilities (rather than major category), which would generally be a subset of assets or liabilities
within a line item in the statement of financial position and (ii) companies should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring
and nonrecurring fair value measurements for each class of assets and liabilities included in Levels 2 and 3 of the fair value hierarchy. The disclosure related to the gross presentation of
purchases, sales, issuances and settlements of assets and liabilities included in Level 3 of the fair value hierarchy will be required for the Corporation beginning January 1, 2011. The
remaining disclosure requirements and clarifications made by ASU 2010-06 became effective for the Corporation on January 1, 2010. See Note 14 below for more information.

ASU
No. 2010-11, "Derivatives and Hedging (Topic 815)Scope Exception Related to Embedded Credit Derivatives" ("ASU 2010-11"), clarifies that
the only forms of an embedded credit derivative that are exempt from embedded derivative bifurcation requirements are those that relate to the subordination of one financial instrument to another. As
a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination may need to separately account for the embedded credit derivative
feature. The provisions of ASU 2010-11 became effective for the Corporation on July 1, 2010 and did not have a significant impact on the Corporation's financial statements.

ASU
2010-18 "Effect of a Loan Modification When the Loan is Part of a Pool That is Accounted for as a Single Asset." In April 2010, the Financial Accounting Standards Board
("FASB") issued Accounting Standards Update ("ASU") No. 2010-18,Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a
Single Asset. This ASU clarifies that modifications of loans accounted for within a pool under ASC 310-30,ReceivablesLoans and
Debt Securities Acquired with Deteriorated Credit Quality, would not result in the removal of those loans from the pool even if the modification of those loans would otherwise
be considered a troubled debt restructuring. The Company will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the
pool change. This new guidance takes effect for the first interim or annual period ending on or after July 15, 2010, with early adoption permitted. The adoption of this guidance is not expected
to significantly impact the Company's accounting for purchased loans.

ASU
No. 2010-20, "Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses" ("ASU
2010-20"), requires a company to provide more information in its disclosure about the credit quality of its financing receivables and the credit reserves held against it. The amendments
that require disclosure as of the end of a reporting period are effective for the

F-14

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

periods
ending on or after December 15, 2010. ASU 2010-20 will enhance the disclosure requirements for financing receivables and credit losses, but is not expected to impact the
Corporation's financial position, results of operations or cash flows. Amendments in this recently issued accounting standard have delayed the effective date until reporting periods starting
June 15, 2011 for the disclosure about troubled debt restructurings.

NOTE 2SECURITIES

The fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows at
December 31, 2010 and 2009:

(Dollars in thousands)

Fair
Value

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Amortized
CostDecember 31, 2010U.S. Government agencies

$
58,472

$


$
(5,231
)
$
63,703U. S. Treasuries


20,495





(1,661
)

22,156Municipal bonds


8,232


7


(244
)

8,469Corporate debt securities


34,651


17


(314
)

34,948Other


5,800








5,800$
127,650

$
24

$
(7,450
)
$
135,076December 31, 2009U.S. Government agencies

$
82,843

$
57

$
(2,138
)
$
84,924Corporate debt securities


188


6





182Other


10,637








10,637$
93,668

$
63

$
(2,138
)
$
95,743


F-15

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2SECURITIES (Continued)

Contractual maturities of debt securities at December 31, 2010 are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without prepayment penalties.

(Dollars in thousands)

Fair
ValueDue in less than one year

$
Due after one through five years


34,651Due after five through ten years


43,256Due after ten years


49,743Total

$
127,650


Gross
gains of approximately $1,033,000, $1,231,000 and $611,000 on sales of securities were recognized in 2010, 2009 and 2008, respectively. Gross losses of approximately $146,000,
$113,000 and $164,000 on sales of securities were recognized in 2010, 2009 and 2008, respectively. Securities carried at approximately $66,832,000 and $70,878,000 at December 31, 2010 and 2009,
respectively, were pledged to secure deposits and for other purposes as required or permitted by law.

Restricted
equity securities consist of securities which are restricted as to transferability. These securities are recorded at cost.

The
Bank had Federal Home Loan Bank ("FHLB") stock as follows:

December 31,(Dollars in thousands)

2010

2009FHLB

$
2,459

$
2,169


Securities
with unrealized losses at year-end 2010 and 2009, and the length of time they have been in continuous loss positions were as follows:

Less than 12 Months

12 Months or More

Total(Dollars in thousands)

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss

Fair
Value

Unrealized
Loss2010U.S. Government agencies

$
58,472

$
5,231

$


$


$
58,472

$
5,231U.S. Treasuries


20,495


1,661








20,495


1,661Municipal bonds


6,593


244








6,593


244Corporate debt securities


29,594


314








29,594


314Total

$
115,154

$
7,450

$


$


$
115,154

$
7,4502009U.S. Government agencies

$
54,552

$
1,882

$
14,737

$
256

$
69,289

$
2,138Corporate debt securities

















Total

$
54,552

$
1,882

$
14,737

$
256

$
69,289

$
2,138


F-16

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 2SECURITIES (Continued)

Declines
in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than
temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other
comprehensive income. In estimating other-than-temporary impairment losses, management considers, among other things, (i) the length of time and the extent to which the
fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Corporation to retain its
investment in the issuer for a period of time sufficient to allow for any anticipated recovery in cost.

Management
has the ability and intent to hold the securities classified as held to maturity in the table above until they mature, at which time the Corporation will receive full value
for the securities. Furthermore, as of December 31, 2010, management does not have the intent to sell any of the securities classified as available for sale in the table above and believes that
it is more likely than not that the Corporation will not have to sell any such securities before a recovery of cost. Any unrealized losses are largely due to increases in market interest rates over
the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or re-pricing date or if market
yields for such investments decline. Management does not believe any of the securities are impaired due to reasons of credit quality. Accordingly, as of December 31, 2010, management believes
the impairments detailed in the table above are temporary and no impairment loss has been realized in the Corporation's consolidated income statement.

There
were zero and six securities with continued unrealized losses lasting 12 months or more at December 31, 2010 and 2009, respectively. There were 34 and 16 securities
with continued unrealized losses lasting less than 12 months at December 31, 2010 and December 31, 2009, respectively.

NOTE 3LOANS

The following is a summary of loans outstanding by category at December 31:

(Dollars in thousands)

2010

2009Real estateConstruction

$
115,882

$
142,1091 to 4 family residential


42,101


42,425Other


307,406


259,220Commercial and industrial


648,187


649,475Consumer


3,692


3,476Tax leases


112,543


74,5961,229,811


1,171,301Less: Allowance for loan losses


(21,463
)

(19,913
)Net loans

$
1,208,348

$
1,151,388


The
Bank records a transfer of financial assets as a sale when it surrenders control over the assets to the extent that consideration other than beneficial interests in the assets is
received in exchange. The maximum extent of the Corporation's recourse obligations on loans transferred during the three-year period ended December 31, 2010 was 10% of the amount
transferred, adjusted for any early payoffs or

F-17

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3LOANS (Continued)

terminations.
The amount of the proceeds for loans that were transferred with recourse, that were recorded as a sale for each period was as follows:

December 31,(Dollars in thousands)

2010

2009

2008Proceeds from loans transferred with recourse

$
10,377

$
19,160

$
27,045


The
Bank services loans for the benefit of others. The amount of loans being serviced for the benefit of others at year-end for each period was as follows:

December 31,(Dollars in thousands)

2010

2009

2008Amount of loans being serviced

$
57,564

$
81,704

$
105,177


Certain
parties (principally executive officers and directors of the Bank, including their affiliates) were customers of, and had loans with the Bank in the ordinary course of business.
These loan transactions were made on substantially the same terms as those prevailing at the time for comparable loans to other persons. They did not involve more than the normal risk of
collectability or present other unfavorable features.

Loans
to executive officers, directors and their affiliates were as follows:

December 31,(Dollars in thousands)

2010

2009Beginning balance

$
21,838

$
16,425New loans


4,802


6,400Repayments


(2,327
)

(987
)Ending balance


24,313


21,838


NOTE 4ALLOWANCE FOR LOAN LOSSES

The total allowance reflects managements' estimate of loan losses inherent in the loan portfolio at the balance sheet date. Management considers the allowance for loan losses of
$21.5 million adequate to cover

F-18

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4ALLOWANCE FOR LOAN LOSSES (Continued)

losses
inherent in the loan portfolio. The following table presents by loan category, the changes in allowance for loan losses and the recorded investment in loans for the year ended
December 31, 2010:

(Dollars in thousands)

Real estate
Construction

Real estate
14 family
residential

Real estate
Other

Commercial
and industrial

Consumer

Tax leases

TotalAllowance for loan losses:Beginning balance

$
1,419

$
288

$
3,501

$
14,021

$
20

$
664

$
19,913Charge-offs


(1,592
)

(377
)

(8
)

(16,854
)

(37
)




(18,868
)Recoveries


77





90


220


20





407Provisions


2,301


393


3,621


13,027


12


657


20,011Ending balance

$
2,205

$
304

$
7,204

$
10,414

$
15

$
1,321

$
21,463Ending balance: individually evaluated for impairment

$
950

$
500

$


$
8,160

$


$


$
9,610Ending balance: collectively evaluated for impairment

$
1,255

$
(196
)
$
7,204

$
2,254

$
15

$
1,321

$
11,853Ending balance: loans acquired deteriorated credit quality

$


$


$


$


$


$


$
Loans:Ending balance

$
115,882

$
42,101

$
307,406

$
648,187

$
3,692

$
112,543

$
1,229,811Ending balance: individually evaluated for impairment


4,096


5,581


32,474


45,552








87,703Ending balance: collectively evaluated for impairment


111,786


36,520


274,932


602,635


3,692


112,543


1,142,108Ending balance: loans acquired deteriorated credit quality

$


$


$


$


$


$


$



Changes in the allowance for loan losses were as follows for years ending December 31, 2009 and 2008:

(Dollars in thousands)

2009

2008Balance at beginning of year

$
13,454

$
10,321Provision charged to operating expenses


31,039


9,111Loans charged off


(26,085
)

(6,099
)Recoveries


1,505


121Balance at end of year

$
19,913

$
13,454


The
table below represents credit exposure for each loan category by internally assigned grades at December 31, 2010 and 2009, respectively. The grading analysis estimates the
capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The internal credit risk grading system is based on similarly graded loans. Credit risk
grades are refreshed each quarter as they become available, at which time management analyzes the resulting scores, as well as other factors, to track loan performance.

F-19

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4ALLOWANCE FOR LOAN LOSSES (Continued)

The
Corporation internally assigned grades as follows:



Real estate
Construction

Real estate
14 family

Real estateOther(Dollars in thousands)

2010

2009

2010

2009

2010

2009Pass

$
110,993

$
130,347

$
34,229

$
39,945

$
264,299

$
258,159Special Mention








2,114


1,476


10,164


170Substandard


4,889


11,762


5,258


1,004


32,943


891Doubtful








500








Total

$
115,882

$
142,109

$
42,101

$
42,425

$
307,406

$
259,220




Commercial, financial and agricultural

Consumer

Tax leases(Dollars in thousands)

2010

2009

2010

2009

2010

2009Pass

$
585,273

$
623,219

$
3,676

$
3,476

$
112,543

$
74,596Special Mention


19,275


324











Substandard


42,184


24,794


16








Doubtful


1,455


1,138











Total

$
648,187

$
649,475

$
3,692

$
3,476

$
112,543

$
74,596


The table below provides an aging analysis of the recorded investment of past due financing receivables as of December 31, 2010. Also
included are loans that are 90 days or more past due as to interest and principal and still accruing, because they are (1) well secured and in the process of collections or
(2) real estate loans exempt under regulatory rules from being classified as nonaccrual.

(Dollars in thousands)

30-59
Days Past
Due

60-89
Days Past
Due

Greater
than 90
Days

Total Past
Due

Current

Total
Loans

Total Non-
accrual
Loans

Recorded
Investment
> 90 Days
and
AccruingReal EstateConstruction

$


$


$
2,620

$
2,620

$
113,262

$
115,882

$
2,969

$
14 family residential


3,711





1,453


5,164


36,937


42,101


5,764


Other





296


17,194


17,490


289,916


307,406


17,444


Commercial


15,376


3,162


29,412


47,950


600,237


648,187


26,122


3,608Consumer


20








20


3,672


3,692


16


Tax leases














112,543


112,543





Total

$
19,107

$
3,458

$
50,679

$
73,244

$
1,156,567

$
1,229,811

$
52,315

$
3,608


F-20

---





Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4ALLOWANCE FOR LOAN LOSSES (Continued)

Nonperforming loans were as follows as of December 31, 2009 and 2008:

December 31,(Dollars in thousands)

2009

2008Loans past due over 90 days still on accrual

$
1,328

$
18,788Nonaccrual loans


19,151


11,063


The
table below includes the recorded investment and unpaid principal balances at December 31, 2010 for impaired financing receivables with the associated allowance amount, if
applicable. Management determined the specific allowance based on the present value of expected future cash flows, discounted at the loan's effective interest rate, except when the remaining source of
repayment for the loan is the operation or liquidation of the collateral. In those cases, the current fair value of the collateral, less selling costs, was used to determine the specific allowance
recorded.

The
table also presents the average recorded investments in the impaired loans and the related amount of interest recognized during the time within the period that the impaired loans
were impaired. When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal, under the cost
recovery method. When the ultimate collectability of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income
when received, under the cash basis method. The average balances were calculated based on the month-end balances of the financing receivables of the period reported.

(Dollars in thousands)

Unpaid
Principal
Balance

Recorded
Investment
With No
Allowance

Recorded
Investment
With
Allowance

Total
Recorded
Investment

Related
Allowance

Interest
Income
Recognized

Average
Recorded
InvestmentReal EstateConstruction

$
4,096

$
1,500

$
2,596

$
4,096

$
950

$
55

$
7,28614 family residential


5,581


2,071


3,510


5,581


500


23


2,107Other


32,474


32,474





32,474








11,953Commercial


45,552


17,402


28,150


45,552


8,160


102


37,853Consumer




















Tax leases




















Total

$
87,702

$
53,447

$
34,256

$
87,703

$
9,610

$
180

$
59,199


Impaired loans were as follows:

(Dollars in thousands)

December 31,
2009Balance of impaired loans with no allocated allowance

$
14,993Balance of impaired loans with an allocated allowance


26,100Total recorded impaired loans


41,093Amount of the allowance allocated to impaired loans


5,580




December 31,(Dollars in thousands)

2009

2008Average of impaired loans during the year

$
34,592

$
7,875


F-21

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 4ALLOWANCE FOR LOAN LOSSES (Continued)

The
amount of interest income recognized for the time that these loans were impaired during 2009 and 2008 was not material to the financial statements.

NOTE 5PREMISES AND EQUIPMENT

Below is a summary of premises and equipment as of December 31, 2010 and 2009. Depreciation expense for 2010, 2009 and 2008 was approximately $566,000, $498,000 and $423,000,
respectively.

December 31,(Dollars in thousands)

2010

2009Leasehold improvements

$
1,612

$
1,321Furniture and equipment


3,456


2,8135,068


4,134Less: Allowance for depreciation


2,733


2,167$
2,335

$
1,967


The
Bank leases office space, furniture and equipment under operating leases. Rent expense recognized in 2010, 2009 and 2008 amounted to approximately $861,000, $744,000 and $660,000,
respectively. The remaining minimum lease payments related to the leases at December 31, 2010 were as follows, before considering renewal options that generally are present:

(Dollars in thousands)2011

$
9042012


8872013


9012014


9172015


93220162018


2,885$
7,426


NOTE 6DEPOSITS

Time deposits greater than $100,000 amounted to approximately $367,556,000 in 2010 and approximately $486,321,000 in 2009.

At
December 31, 2010, scheduled maturities of time deposits were as follows:

(Dollars in thousands)2011

$
468,1742012


213,6002013


90,8022014


58,9722015


67,335Thereafter


5,725


F-22

---



Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 6DEPOSITS (Continued)

Deposits
held at the Bank by directors, executive officers and their affiliates were approximately $2,190,000 and $1,608,000 at December 31, 2010 and 2009, respectively.

NOTE 7ADVANCES FROM FEDERAL HOME LOAN BANK AND OTHER DEBT

The FHLB of Cincinnati advances funds to the Bank with the requirement that the advances are secured by securities and qualifying loans, essentially home mortgages (1-4
family residential). At December 31, 2010, the Bank had an available line of $121,090,000 with the FHLB. To participate in this program, the Bank is required to be a member of the FHLB and own
stock in the FHLB. The Bank had $2,459,000 of such stock at December 31, 2010 to satisfy this requirement.

At
December 31, 2010, the Bank had received no advances from the FHLB and, therefore, had pledged no securities or qualifying loans to the FHLB.

At
December 31, 2010, the Bank had approximately $83,107,000 in available federal funds lines (or the equivalent thereof) with correspondent banks. At December 31, 2010,
the Bank had no federal funds purchased.

On
March 29, 2010, TCB entered into a long-term revolving line of credit with a qualified investor, pursuant to which the qualified investor agreed to loan TCB up to
$5,000,000 at an interest rate of prime plus 1.00% with a floor of 6.25%. The qualified investor's obligation to make advances to TCB under this line of credit terminates on March 29, 2012. TCB
had outstanding borrowings of $2,223,000 under this line of credit at December 31, 2010. The loan is guaranteed by the Corporation and secured by TCB reposessions and the outstanding shares of
common stock of TCB.

In
May 2009, the Corporation entered into a short-term revolving line of credit with a qualified investor, pursuant to which the qualified investor loaned the Corporation up
to $8,750,000 at an interest rate of 5.0%. The maturity date of the loan was January 31, 2011 and the loan was secured by all outstanding shares of the Bank's common stock. On August 11,
2010, the Corporation paid off the outstanding balance of the loan.

NOTE 8DEFERRED COMPENSATION PLANS

During 2009, the Bank paid $25,000,000 to purchase single premium bank-owned life insurance policies ("BOLIs") for three key executives of the Bank. The Bank is the owner and
beneficiary of the BOLIs, which serve as investment vehicles that partially offset costs associated with the Bank's other employee benefit plans. The aggregate cash surrender values of the BOLIs
increased by approximately $673,000 in 2009, and $796,000 during 2010, which was recognized as noninterest income. Income from the BOLIs is tax exempt. In June of 2010, the Bank purchased a $1,500,000
Variable Universal Life policy on the CAO. The Bank is the owner and beneficiary of the policy.

F-23

---





Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8DEFERRED COMPENSATION PLANS (Continued)

The Bank's deferred compensation arrangements for its executive officers include split dollar life insurance plans, non-competition agreements and supplemental executive
retirements plans ("SERPs"). The estimated present value of future benefits to be paid under the SERP and non-competition agreements are being accrued over the period from the effective
date of the agreements through the expected retirement dates of the participants. The expense incurred and amount accrued for these plans for the year ended December 31, 2009 was approximately
$84,000 and $158,000 for the year ended December 31, 2010. The Bank froze the current SERP agreement for the
Chairman and CEO as of December 31, 2010 so that (i) no additional service or compensation will be credited under the Agreement and (ii) accrued benefits hereunder will be frozen
such that no additional benefits (including death benefits under Article 3) will be accrued under the Agreement. Such frozen accrued benefits will be paid in accordance with the terms of the
Agreement in a manner consistent with section 409A of the Code. This resulted in a significant cost savings to the Bank. Additionally, the Bank entered into a new agreement with the Chairman
and CEO to provide a non-qualified retirement benefit for eight years with payments beginning upon retirement and continuing for eight years. The net result of freezing the existing
agreement and entering into a new agreement resulted in a one-time reversal of prior expense of $149,000 and an overall reduction in anticipated future cost related to the original SERP
agreement of approximately one million dollars.

Split Dollar
Life Insurance Plan

Non-Competition Agreement

SERPRetired Chairman and Chief Executive Officer

Lesser of Net Amount at Risk(1) and two times the sum of the annual salary for the most recent full year of employment plus the greatest bonus amount paid in any of the last three full years of employment. If death
occurs prior to separation from the Bank, any amounts owed under the SERP and the Non-Competition Agreement are deducted from this amount.

Term of two years following separation from service. Pays 120 monthly payments, each in an amount equal to the greatest annual cash compensation (including base salary and bonus) paid in any of the last three
calendar years of employment preceding separation from service, divided by 48.

N/A


F-24

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8DEFERRED COMPENSATION PLANS (Continued)

Split Dollar
Life Insurance Plan

Non-Competition Agreement

SERPChief Operating Officer

Lesser of Net Amount at Risk(1) and two times the sum of the annual salary for the most recent full year of employment plus the greatest bonus amount paid in any of the last three full years of employment. If death
occurs prior to separation from the Bank, any amounts owed under the SERP and the Non-Competition Agreement are deducted from this amount.

Term of two years following separation from service. Pays 120 monthly payments, each in an amount equal to the greatest annual cash compensation (including base salary and bonus) paid in any of the last three
calendar years of employment preceding separation from service, divided by 48.

96 monthly payments equal to the greater of $4,166.67 or the executive's average annual base salary for the highest three-year period ending at his normal retirement date divided by 48.(2)Chairman and Chief Executive Officer

Lesser of Net Amount at Risk(1) and two times the sum of the annual salary for the most recent full year of employment plus the greatest bonus amount paid in any of the last three full years of employment. If death
occurs prior to separation from the Bank, any amounts owed under the SERP and the Non-Competition Agreement are deducted from this amount.

N/A

180 monthly payments equal to the executive's accrued benefit as of December 31, 2010.(3)
96 monthly payments equal to twelve thousand five hundred dollars ($12,500) less any amounts received under the frozen SERP Agreement.(4)


(1)Net
Amount at Risk is the difference between the cash surrender value of the insurance policy and the death benefit payable under the policy at the time of
death.(2)The
amount shown assumes termination of employment on or after normal retirement date for a reason other than death. This SERP arrangement also contains
(i) an early retirement benefit that vests after ten years of service and pays an amount equal to the accrued benefit at the time of retirement divided by 96, (ii) a disability benefit
which pays an amount equal to the accrued balance at the time of disability divided by 96, and (iii) a change in control benefit which pays the greater of the present value of the normal
retirement benefit or the accrued benefit preceding the change in control. The early retirement and disability benefits are payable over eight years. The change in control payment is to be made in one
lump sum within 30 days of the later of termination of employment or change in control.(3)The
amount shown assumes termination of employment on or after normal retirement date for a reason other than death. This SERP arrangement also contains
(i) an early retirement benefit that vests after ten years of


F-25

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 8DEFERRED COMPENSATION PLANS (Continued)

service
and pays an amount equal to the accrued benefit at the time of retirement, (ii) a disability benefit which pays an amount equal to the accrued balance at the time of disability, and
(iii) a change in control benefit which pays the greater of the present value of the normal retirement benefit or the accrued benefit preceding the change in control. The early retirement and
disability benefits are payable over 15 years. The change in control payment is to be made in one lump sum within 30 days of the later of termination of employment or change in control. (4)The
amount shown assumes termination of employment on or after normal retirement date for a reason other than death. This SERP arrangement also contains
(i) an early retirement benefit that vests after ten years of service and pays an amount equal to the accrued benefit at the time of retirement, (ii) a disability benefit which pays an
amount equal to the accrued balance at the time of disability, and (iii) a change in control benefit which pays the greater of the present value of the normal retirement benefit or the accrued
benefit preceding the change in control. The early retirement and disability benefits are payable over eight years. The change in control payment is to be made in one lump sum within 30 days of
the later of termination of employment or change in control.


The Bank also provides split dollar life insurance plans for its 30 top paid employees. These plans generally provide a death benefit of up to 1.5
times the annual base salary. The Bank owns the cash surrender value of each policy and, by way of a split dollar arrangement, has agreed to endorse a portion of the death benefit over to the named
beneficiary. Since the Bank has no direct benefit obligation to these officers, no such accruals have been made in the Corporation's financial statements.

NOTE 9INCOME TAXES

Income tax expense (benefit) recognized in the years ended December 31, 2010, 2009 and 2008 was made up of current and deferred federal and state tax amounts as shown below:

(Dollars in thousands)

2010

2009

2008Current federal

$
(314
)
$
(372
)
$
(3,466
)Current state


15


18


(14
)Deferred federal


2,157


(2,354
)

7,789Deferred state


(91
)

(730
)

463Change in valuation allowance


1


31


$
1,768

$
(3,407
)
$
4,772


F-26

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9INCOME TAXES (Continued)

The
tax effect of each type of temporary difference that results in net deferred tax assets and liabilities is as follows:

December 31,(Dollars in thousands)

2010

2009AssetsAllowance for loan losses

$
8,218

$
7,624Nonaccrual loan interest


2,200


1,013Net deferred loan fees


252


434Federal net operating loss carryforward


17,671


7,472State net operating loss carryforward


593


343Depreciation


1,700


827AMT credit carryforward


294


294Unrealized loss on securities


2,822


795Other


810


592Total deferred tax assets


34,560


19,394LiabilitiesTax leases


(38,036
)

(22,133
)FASB ASC 860 income adjustments


(669
)

(1,229
)Other


(214
)

(353
)Total deferred tax asset (liability)


(38,919
)

(23,715
)Valuation allowance


(32
)

(31
)Net deferred tax asset (liability)

$
(4,391
)
$
(4,352
)


A
reconciliation of the amount computed by applying the federal statutory rate (34%) to pretax income with income tax expense (benefit) follows:

December 31,(Dollars in thousands)

2010

2009

2008Tax expense at statutory rate

$
1,772

$
(3,055
)
$
4,259State income tax effect


(50
)

(470
)

296Other


45


87


217Valuation allowance


1


31


Income tax expense

$
1,768

$
(3,407
)
$
4,772


The
Corporation had no unrecognized tax benefits as of December 31, 2008, 2009, and 2010. No significant increase is expected over the next 12 months.

Should
the accrual of any interest or penalties relative to unrecognized tax benefits be necessary, it is the Corporation's policy to record such accruals in its income tax accounts. No
such accruals existed as of December 31, 2008, 2009, and 2010.

F-27

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9INCOME TAXES (Continued)

The
Corporation and its subsidiaries file a consolidated U.S. federal income tax return and various returns in states where its banking offices are located. The Corporation's
filed income tax returns are no longer subject to examination by taxing authorities for years before 2007.

The
deferred tax liability itemized above as "FASB ASC 860 income adjustments" originated from the transfers of both loans and leases in accordance with FASB ASC 860. For more
information on FASB ASC 860 income adjustments, please see the discussion in the section above titled "Tax Leases" in Note 1 on page F-10.

The
Corporation has a federal net operating loss carry-forward of $52.0 million that will begin to expire in 2028, if not previously utilized.

The
Corporation has a state net operating loss carry-forward of approximately $13.6 million. The Tennessee NOL of approximately $11.7 million will expire in 2024, if not
previously utilized. The Minnesota NOL of approximately $688,000 will expire in 2024, if not previously utilized. The Alabama NOL of approximately $241,000 will expire in 2017, if not previously
utilized. The Georgia NOL of approximately $974,000 will expire in 2029, if not previously utilized.

The
Corporation has a federal alternative minimum tax credit carry-forward of approximately $294,000 that will not expire, and a federal general business tax credit of approximately
$59,000 that will begin to expire in 2026, if not previously utilized.

At
December 31, 2010, the Bank has a Georgia Form 900 credit carry-forward of $22,000 that will begin to expire in 2014, if not previously utilized.

NOTE 10COMMITMENTS AND CONTINGENCIES

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Bank has in those particular financial instruments.

The
Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit and financial
guarantees is represented by the contractual or notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.

The
following table reflects financial instruments for which contract amounts represented credit risk as of December 31, for the following years:

2010

2009(Dollars in thousands)

Fixed
Rate

Variable
Rate

Fixed
Rate

Variable
RateCommitments to extend credit

$
31,346

$
67,327

$
23,457

$
71,800Standby letters of credit and financial guarantees





10,919





9,106


F-28

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 10COMMITMENTS AND CONTINGENCIES (Continued)

Commitments
to make loans are generally made for periods of one year or less. The fixed rate loan commitments had interest rates ranging from 3.25% to 11% and maturities ranging from one
month to twenty-six years at December 31, 2010.

Commitments
to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Because many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation. Collateral held
varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Standby
letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support
public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. All letters of credit are due within one year or less of the original commitment date.
The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

The
Bank guarantees a lease for a commercial airline company. The value of the guarantee was $4,427,000 at December 31, 2010 and 2009, and is included in the table above.

The
Bank primarily serves customers located in Middle Tennessee. As such, the Bank's loans, commitments and letters of credit have been granted to customers in that area. Concentration
of credit by type of loan is presented above in Note 3.

The
Corporation and its subsidiaries are engaged in lines of business that are heavily regulated and involve a large volume of financial transactions with numerous customers. Although
the Corporation and its subsidiaries have developed policies and procedures to minimize the impact of legal non-compliance and disputes, litigation presents an ongoing risk.

The
Corporation and its subsidiaries are defendants in various lawsuits and claims arising out of the ordinary course of business. Management of the Corporation evaluates lawsuits based
on information currently available, including advice of counsel and an assessment of available insurance coverage. Management is currently of the opinion that the ultimate resolution or financial
liability with respect to pending lawsuits will not have a material adverse effect on the Corporation's business, consolidated financial position or results of operations. Litigation is, however,
inherently uncertain, and management cannot provide any assurance that the Corporation and/or its subsidiaries will prevail in any of these actions, nor can management estimate with reasonable
certainty the amount of damages that the Corporation or any of its subsidiaries might incur.

NOTE 11EMPLOYEE BENEFITS

The Bank maintains a 401(k) plan for all employees who have satisfied the minimum age and service requirements. The Bank may make discretionary contributions and employees vest in
employer contributions over five years. The Bank made no contributions to the plan during 2010, 2009 or 2008.

F-29

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12REGULATORY MATTERS

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation and the Bank are required to meet specific capital adequacy guidelines that
involve quantitative measures of a bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Failure to meet minimum capital
requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a material effect on the Bank's financial condition.

The
Corporation's and the Bank's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The
risk-based guidelines are based on the assignment of risk weights to assets and off-balance sheet items depending on the level of credit risk associated with them. In addition
to minimum capital requirements, under the regulatory framework for prompt corrective action, regulatory agencies have specified certain ratios an institution must maintain to be considered
"undercapitalized," "adequately capitalized," and "well capitalized." Based solely on analysis of federal banking regulatory categories, as of December 31, 2010 and 2009, the Corporation and
the Bank both fall within the "well capitalized" categories under the applicable regulations.

The
Tennessee Department of Financial Institutions ("TDFI") and the Federal Deposit Insurance Corporation ("FDIC") performed a regularly scheduled examination of the Bank from
August 2, 2010 to September 3, 2010, and delivered its report to the Bank on March 17, 2011. As a result of the examination the Bank has been deemed to be in troubled condition on
March 17, 2011. Accordingly, the Bank and Corporation are now subject to certain restrictions and limitations, which include seeking prior regulatory written approval for the appointment of a
new director or senior executive officer, or any change in a current senior executive officer's responsibilities. Moreover, the Bank and the Corporation are subject to restrictions under the FDIC's
Golden Parachute and Indemnification Regulation, which generally preclude entering into and paying certain severance payments to directors and senior executive officers, without prior FDIC approval in
the case of the Bank and Federal Reserve Board, and FDIC approval in the case of the Corporation. In addition, the Bank is unable to bid on any failed banks from the FDIC.

Based
upon the Bank examination, the FDIC and TDFI have advised the Bank that each agency will be seeking formal enforcement actions. Management is currently in discussions with the FDIC
and TDFI and any consent enforcement agreements would be subject to negotiation before issuance. Based on the joint examination and these discussions to date, any enforcement action to which the Bank
may become subject could include, but would not be limited to, a varying degree of requirements, including, among other things, a requirement that the Bank increase its capital ratios, improve asset
quality, increase earnings, improve liquidity, improve sensitivity to market risk, alter our capital adequacy category, increase the level of our loan and lease loss allowance, dispose certain assets
and liabilities within a prescribed period of time or both, develop a strategic plan governing the Bank's future operations, address potential regulatory violations as well as management's performance
in addressing the foregoing perceived deficiencies.

Moreover,
as a result of certain criticisms, primarily of our allowance for loan and lease losses, the FDIC and TDFI have advised the Bank that its periodic reports to the regulators for
the quarters ended December 31, 2009, March 31, 2010 and June 30, 2010 (periods included in these financial statements) should be restated. Although the FDIC and TDFI focused on
these three reporting periods in the examination, we anticipate that any restatement could also include financial statements for the period ending September 30, 2010. Restatement of the Bank's
regulatory periodic reports likely will result in the

F-30

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 12REGULATORY MATTERS (Continued)

restatement
of the Corporation's financial statements for the quarters ended December 31, 2009, March 31, 2010 and June 30, 2010, and if the changes made are material on an annual
basis, for the years ended December 31, 2009 and 2010. We strongly disagree with many of the findings in the report of examination, especially the factors giving rise to the need to restate our
prior financial statements, primarily due to differences in our loan and lease loss impairment analysis. However, the changes that may be made in the restatement may be material in the quarter made
and may be material to the full year period in which the quarterly results are included. FDIC and TDFI have proposed an increase in our allowance for loan and lease losses of up to approximately
$16 million, an amount not recognized in these financial statements. We do not concur with this amount and our regulators have not provided us with their methodology. Accordingly, if ultimately
required, the increase to our allowance for loan and lease losses may differ from the amount our regulators are requiring. In accordance with established procedures of the FDIC and TDFI we plan to
vigorously appeal what we perceive to be the various inaccuracies contained in the report of examination, including the required impairment charges,. While we have 60-days to file an
appeal after the receipt of a material supervisory determination, we cannot predict the timing of a final regulatory determination or whether we will prevail.

The
Bank and the Corporation's capital amounts and ratios at December 31, 2010 and 2009 were as follows:

Actual

For Capital
Adequacy Purposes

To Be Well
Capitalized Under
Prompt Corrective
Action ProvisionsAmount

Ratio

Amount

Ratio

Amount

Ratio2010Total risk-basedBank

$
145,041


11.30
%
$
102,647


8.00
%
$
128,319


10.00
%Corporation

$
162,610


12.62
%
$
103,059


8.00
%
$
n/aTier 1 to risk-basedBank

$
128,936


10.05
%
$
51,324


4.00
%
$
76,991


6.00
%Corporation

$
146,441


11.37
%
$
51,529


4.00
%
$
n/aTier 1 leverageBank

$
128,936


8.80
%
$
58,619


4.00
%
$
73,273


5.00
%Corporation

$
146,441


9.94
%
$
58,952


4.00
%
$
n/a2009Total risk-basedBank

$
132,580


10.63
%
$
99,778


8.00
%
$
124,723


10.00
%Corporation

$
135,809


10.83
%
$
100,320


8.00
%
$
n/aTier 1 to risk-basedBank

$
116,934


9.37
%
$
49,918


4.00
%
$
74,878


6.00
%Corporation

$
120,078


9.57
%
$
50,269


4.00
%
$
n/aTier 1 leverageBank

$
116,934


8.74
%
$
53,517


4.00
%
$
66,896


5.00
%Corporation

$
120,078


8.93
%
$
53,186


4.00
%
$
n/a


F-31

---



Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13STOCK COMPENSATION

The purpose of the Equity Plan is to provide financial incentives for selected employees and non-employee directors, thereby promoting the long-term growth and
financial success of the Corporation by (a) attracting and retaining employees and non-employee directors of outstanding ability, (b) strengthening the Corporation's
capability to develop, maintain, and direct a competent management team, (c) providing an effective means for selected employees and non-employee directors to acquire and maintain
ownership of the Corporation's common stock, (d) motivating employees to achieve long-range performance goals and objectives, and (e) providing incentive compensation
opportunities competitive with peer financial institution holding companies. Unless earlier terminated by the Board, the Plan will terminate on the tenth anniversary of its effective date, or
June 8, 2017.

The
weighted-average fair value of stock options granted during 2010, 2009 and 2008 estimated using the Black-Scholes valuation model was $5.54, $2.57 and $4.45. The historical
volatility is the annualized standard deviation of the differences in the natural logarithms of the possible future stock price. The assumptions used to determine the fair value of options granted are
detailed in the table below.

2010

2009

2008Risk-free interest rate


2.13
%

0.30
%

3.27
%Expected option life


10 years


10 years


3.5 yearsDividend yield



%


%


%Volatility


63.00
%

45.00
%

20.00
%


A
summary of the activity related to stock options is as follows:

2010

2009

2008(Dollars in thousands except for per share price)

Number

Weighted-
Average
Exercise
Price

Number

Weighted-
Average
Exercise
Price

Number

Weighted-
Average
Exercise
PriceOutstanding at beginning of year


865,820

$
13.66


833,070

$
13.49


798,570

$
13.14Options granted


12,888


7.76


200,000


6.01


150,000


22.15Options exercised














(7,500
)

5.00Options forfeited or expired


(163,820
)

5.00


(167,250
)

6.90


(108,000
)

23.47Outstanding at end of year


714,888

$
15.53


865,820

$
13.66


833,070

$
13.49Options exercisable at December 31, 2010


595,200





700,620





669,470


In
June 2010, four non-executive members of the board of directors received options to purchase an aggregate of 12,888 shares of Corporation common stock, with an exercise
price of $7.76 and a fair value of $5.54.

At
December 31, 2010, options outstanding had a weighted average remaining contractual term of 4.63 years and an aggregate intrinsic value of $(7,614,000). At
December 31, 2010, options exercisable had a weighted average remaining contractual term of 4.03 years and an aggregate intrinsic value of $(6,273,000). During the years ended
December 31, 2010, 2009 and 2008, the aggregate intrinsic value of options exercised under the Corporation's stock option plans was $0, $0 and $136,275, respectively. Of the options to purchase
12,888 shares of common stock granted in 2010, none were forfeited and none vested, leaving 12,888 shares unvested as of December 31, 2010. The fair value of shares vested during 2010, 2009 and
2008 were approximately $276,000, $254,000 and $351,000, respectively.

F-32

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13STOCK COMPENSATION (Continued)

Stock-based
compensation expense totaled $425,000 in 2010, $335,000 in 2009 and $289,000 in 2008. Stock-based compensation expense is recognized ratably over the requisite service period
for all awards. Unrecognized stock-based compensation expense related to non-vested stock options and restricted common stock awards totaled $1,000,892 at December 31, 2010. At such
date, the weighted-average period over which this unrecognized expense was expected to be recognized was 15.7 years.

A
summary of the weighted average grant date fair value of options vested during 2010 is as follows:

Exercise Price

Outstanding at
January 1,
2010

Granted

Forfeited

Vested

Outstanding at
December 31, 2010

Fair Value
Price$  7.50
















$
10.50

















16.00

















25.00


60,000








30,000


30,000


5.7521.00

















22.15


55,200








18,400


36,800


4.456.50


50,000








10,000


40,000


2.13$  7.76





12,888








12,888

$
5.54165,200


12,888





58,400


119,688Weighted average fair value

$
4.62

$
5.54

$


$
4.72

$
4.12


Options
outstanding at year-end 2010 were as follows:

Outstanding

ExercisableExercise Price

Number

Weighted
Average
Remaining
Contractual
Life (years)

Number

Weighted
Average
Exercise
Price$  7.50


95,000


2.10


95,000

$
7.5010.50


211,000


2.64


211,000


10.5016.00


44,000


4.47


44,000


16.0025.00


150,000


6.46


120,000


6.4621.00


60,000


3.06


60,000


3.0622.15


92,000


7.03


55,200


22.156.50


50,000


8.39


10,000


6.50$  7.76


12,888


9.39





Outstanding at year-end


714,888





595,200

$
15.42


F-33

---



Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 13STOCK COMPENSATION (Continued)

A
summary of the activity related to restricted stock awards during 2010 is as follows:

NumberShares of restricted stock outstanding at December 31, 2009


8,063Shares of restricted stock granted


160,760Restrictions lapsed and shares issued


(2,016
)Shares of restricted stock forfeited or expired


Shares of restricted stock outstanding at December 31, 2010


166,807Shares of restricted stock outstanding and expected to vest at December 31, 2010


166,807


In
June 2010, three members of the board of directors received an aggregate of 9,665 shares of restricted stock expensed as if subject to a 12 month vesting period. Each of the
remaining five directors received options to purchase 3,222 shares of Corporation common stock, with an exercise price of $7.76.

In
June 2010, the seven executive officers received an aggregate of 151,095 shares of restricted stock expensed as if subject to a five-year vesting period, with an exercise
price of $7.76.

NOTE 14FAIR VALUES OF FINANCIAL INSTRUMENTS

The methods and assumptions used to estimate fair value are described as follows:

FASB
ASC 820 requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and
reported at fair value on a recurring basis or nonrecurring basis. A detailed description of the valuation methodologies used in estimating the fair value of financial instruments is set forth in the
Corporation's Annual Report on Form 10-K for the year ended December 31, 2010.

Carrying
amount is the estimated fair value for cash and due from financial institutions, federal funds sold and purchased, accrued interest receivable and payable, demand deposits and
variable rate loans or deposits that reprice frequently and fully. Security fair values are based on market prices or dealer quotes, and if no such information is available, on the rate and term of
the security and information about the issue. For fixed rate loans or deposits and for variable rate loans or deposits with infrequent re-pricing or re-pricing limits, fair
value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. The fair value of the subordinated long term debt is based on discounted cash flows
using current market rates applied to the estimated life of the debt. Other assets and accrued liabilities are carried at fair value. The fair value of off-balance-sheet loan commitments
is considered nominal.

F-34

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

The estimated fair values of the Bank's financial instruments at December 31, 2010 and 2009 were as follows:

2010

2009(Dollars in thousands)

Carrying
Amount

Estimated Fair
Value

Carrying
Amount

Estimated Fair
ValueFinancial assets:Cash and due from banks

$
6,521

$
6,521

$
22,864

$
22,864Federal funds sold


14,214


14,214


15,010


15,010Securities


127,650


127,650


93,668


93,668Loans, net


1,208,348


1,283,461


1,151,388


1,250,425Accrued interest receivable


8,746


8,746


9,711


9,711Income tax receivable


418


418


68


68Bank-owned life insurance


27,969


27,969


25,673


25,673Restricted equity securities


2,459


2,459


2,169


2,169Financial liabilities:Deposits


1,299,051


1,320,721


1,242,542


1,263,535Accrued interest payable


1,408


1,408


1,430


1,430Accrued dividend payable


187


187


187


187Short-term borrowings








14,000


14,000Long-term subordinated debt and other borrowings


25,421


27,713


23,198


23,175


The
Bank has an established process for determining fair values of the financial instruments, in accordance with FASB ASC 820. Fair value is based upon quoted market prices, where
available. If listed prices or quotes are not available, fair value is based upon internally developed models or processes that use primarily market-based or independently-sourced market data,
including interest rate yield curves, option volatilities and third party information. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These
adjustments include amounts to reflect counterparty credit quality (for financial assets reflected at fair value), the Bank's creditworthiness (for financial liabilities reflected at fair value),
liquidity and other unobservable parameters that are applied consistently over time as follows:



F-35

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

The
methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while management
believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial
instruments could result in a different estimate of fair value at the reporting date.

Valuation Hierarchy

FASB ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based
upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:



A
financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Below is a description
of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Assets

Securities Available for SaleAvailable-for-sale securities are recorded at fair value on a recurring basis. Where quoted
prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include highly liquid government bonds, federal funds
sold and certain other products. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, securities would generally be classified within Level 2,
and fair value would be determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the
specific securities but relying on the securities' relationship to other benchmark quoted securities. In certain cases where there is limited activity or less transparency around inputs to the
valuation, securities are classified within Level 3 of the valuation hierarchy. For the 12 months ended December 31, 2010, all of the Bank's
available-for-sale securities were valued using matrix pricing and were classified within Level 2 of the valuation hierarchy with the exception of other securities,
which are classified within Level 3 of the valuation hierarchy.

Servicing AssetsAll separately recognized servicing assets and servicing liabilities are initially measured at fair value. Subsequent measurement
methods include the amortization method, whereby servicing assets or servicing liabilities are amortized over the period of estimated net servicing income or net servicing loss, or the fair value
method, whereby servicing assets or servicing liabilities are measured at fair value at each reporting date and changes in fair value are reported in earnings in the period in which they occur.
Because of the unique nature of the Bank's servicing assets, quoted market prices may not be

F-36

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

available.
If no quoted market prices are available, the amortization method is used. The Bank assesses servicing assets or servicing liabilities for impairment or increased obligation based on the
fair value at each reporting date. At December 31, 2010, the Bank had servicing assets measured at fair value on a recurring basis classified within Level 3 of the valuation hierarchy.

Interest-Only StripsWhen the Bank sells loans to others, it may hold interest-only strips, which is an interest that
continues to be held by the transferor in the securitized receivable. It may also retain servicing assets or assume servicing liabilities that are initially measured at fair value. Gain or loss on
sale of the receivables depends in part on both (a) the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the interests that
continue to be held by the transferor based on their relative fair value at the date of transfer, and (b) the proceeds received. To obtain fair values, quoted market prices are used if
available. Quotes are generally not available for interests that continue to be held by the transferor, so the Bank generally estimates fair value based on the future expected cash flows estimated
using management's best estimates of the key assumptionscredit losses and discount rates commensurate with the risks involved. At December 31, 2010, the Bank had
interest-only strips measured at fair value on a recurring basis classified within Level 3 of the valuation hierarchy.

Impaired LoansA loan is considered to be impaired when it is probable the Bank will be unable to collect all principal and interest payments due in
accordance with the contractual terms of the loan agreement. Individually identified impaired loans are measured based on the present value of expected payments using the loan's original effective
rate as the discount rate, the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. If the recorded investment in the impaired loan exceeds the
measure of fair value, a valuation allowance may be established as a component of the allowance for loan losses. At December 31, 2010, the Bank had impaired loans measured on a nonrecurring
basis classified within Level 3 of the valuation hierarchy.

Repossessions and Other Real Estate OwnedIncluded are certain assets carried at fair
value, including repossessions and other real estate owned ("OREO"). The carrying amount is based on an observable market price or appraisal value. The Bank reflects these assets within Level 3
of the valuation hierarchy. At December 31, 2010, the Bank had repossessions and OREO measured at fair value on a nonrecurring basis classified within Level 3 of the valuation hierarchy.

Bank-Owned Life InsuranceThe Bank includes bank-owned life insurance ("BOLI"), carried at cash surrender value. The cash
surrender value of bank owned life insurance is based on information received from the insurance carriers indicating the financial performance of the policies and the amount the Bank would receive
should the policies be surrendered. At December 31, 2010, the Bank had BOLI measured at fair value on a recurring basis classified within Level 3 of the valuation hierarchy.

Liabilities

Recourse ObligationsThe maximum extent of the Bank's recourse obligations on loans transferred is 10% of the amount transferred adjusted for any
early payoffs or terminations, based on the Bank's payment history on loans of the type transferred. At December 31, 2010, the Bank had recourse obligations measured at fair value on a
recurring basis classified within Level 3 of the valuation hierarchy.

F-37

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

The
FASB updated ASC 820 to include disclosure requirements surrounding transfers of assets and liabilities in and out of Levels 1 and 2. Previous guidance only required transfer
disclosures for Level 3 assets and liabilities. The Bank monitors the valuation technique utilized by various pricing agencies, in the case of the bond portfolio to ascertain when transfers
between levels have been affected. The nature of the remaining assets and liabilities is such that transfers in and out of any level are expected to be rare. After further review of the inputs, for
the twelve months ended December 31, 2010, it was determined that these investments were more appropriately classified as Level 3. The new standard also requires an increased level of
disaggregation with asset/liability classes. The Bank has disaggregated other assets and liabilities as shown to comply with the requirements of this standard.

The
following table presents the financial instruments carried at fair value as of December 31, 2010, by caption on the consolidated balance sheets and by FASB ASC 820 valuation
hierarchy (as described above) (dollars in thousands):

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2010

(Dollars in thousands)

Total
carrying
value in the
consolidated
balance
sheet

Quoted
market
prices in an
active
market
(Level 1)

Internal
models with
significant
observable
market
parameters
(Level 2)

Internal
models with
significant
unobservable
market
parameters
(Level 3)Securities available for saleU.S. Government agencies

$
58,472

$


$
58,472

$
U.S. Treasuries


20,495





20,495


Municipal bonds


8,232





8,232


Corporate debt securities


34,651





34,651


Other


5,800








5,800Servicing assets


107








107Interest-only strips


1,488








1,488Bank-owned life insurance


27,969








27,969Total assets at fair value

$
157,214

$


$
121,850

$
35,364Recourse obligations

$
190

$


$


$
190Total liabilities at fair value

$
190

$


$


$
190


The
Corporation may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with generally accepted accounting principles. These
include assets that are measured at the lower of cost or market that were recognized at fair value below the cost at the end of the period. The following table presents the financial instruments
carried at fair value as of December 31,

F-38

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 14FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)

2010,
by caption on the consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above) (dollars in thousands):

Assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2010

(Dollars in thousands)

Total
carrying
value in the
consolidated
balance
sheet

Quoted
market
prices in an
active
market
(Level 1)

Internal
models with
significant
observable
market
parameters
(Level 2)

Internal
models with
significant
unobservable
market
parameters
(Level 3)Impaired loans

$
87,703

$


$


$
87,703Repossessions and Other Real Estate Owned


33,523








33,523Total assets at fair value

$
121,226

$


$


$
121,226


Changes in Level 3 Fair Value Measurements

The table below includes a roll-forward of the balance sheet amounts for 2010 (including the change in fair value) for
financial instruments classified by the Bank within Level 3 of the valuation hierarchy for assets and liabilities measured at fair value on a recurring basis. When a determination is made to
classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement.
Because Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and
can be validated to external sources), the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology.

Twelve months ended December 31, 2010

Assets

LiabilitiesFair value, January 1, 2010

$
28,549

$
317Total realized and unrealized (losses) gains included in income


(2,019
)

44Purchases, issuances and settlements, net


3,034


(171
)Transfers in and/or out of Level 3


5,800


Fair value, December 31, 2010

$
35,364

$
190Total unrealized gains included in income related to financial assets and liabilities still on the consolidated balance sheet at December 31,
2010

$


$



NOTE 15EMPLOYMENT AGREEMENTS

The Bank has entered into employment agreements with three executive officers that have a term of two years and are automatically renewable each day during their term for one additional
day so that the term of each is always two years, unless and until either the Bank or the executive provides notice of its intent not to renew. In the event of a change in control of the Bank, each
executive would be entitled to receive a lump sum payment equal to one dollar ($1) less than the amount that would constitute an "excess parachute payment," as defined in Section 280G of the
Internal Revenue Code.

F-39

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 16CAPITAL STOCK

The Corporation's charter authorizes 1,000,000 shares of preferred stock. Shares of the preferred stock may be issued from time to time in one or more series, each such series to be so
designated as to
distinguish the shares from the shares of all other series and classes. The Board of Directors has the authority to divide any or all classes of preferred stock into series and to fix and determine
the relative rights and preferences of the shares of any series so established.

Series A Preferred Stock and WarrantOn October 3, 2008, the Emergency Economic Stabilization Act of 2008 was enacted. On
October 14, 2008, the U.S. Department of the Treasury ("Treasury") announced its intention to inject capital into nine large U.S. financial institutions under the Troubled Asset Relief Program
Capital Purchase Program ("CPP") and since has injected capital into many other financial institutions. On December 19, 2008, the Corporation entered into a Letter Agreement with Treasury
pursuant to which, among other things, the Corporation sold to Treasury for an aggregate purchase price of $30 million, 30,000 shares of Series A Preferred Stock, par value $0.50, and a
warrant to purchase up to 461,538 shares of common stock (the "Warrant"), of the Corporation. As a condition under the CPP, the Corporation's share repurchases are currently limited to purchases in
connection with the administration of any employee benefit plan, consistent with past practices, including purchases to offset share dilution in connection with any such plans. This restriction is
effective until December 19, 2011, or until Treasury no longer owns any of the Series A Preferred Stock.

The
Series A Preferred Stock ranks senior to the Corporation's common shares. The Series A Preferred Stock pays a compounding cumulative dividend, in cash, at a rate of 5%
per annum for the first five years, and 9% per annum thereafter on the liquidation preference of $1,000 per share. The Corporation is prohibited from paying any dividend with respect to shares of
common stock, other junior securities or preferred stock rankingpari passuwith the Series A Preferred Stock or repurchasing or redeeming any
shares of the Corporation's common shares, other junior securities or preferred stock rankingpari passuwith the Series A Preferred Stock in any
quarter unless all accrued and unpaid dividends are paid on the Series A Preferred Stock for all past dividend periods (including the latest completed dividend period), subject to certain
limited exceptions. The Series A Preferred Stock is non-voting, other than class voting rights on matters that could adversely affect the Series A Preferred Stock. The
Series A Preferred Stock is callable at par after three years. Prior to the end of three years, the Series A Preferred Stock may be redeemed with the proceeds from one or more qualified
equity offerings of any Tier 1 perpetual preferred or common stock (each a "Qualified Equity Offering"). Treasury may also transfer the Series A Preferred Stock to a third party at any
time.

In
addition, the terms of the Series A Preferred Stock include a restriction against increasing the Corporation's common stock dividends from levels at the time of the initial
investment by Treasury and prevent the Corporation from redeeming, purchasing or otherwise acquiring its common stock other than for certain stated exceptions. Historically, the Corporation has paid
no dividends on its common stock. Therefore, the Corporation would have to seek Treasury's consent to pay any dividends on shares of Corporation common stock. These restrictions will terminate on the
earlier of the third anniversary of the date of issuance of the Series A Preferred Stock to Treasury and the date on which the Series A Preferred Stock issued to Treasury has been
redeemed in whole or Treasury has transferred all of its Series A Preferred Stock to third parties. In addition, the Corporation will be unable to declare or pay dividends or distributions on,
or repurchase, redeem or otherwise acquire for consideration, shares of its common stock or other stock ranking junior to, or in parity with, the Series A Preferred Stock if the Corporation
fails to

F-40

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 16CAPITAL STOCK (Continued)

declare
and pay full dividends (or declare and set aside a sum sufficient for payment thereof) on its Series A Preferred Stock.

The
Series A Preferred Stock qualifies as Tier 1 capital in accordance with regulatory capital requirements.

WarrantThe Warrant has a term of ten years and is exercisable at any time, in whole or in part, at an exercise price of $9.75 per share (subject to
certain anti-dilution adjustments). Based on the Black-Scholes options pricing model, the Warrant has been assigned a fair value of $1.2 million in the aggregate, as of
December 19, 2008.

Stock IssuanceEffective as of August 11, 2010, the Corporation sold 6,546,500 shares of Corporation common stock priced at $4.00 per share,
which include, 796,500 shares of common stock issued upon partial exercise of the underwriters' at a share over-allotment option. Macquarie Capital (USA) Inc. served as sole book
running manager and Sterne, Agee & Leach, Inc., FIG Partners, LLC and Odeon Capital Group LLC served as co-managers for the offering. The net proceeds of the
public underwritten offering to the Corporation were approximately $23.9 million.

NOTE 17PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of the Corporation follows:

CONDENSED BALANCE SHEETS

December 31,(Dollars in thousands)

2010

2009ASSETSCash and cash equivalents

$
7,415

$
3,873Investment in banking subsidiary


130,425


122,279Other


4,901


3,591Total assets

$
142,741

$
129,743LIABILITIES AND EQUITYInterest payable

$
6

$
66Dividend payable


187


187Other short-term payables


13


10,000Subordinated long-term debt


23,198


23,198Shareholders' equity


119,337


96,292Total liabilities and shareholders' equity

$
142,741

$
129,743


F-41

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 17PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)

CONDENSED STATEMENTS OF INCOME

Years ended December 31,(Dollars in thousands)

2010

2009

2008Dividend and interest income

$
37

$
43

$
69Management fee


843


698


Interest expense


(1,505
)

(1,890
)

(1,487
)Non-interest expense


(2,658
)

(1,998
)

(2,508
)Loss before income taxes


(3,283
)

(3,147
)

(3,926
)Income tax benefit


1,264


1,212


1,388Equity in undistributed subsidiary income (loss)


5,463


(3,643
)

10,292Net income (loss)


3,444


(5,578
)

7,754Preferred dividends


(1,500
)

(1,546
)

Net income (loss) available to common shareholders

$
1,944

$
(7,124
)
$
7,754


F-42

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 17PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

Years ended December 31,(Dollars in thousands)

2010

2009

2008Cash flows from operating activitiesNet income (loss)

$
3,444

$
(5,578
)
$
7,754Adjustments:Change in other assets and liabilities


(1,357
)

(1,018
)

(8,677
)Equity in undistributed subsidiary income


(5,463
)

3,643


(10,292
)Stock option expense


425


335


289Proceeds from dividend paid by subsidiary





1,000


Net cash used by operating activities


(2,951
)

(1,618
)

(10,926
)Cash flows from investing activitiesInvestments in subsidiaries


(6,000
)

(14,000
)

(20,303
)Net cash used by investing activities


(6,000
)

(14,000
)

(20,303
)Cash flows from financing activitiesPayments on short-term debt


(10,000
)




Proceeds from long-term subordinated debt








14,950Proceeds from issuance of common stock


23,900


3,338


Preferred stock dividend


(1,500
)

(1,359
)

Warrant accretion expense


93


85


Purchase of capital securities of unconsolidated subsidiary








(450
)Proceeds from issuance of preferred stock and common stock warrant








30,000Proceeds from exercise of stock options and excess tax benefit








379Proceeds from issuance of short-term debt








3,000Net cash provided by financing activities


12,493


2,064


47,879Net change in cash and cash equivalents


3,542


(13,554
)

16,650Beginning cash and cash equivalents


3,873


17,427


777Ending cash and cash equivalents

$
7,415

$
3,873

$
17,427


F-43

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 18EARNINGS PER SHARE

The factors used in the earnings per share computation follow:

(Dollars in thousands, except per share data)

2010

2009

2008BasicNet income (loss) available to common shareholders

$
1,944

$
(7,124
)
$
7,754Weighted average common shares outstanding


8,212,929


4,738,638


4,731,204Basic earnings (loss) per common share


0.24


(1.50
)

1.64DilutedNet income (loss) available to common shareholders

$
1,944

$
(7,124
)
$
7,754Weighted average common shares outstanding for basic earnings per common share


8,212,929


4,738,638


4,731,204Add: Dilutive effects of assumed exercises of stock options(1)








120,861Average shares and dilutive potential common shares


8,212,929


4,738,638


4,852,065Diluted earnings (loss) per common share

$
0.24

$
(1.50
)
$
1.60


(1)For
2008, vested options to purchase 439,250 shares of Corporation stock and warrants to purchase 461,538 shares of Corporation common stock were
anti-dilutive. For 2009 and 2010, all vested options and all warrants were anti-dilutive because the exercise prices thereof exceeded the fair market value of the Corporation's
common stock at both December 31, 2009 and 2010.


NOTE 19TRUST PREFERRED SECURITIES

In March 2005, the Corporation formed a financing subsidiary, Tennessee Commerce Statutory Trust I, a Delaware statutory trust ("Trust I"). In March 2005, Trust I issued and sold 8,000
of Trust I's fixed/floating rate capital securities, with a liquidation amount of $1,000 per capital security, to First Tennessee Bank National Association. The securities pay a fixed rate of 6.73%
payable quarterly for the first five years and a floating rate based on a three-month LIBOR rate plus 1.98% thereafter. At the same time, the Corporation issued to Trust I $8,248,000 of fixed/floating
rate junior subordinated deferrable interest debentures due 2035. The Corporation guarantees the payment of distributions and payments for redemptions or liquidation of the capital securities. The
trust preferred securities qualify as "Tier I Capital" under current regulatory definitions subject to certain limitations.

The
debentures pay a fixed rate of 6.73% payable quarterly for the first five years and a floating rate based on a three-month LIBOR rate plus 1.98% thereafter. The distributions on the
capital securities are accounted for as interest expense by the Corporation. Interest payments on the debentures and the corresponding distributions on the capital securities may be deferred at any
time at the election of the Corporation for up to 20 consecutive quarterly periods (five years). The capital securities and debentures are redeemable at any time commencing after June 2010 at par. The
Corporation reports as liabilities the subordinated debentures issued by the Corporation and held by Trust I.

In
June 2008, Tennessee Commerce Statutory Trust II, a Delaware statutory trust ("Trust II"), issued and sold 14,500 of its floating rate capital securities, with a liquidation amount of
$1,000 per capital security, in a private placement. The securities pay a floating rate per annum, reset quarterly, equal to the prime rate of interest published inThe Wall
Street Journalon the first business day of each distribution

F-44

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Table of Contents

TENNESSEE COMMERCE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 19TRUST PREFERRED SECURITIES (Continued)

period
plus 50 basis points (but in no event greater than 8.0% or less than 5.75%). At the same time, the Corporation issued to Trust II $14.95 million of floating rate junior subordinated
deferrable interest debentures due 2038. The Corporation guarantees the payment of distributions and payments for
redemptions or liquidation of the capital securities. The floating rate capital securities qualify as "Tier I Capital" for the Corporation under current regulatory definitions subject to
certain limitations.

The
debentures pay a floating rate per annum, reset quarterly, equal to the prime rate of interest published inThe Wall Street Journalon
the first business day of each distribution period plus 50 basis points (but in no event greater than 8.0% or less than 5.75%). The distributions on the capital securities are accounted for as
interest expense by the Corporation. Interest payments on the debentures and the corresponding distributions on the capital securities may be deferred at any time at the election of the Corporation
for up to 20 consecutive quarterly periods (five years). The capital securities and debentures are redeemable at any time commencing after June 2013 at par. The Corporation reports as liabilities the
subordinated debentures issued by the Corporation and held by Trust II.

NOTE 20QUARTERLY FINANCIAL RESULTS (UNAUDITED)

A summary of selected consolidated quarterly financial data for the years ended December 31, 2010 and 2009 follows:

(In thousands except share data)

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter2010Interest income

$
20,503

$
20,617

$
19,511

$
20,747Net interest income


13,249


13,343


12,333


13,580Provision for loan losses


4,600


4,450


7,193


3,768Income (loss) before taxes


2,827


3,076


(1,884
)

1,193Net income (loss)


1,729


1,886


(1,099
)

928Preferred dividends


(375
)

(375
)

(375
)

(375
)Net income (loss) available to common shareholders


1,354


1,511


(1,474
)

553Basic earnings (loss) per share

$
0.24

$
0.27

$
(0.16
)
$
0.05Diluted earnings (loss) per share

$
0.24

$
0.26

$
(0.16
)
$
0.052009Interest income

$
19,456

$
19,907

$
20,642

$
21,103Net interest income


9,840


10,451


11,424


13,201Provision for loan losses


8,514


13,125


5,250


4,150(Loss) income before taxes


(3,580
)

(10,620
)

2,508


2,707Net (loss) income


(2,216
)

(6,549
)

1,536


1,651Preferred dividends


(444
)

(352
)

(375
)

(375
)Net (loss) income available to common shareholders


(2,660
)

(6,901
)

1,161


1,276Basic (loss) earnings per share

$
(0.56
)
$
(1.46
)
$
0.25

$
0.27Diluted (loss) earnings per share

$
(0.56
)
$
(1.46
)
$
0.25

$
0.27


F-45

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Table of Contents

INDEX TO EXHIBITS

Exhibit No.

Description3.1

Charter of Tennessee Commerce Bancorp, Inc., as amended(1)3.2

Bylaws of Tennessee Commerce Bancorp, Inc.(2)3.3

Amendment to Bylaws of Tennessee Commerce Bancorp, Inc.(3)4.1

Form of Stock Certificate(4)4.2

Indenture, dated as of June 20, 2008, between Tennessee Commerce Bancorp, Inc. and Wilmington Trust Company, as trustee(5)4.3

Amended and Restated Declaration of Trust, dated as of June 20, 2008, among Tennessee Commerce Bancorp, Inc. , as sponsor,
Wilmington Trust Company, as institutional and Delaware trustee, and Arthur F. Helf, H. Lamar Cox and Michael R. Sapp, as administrators(5)4.4

Guarantee Agreement, dated as of June 20, 2008, between Tennessee Commerce Bancorp, Inc. and Wilmington Trust Company(5)4.5

Form of Certificate of Series A Preferred Stock(6)4.6

Warrant for Purchase of Shares of Common Stock, dated December 19, 2008(6)10.1

Tennessee Commerce Bancorp, Inc. Stock Option PlanEmployees(2)(13)10.2

Form of Tennessee Commerce Bancorp, Inc. 1999 Stock OptionDirectors(2)(13)10.3

Form of Tennessee Commerce Bancorp, Inc. 1999 Stock OptionIncorporators(2)(13)10.4

Form of Tennessee Commerce Bancorp, Inc. 2003 Stock OptionDirectors(2)(13)10.5

Tennessee Commerce Bancorp, Inc. 1999 Stock Option Agreement with Arthur F. Helf(2)(13)10.6

Tennessee Commerce Bancorp, Inc. 1999 Stock Option Agreement with Michael R. Sapp(2)(13)10.7

Tennessee Commerce Bancorp, Inc. 1999 Stock Option Agreement with H. Lamar Cox(2)(13)10.8

Amended and Restated Employment Agreement, dated as of May 19, 2009, between Tennessee Commerce Bank and Michael R. Sapp(7)(13)10.9

Amended and Restated Employment Agreement, dated as of May 19, 2009, between Tennessee Commerce Bank and H. Lamar Cox(7)(13)10.10

Offer of Employment, dated as of August 5, 2008, between Tennessee Commerce Bancorp, Inc. and Frank Perez(8)(13)10.11

Tennessee Commerce Bancorp, Inc. 2007 Equity Plan(9)(13)10.12

Amendment to the Tennessee Commerce Bancorp, Inc. 2007 Equity Plan(10)(13)10.13

Letter Agreement, dated as of December 19, 2008, between the United States Department of the Treasury and Tennessee Commerce Bancorp,
 Inc.(6)(13)10.14

Form of Split Dollar Agreement, dated as of May 19, 2009, by and among Tennessee Commerce Bancorp, Inc., Tennessee Commerce Bank and
each of Arthur F. Helf, Michael R. Sapp and H. Lamar Cox.(7)(13)10.15

Form of Salary Continuation Plan, dated as of May 19, 2009, by and among Tennessee Commerce Bancorp, Inc., Tennessee Commerce Bank
and each of Michael R. Sapp and H. Lamar Cox.(7)(13)10.16

Form of Consulting and Non-Competition Agreement, dated as of May 19, 2009, by and among Tennessee Commerce Bancorp, Inc., Tennessee
Commerce Bank and each of Arthur F. Helf and H. Lamar Cox.(7)(13)


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Table of Contents

Exhibit No.

Description10.17

Amendment to freeze benefit accruals under the Salary Continuation Plan, dated as of December 31, 2010, by and among Tennessee Commerce
Bancorp, Inc., Tennessee Commerce Bank and Michael R. Sapp.(11)(13)10.18

Supplemental Salary Continuation Plan, dated as of December 31, 2010, by and among Tennessee Commerce Bancorp, Inc., Tennessee
Commerce Bank and Michael R. Sapp.(11)(13)10.19

Tennessee Commerce Bancorp, Inc. Deferred Compensation Plan(12)(13)21.1

Subsidiaries23.1

Consent of Independent Registered Public Accounting Firm*31.1

Certification of Chief Executive Officer of Tennessee Commerce Bancorp, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of
2002*31.2

Certification of Chief Financial Officer of Tennessee Commerce Bancorp, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of
2002*32.1

Certification of Chief Executive Officer of Tennessee Commerce Bancorp, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*32.2

Certification of Chief Financial Officer of Tennessee Commerce Bancorp, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*99.1

Certification pursuant to Section 111 (b) (4) of the Emergency Economic Stabilization Act of 2008 as amended by the American
Recovery and Reinvestment Act of 2009*99.2

Certification pursuant to Section 111 (b) (4) of the Emergency Economic Stabilization Act of 2008 as amended by the American
Recovery and Reinvestment Act of 2009*


(1)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Quarterly Report on Form 10-Q, as filed with the Securities
and Exchange Commission on November 6, 2009 and incorporated herein by reference.(2)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Registration Statement on Form 10, as filed with the Securities and
Exchange Commission on April 29, 2005 and incorporated herein by reference.(3)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on February 5, 2008 and incorporated herein by reference.(4)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Registration Statement on Form S-8, as filed with the
Securities and Exchange Commission on December 31, 2007 (Registration No. 333-148415), and incorporated herein by reference.(5)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on June 23, 2008 and incorporated herein by reference.(6)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on December 23, 2008 and incorporated herein by reference.(7)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on May 26, 2009, and incorporated herein by reference.(8)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on August 5, 2008 and incorporated herein by reference.


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Table of Contents

(9)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Quarterly Report on Form 10-Q, as filed with the Securities
and Exchange Commission on August 14, 2007 and incorporated herein by reference.(10)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Quarterly Report on Form 10-Q, as filed with the Securities
and Exchange Commission on August 12, 2010 and incorporated herein by reference.(11)Previously
filed as an exhibit to Tennessee Commerce Bancorp, Inc.'s Registration Statement on Form 8-k, as filed with the
Securities and Exchange Commission on January 6, 2011 and incorporated herein by reference.(12)Previously
filed as am exhibit to Tennessee Commerce Bancorp, Inc.'s Current Report on Form 8-K, as filed with the Securities and
Exchange Commission on July 26, 2010 and incorporated herein by reference.(13)Compensatory
plans or arrangements*Filed
herewith.


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