Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C.  20549**

 

**FORM 10-Q**

** **

**(MarkOne)**

 

| **x** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**Forthe quarterly period ended March 31, 2010**

 

**OR**

 

| **o** | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**Forthe transition period from                    to                     **

 

**CommissionFile Number 000-51281**

 

**TENNESSEECOMMERCE BANCORP, INC.**

(Exact name ofregistrant as specified in its charter)

 

| **Tennessee**                                                          | ** ** | **62-1815881**       |
|------------------------------------------------------------------------|------------|----------------------|
| (State or other  jurisdiction                                          |       | (I.R.S. Employer     |
| of incorporation  or organization)                                     |       | Identification  No.) |
|                                                                   |       |                 |
| **381  Mallory Station Road, Suite 207 Franklin,**

**Tennessee** | ** ** | **37067**            |
| (Address of  principal executive offices)                              |       | (Zip Code)           |

 

**(615) 599-2274**

(Registrant’stelephone number, including area code)

 

**NotApplicable**

(Former name,former address and former fiscal year if changed since last report)

 

Indicate by check markwhether registrant (1) has filed reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes    x   No    o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or such shorter period that the registrant wasrequired to submit and post such files).  Yes    o  No    o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one):

 
| Large  accelerated filer o                     |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer x                       |   | Smaller  reporting company o |
| (Do not check if  a smaller reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes    o  No    x

 

As of May 6, 2010there were 5,648,384 shares of common stock, $0.50 par value per share, issuedand outstanding.

 

 

 

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Table of Contents

 

**TennesseeCommerce Bancorp, Inc.**

 

Table of Contents

 
| Part I  | Financial Information                                                                                                                |   |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------|--------|
|         |                                                                                                                                 |   |
| Item 1.      | Financial Statements                                                                                                                 |   |
|         |                                                                                                                                 |   |
|         | Consolidated  Balance Sheets at March 31, 2010 (unaudited) and December 31, 2009                                           | 3      |
|         |                                                                                                                                 |   |
|         | Consolidated  Statements of Income (unaudited) for the Three Months Ended March 31,  2010 and 2009                              | 4      |
|         |                                                                                                                                 |   |
|         | Consolidated Statements of Changes in Shareholders’ Equity  (unaudited) for the Three Months Ended March 31, 2010 and 2009 | 5      |
|         |                                                                                                                                 |   |
|         | Consolidated Statements of Cash Flows (unaudited) for  the Three Months Ended March 31, 2010 and 2009                           | 6      |
|         |                                                                                                                                 |   |
|         | Notes to Consolidated Financial Statements (unaudited)                                                                               | 7      |
|         |                                                                                                                                 |   |
| Item 2.      | Management’s Discussion and  Analysis of Financial Condition and Results of Operations                                          | 16     |
|         |                                                                                                                                 |   |
| Item 3.      | Quantitative  and Qualitative Disclosures About Market Risk                                                                          | 27     |
|         |                                                                                                                                 |   |
| Item 4.      | Controls and  Procedures                                                                                                             | 29     |
|         |                                                                                                                                 |   |
| Part II | Other Information                                                                                                                    | 30     |
|         |                                                                                                                                 |   |
| Item 1A.     | Risk Factors                                                                                                                         | 30     |
|         |                                                                                                                                 |   |
| Item 6.      | Exhibits                                                                                                                             | 30     |
|         |                                                                                                                                 |   |
| Signatures   |                                                                                                                                 | 31     |

 

2

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**PART I: FINANCIAL INFORMATION**

 

**ITEM1. FINANCIAL STATEMENTS.**

 

TENNESSEE COMMERCEBANCORP, INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31,2010 (UNAUDITED) AND DECEMBER 31, 2009

 
| ** **                                                                                                                                                                                                                                 | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(Dollars  in thousands, except share data)**                                                                                                                                                                                             | ** ** | **2010**           | ** ** | **2009 (1)**          | ** ** |
| **ASSETS**                                                                                                                                                                                                                                 |       |               |       |                  |       |
| Cash  and due from banks                                                                                                                                                                                                                   |       | $                  | 6,710      |                  | $          | 22,864 |   |
| Federal  funds sold                                                                                                                                                                                                                        |       | 9,710              |       | 15,010                |       |
| Cash  and cash equivalents                                                                                                                                                                                                                 |       | 16,420             |       | 37,874                |       |
|                                                                                                                                                                                                                                       |       |               |       |                  |       |
| Securities  available for sale                                                                                                                                                                                                             |       | 96,506             |       | 93,668                |       |
|                                                                                                                                                                                                                                       |       |               |       |                  |       |
| Loans                                                                                                                                                                                                                                      |       | 1,186,171          |       | 1,171,301             |       |
| Allowance  for loan losses                                                                                                                                                                                                                 |       | (20,110            | )          | (19,913               | )          |
| Net  loans                                                                                                                                                                                                                                 |       | 1,166,061          |       | 1,151,388             |       |
|                                                                                                                                                                                                                                       |       |               |       |                  |       |
| Premises  and equipment, net                                                                                                                                                                                                               |       | 2,058              |       | 1,967                 |       |
| Accrued  interest receivable                                                                                                                                                                                                               |       | 10,321             |       | 9,711                 |       |
| Restricted  equity securities                                                                                                                                                                                                              |       | 2,169              |       | 2,169                 |       |
| Bank-owned  life insurance                                                                                                                                                                                                                 |       | 25,860             |       | 25,673                |       |
| Other  assets                                                                                                                                                                                                                              |       | 63,456             |       | 60,982                |       |
| **Total assets**                                                                                                                                                                                                                           |       | $                  | 1,382,851  |                  | $          | 1,383,432 |   |
|                                                                                                                                                                                                                                       |       |               |       |                  |       |
| **LIABILITIES AND SHAREHOLDERS EQUITY**                                                                                                                                                                                                    |       |               |       |                  |       |
| Liabilities                                                                                                                                                                                                                                |       |               |       |                  |       |
| Deposits                                                                                                                                                                                                                                   |       |               |       |                  |       |
| Non-interest-bearing                                                                                                                                                                                                                       |       | $                  | 23,108     |                  | $          | 30,111 |   |
| Interest-bearing                                                                                                                                                                                                                           |       | 1,216,727          |       | 1,212,431             |       |
| **Total deposits**                                                                                                                                                                                                                         |       | 1,239,835          |       | 1,242,542             |       |
|                                                                                                                                                                                                                                       |       |               |       |                  |       |
| Accrued  interest payable                                                                                                                                                                                                                  |       | 1,558              |       | 1,430                 |       |
| Accrued  dividend payable                                                                                                                                                                                                                  |       | 188                |       | 187                   |       |
| Short-term  borrowings                                                                                                                                                                                                                     |       | 8,750              |       | 14,000                |       |
| Other  liabilities                                                                                                                                                                                                                         |       | 7,592              |       | 5,783                 |       |
| Long-term  subordinated debt and other borrowings                                                                                                                                                                                          |       | 26,521             |       | 23,198                |       |
| **Total liabilities**                                                                                                                                                                                                                      |       | 1,284,444          |       | 1,287,140             |       |
| Shareholders’  equity                                                                                                                                                                                                                 |       |               |       |                  |       |
| Preferred  stock, 1,000,000 shares authorized; 30,000 shares of $0.50 par value Fixed  Rate Cumulative Perpetual, Series A issued and outstanding at  March 31, 2010 and December 31, 2009                                  |       | 15,000             |       | 15,000                |       |
| Common  stock, $0.50 par value; 20,000,000 shares authorized at March 31, 2010  and at December 31, 2009; 5,648,384 and 5,646,368 shares issued and  outstanding at March 31, 2010 and December 31, 2009, respectively |       | 2,823              |       | 2,823                 |       |
| Common  stock warrant                                                                                                                                                                                                                      |       | 453                |       | 453                   |       |
| Additional  paid-in capital                                                                                                                                                                                                                |       | 63,368             |       | 63,247                |       |
| Retained  earnings                                                                                                                                                                                                                         |       | 17,410             |       | 16,056                |       |
| Accumulated  other comprehensive (loss) income                                                                                                                                                                                             |       | (647               | )          | (1,287                | )          |
| **Total shareholders’ equity**                                                                                                                                                                                                        |       | 98,407             |       | 96,292                |       |
|                                                                                                                                                                                                                                       |       |               |       |                  |       |
| **Total liabilities and shareholders’ equity**                                                                                                                                                                                        |       | $                  | 1,382,851  |                  | $          | 1,383,432 |   |

 

----

(1) The balancesheet at December 31, 2009 has been derived from the audited consolidatedfinancial statements at that date but does not include all of the informationand notes required by generally accepted accounting principles for completefinancial statements.

 

See accompanying notes toconsolidated financial statements.

 

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TENNESSEE COMMERCEBANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDEDMARCH 31, 2010 AND 2009

(UNAUDITED)

 
| ** **                                           | ** ** | **March 31,** | ** ** | **March 31,** | ** ** |
|------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| **(Dollars  in thousands except share data)**        | ** ** | **2010**           | ** ** | **2009**           | ** ** |
| Interest  income                                     |       |               |       |               |       |
| Loans,  including fees                               |       | $                  | 19,264     |               | $          | 17,896 |   |
| Securities                                           |       | 1,237              |       | 1,555              |       |
| Federal  funds sold                                  |       | 2                  |       | 5                  |       |
| **Total interest income**                            |       | 20,503             |       | 19,456             |       |
|                                                 |       |               |       |               |       |
| Interest  expense                                    |       |               |       |               |       |
| Deposits                                             |       | 6,721              |       | 9,129              |       |
| Other                                                |       | 533                |       | 487                |       |
| **Total interest expense**                           |       | 7,254              |       | 9,616              |       |
|                                                 |       |               |       |               |       |
| Net  interest income                                 |       | 13,249             |       | 9,840              |       |
|                                                 |       |               |       |               |       |
| Provision  for loan losses                           |       | 4,600              |       | 8,514              |       |
|                                                 |       |               |       |               |       |
| Net  interest income after provision for loan losses |       | 8,649              |       | 1,326              |       |
|                                                 |       |               |       |               |       |
| Non-interest  income                                 |       |               |       |               |       |
| Service  charges on deposit accounts                 |       | 27                 |       | 43                 |       |
| Securities  gains                                    |       | 419                |       | 418                |       |
| Loss  on sale of loans                               |       | —             |       | (360               | )          |
| Loss  on repossession                                |       | (1,085             | )          | (211               | )          |
| Other                                                |       | 1,326              |       | 137                |       |
| **Total non-interest income**                        |       | 687                |       | 27                 |       |
|                                                 |       |               |       |               |       |
| Non-interest  expense                                |       |               |       |               |       |
| Salaries  and employee benefits                      |       | 2,715              |       | 2,349              |       |
| Occupancy  and equipment                             |       | 477                |       | 410                |       |
| Data  processing fees                                |       | 534                |       | 304                |       |
| FDIC  expense                                        |       | 546                |       | 477                |       |
| Professional  fees                                   |       | 551                |       | 390                |       |
| Other                                                |       | 1,686              |       | 1,003              |       |
| **Total non-interest expense**                       |       | 6,509              |       | 4,933              |       |
|                                                 |       |               |       |               |       |
| Income  (loss) before income taxes                   |       | 2,827              |       | (3,580             | )          |
|                                                 |       |               |       |               |       |
| Income  tax expense (benefit)                        |       | 1,098              |       | (1,364             | )          |
| Net  income (loss)                                   |       | 1,729              |       | (2,216             | )          |
| Preferred  dividends                                 |       | (375               | )          | (444               | )          |
|                                                 |       |               |       |               |       |
| Net  income (loss) available to common shareholders  |       | $                  | 1,354      |               | $          | (2,660 | ) |
|                                                 |       |               |       |               |       |
| Earnings  (loss) per share (EPS):                    |       |               |       |               |       |
| Basic  EPS                                           |       | $                  | 0.24       |               | $          | (0.56 | ) |
| Diluted  EPS                                         |       | 0.24               |       | (0.56              | )          |
|                                                 |       |               |       |               |       |
| Weighted  average shares outstanding:                |       |               |       |               |       |
| Basic                                                |       | 5,647,379          |       | 4,731,696          |       |
| Diluted                                              |       | 5,700,753          |       | 4,731,696          |       |

 

See accompanying notes toconsolidated financial statements.

 

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TENNESSEE COMMERCEBANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’EQUITY

THREE MONTHS ENDEDMARCH 31, 2010 AND 2009

(UNAUDITED)

 
| ** **                                                                               | ** ** | ** **    | ** ** | ** ** | ** ** | **Warrants to** | ** ** | ** **     | ** ** | ** **   | ** ** | **Accumulated**   | ** ** | ** **       | ** ** |
|------------------------------------------------------------------------------------------|------------|---------------|------------|------------|------------|-----------------|------------|----------------|------------|--------------|------------|-------------------|------------|------------------|------------|
| ** **                                                                               | ** ** | ** **    | ** ** | ** ** | ** ** | **Purchase**    | ** ** | **Additional** | ** ** | ** **   | ** ** | **Other**         | ** ** | **Total**        | ** ** |
| ** **                                                                               | ** ** | **Preferred** | ** ** | **Common** | ** ** | **Common**      | ** ** | **Paid-In**    | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** | **Shareholders** | ** ** |
| **(Dollars  in thousands except share data)**                                            | ** ** | **Stock**     | ** ** | **Stock**  | ** ** | **Stock**       | ** ** | **Capital**    | ** ** | **Earnings** | ** ** | **Income (Loss)** | ** ** | **Equity**       | ** ** |
|                                                                                     |       |          |       |       |       |            |       |           |       |         |       |              |       |             |       |
| Balance at December 31, 2008                                                        |       | $             | 15,000     |       | $          | 2,366           |       | $              | 453        |         | $          | 59,946            |       | $                | 23,180     |   | $ | 802 |   | $ | 101,747 |   |
| Comprehensive income                                                                     |       |          |       |       |       |            |       |           |       |         |       |              |       |             |       |
| Net income                                                                               |       | —        |       | —     |       | —          |       | —         |       | (2,216       | )          | —            |       | (2,216           | )          |
| Other comprehensive income, net of income taxes                                          |       |          |       |       |       |            |       |           |       |         |       |              |       |             |       |
| Unrealized gains on securities available for sale  during the period, net of $366 in tax |       | —        |       | —     |       | —          |       | —         |       | —       |       | (1,136            | )          | (1,136           | )          |
| Common stock warrant accretion                                                           |       | —        |       | —     |       | —          |       | 23             |       | —       |       | —            |       | 23               |       |
| Preferred stock dividend                                                                 |       |          |       |       |       |            |       |           |       | (444         | )          |              |       | (444             | )          |
| Stock based compensation expense                                                         |       | —        |       | —     |       | —          |       | 68             |       | —       |       | —            |       | 68               |       |
|                                                                                     |       |          |       |       |       |            |       |           |       |         |       |              |       |             |       |
| Balance at March 31, 2009                                                           |       | $             | 15,000     |       | $          | 2,366           |       | $              | 453        |         | $          | 60,037            |       | $                | 20,520     |   | $ | (334 | ) | $ | 98,042 |   |
|                                                                                     |       |          |       |       |       |            |       |           |       |         |       |              |       |             |       |
| Balance at December 31, 2009                                                        |       | $             | 15,000     |       | $          | 2,823           |       | $              | 453        |         | $          | 63,247            |       | $                | 16,056     |   | $ | (1,287 | ) | $ | 96,292 |   |
| Comprehensive income                                                                     |       |          |       |       |       |            |       |           |       |         |       |              |       |             |       |
| Net income                                                                               |       | —        |       | —     |       | —          |       | —         |       | 1,729        |       | —            |       | 1,729            |       |
| Other comprehensive income, net of income taxes                                          |       |          |       |       |       |            |       |           |       |         |       |              |       |             |       |
| Unrealized gains on securities available for sale  during the period, net of $392 in tax |       | —        |       | —     |       | —          |       | —         |       | —       |       | 640               |       | 640              |       |
| Common stock warrant accretion                                                           |       | —        |       | —     |       | —          |       | 22             |       | —       |       | —            |       | 22               |       |
| Preferred stock dividend                                                                 |       |          |       |       |       |            |       |           |       | (375         | )          |              |       | (375             | )          |
| Stock based compensation expense                                                         |       | —        |       | —     |       | —          |       | 99             |       | —       |       | —            |       | 99               |       |
|                                                                                     |       |          |       |       |       |            |       |           |       |         |       |              |       |             |       |
| Balance at March 31, 2010                                                           |       | $             | 15,000     |       | $          | 2,823           |       | $              | 453        |         | $          | 63,368            |       | $                | 17,410     |   | $ | (647 | ) | $ | 98,407 |   |

 

See accompanying notes toconsolidated financial statements.

 

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TENNESSEE COMMERCEBANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDEDMARCH 31, 2010 AND 2009

(UNAUDITED)

 
| ** **                                                                               | ** ** | **March 31,** | ** ** | **March 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| **(Dollars  in thousands except share data)**                                            | ** ** | **2010**           | ** ** | **2009**           | ** ** |
|                                                                                     |       |               |       |               |       |
| **Cash flows from operating activities**                                                 |       |               |       |               |       |
| Net  income (loss)                                                                       |       | $                  | 1,729      |               | $          | (2,216 | ) |
| Adjustments  to reconcile net income (loss) to net cash provided by operating activities |       |               |       |               |       |
| Depreciation                                                                             |       | 127                |       | 122                |       |
| Deferred  loan fees                                                                      |       | 119                |       | 41                 |       |
| Provision  for loan losses                                                               |       | 4,600              |       | 8,514              |       |
| Stock-based  compensation expense                                                        |       | 99                 |       | 68                 |       |
| Net  amortization of investment securities                                               |       | 46                 |       | 22                 |       |
| Gain  on sales of securities                                                             |       | (419               | )          | (418               | )          |
| Increase  in cash surrender value of bank owned life insurance                           |       | (187               | )          | —             |       |
| Change  in:                                                                              |       |               |       |               |       |
| Accrued  interest receivable                                                             |       | (610               | )          | (574               | )          |
| Accrued  interest payable                                                                |       | 128                |       | (47                | )          |
| Other  assets                                                                            |       | 8,116              |       | (2,613             | )          |
| Other  liabilities                                                                       |       | 4,456              |       | (502               | )          |
| Net  cash provided by operating activities                                               |       | 18,204             |       | 2,397              |       |
|                                                                                     |       |               |       |               |       |
| **Cash flows from investing activities**                                                 |       |               |       |               |       |
| Purchases  of securities available for sale                                              |       | (20,395            | )          | (39,989            | )          |
| Proceeds  from sales of securities available for sale                                    |       | 9,279              |       | 19,428             |       |
| Proceeds  from maturities, prepayments and calls on securities available for sale        |       | 9,683              |       | 20,402             |       |
| Net  change in loans                                                                     |       | (30,374            | )          | (73,802            | )          |
| Purchases  of bank owned life insurance                                                  |       |               |       | (24,341            | )          |
| Purchases  of FHLB stock                                                                 |       | —             |       | (467               | )          |
| Net  purchases of premises and equipment                                                 |       | (218               | )          | (22                | )          |
| Net  cash used by investing activities                                                   |       | (32,025            | )          | (98,791            | )          |
|                                                                                     |       |               |       |               |       |
| **Cash flows from financing activities**                                                 |       |               |       |               |       |
| Net  change in deposits                                                                  |       | (2,707             | )          | 26,164             |       |
| Net  change in federal funds purchased and repurchase agreements                         |       | —             |       | 20,479             |       |
| Payments  on short-term debt                                                             |       | (1,250             | )          | —             |       |
| Payments  on long-term debt                                                              |       | (3,323             | )          | —             |       |
| Proceeds  from long-term subordinated debt                                               |       | —             |       | 15,153             |       |
| Preferred  stock dividends                                                               |       | (375               | )          | (421               | )          |
| Warrant  accretion expense                                                               |       | 22                 |       | —             |       |
| Net  cash provided by (used by) financing activities                                     |       | (7,633             | )          | 61,375             |       |
|                                                                                     |       |               |       |               |       |
| Net  change in cash and cash equivalents                                                 |       | (21,454            | )          | (35,019            | )          |
|                                                                                     |       |               |       |               |       |
| Cash  and cash equivalents at beginning of period                                        |       | 37,874             |       | 40,798             |       |
|                                                                                     |       |               |       |               |       |
| Cash  and cash equivalents at end of period                                              |       | $                  | 16,420     |               | $          | 5,779 |   |
|                                                                                     |       |               |       |               |       |
| Supplemental  cash flow information:                                                     |       |               |       |               |       |
| Cash  paid during period for interest                                                    |       | $                  | 7,126      |               | $          | 9,663 |   |
| Cash  paid during period for income taxes                                                |       | 15                 |       | 1,568              |       |
|                                                                                     |       |               |       |               |       |
| Loans  foreclosed upon with repossessions                                                |       | 10,982             |       | 9,877              |       |

 

See accompanying notes toconsolidated financial statements.

 

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TENNESSEE COMMERCEBANCORP, INC.

 

Notes to ConsolidatedFinancial Statements (unaudited)

 

(Dollars in thousands,except per share data, throughout these Notes to Consolidated FinancialStatements (unaudited))

 

Note 1 — Basis ofPresentation

 

Tennessee CommerceBancorp, Inc. (the “Corporation”) is the bank holding company forTennessee Commerce Bank (the “Bank”).  In March 2005, the Corporationformed a wholly owned subsidiary, Tennessee Commerce Bank Statutory Trust I(the “Trust I”).  In June 2008, the Corporation formed a wholly ownedsubsidiary, Tennessee Commerce Bank Statutory Trust II (the “Trust II”). In July 2008,the corporation formed a wholly owned subsidiary, TCB Commercial AssetsServices, Inc (“TCB”). As of March 31, 2010, the Bank, the Trust I, theTrust II and TCB. were the only subsidiaries of the Corporation. Theaccompanying consolidated financial statements include the accounts of theCorporation, the Bank and TCB. The Trust I and the Trust II are notconsolidated in accordance with accounting principles generally accepted in theUnited States of America (“GAAP”).

 

The unauditedconsolidated financial statements as of March 31, 2010 and for the three-monthperiods ended March 31, 2010 and 2009 have been prepared in accordancewith GAAP and in accordance with the instructions to Form 10-Q and Article 10of Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”),and in the opinion of management, include all adjustments, consisting of normalrecurring adjustments, to present fairly the information included therein. Theydo not include all the information and notes required by GAAP for completefinancial statements. Operating results for the three-month period ended March 31,2010 are not necessarily indicative of the results that may be expected for theyear ending December 31, 2010. For further information, refer to theconsolidated financial statements and notes thereto included in the Corporation’sAnnual Report on Form 10-K for the year ended December 31, 2009.

 

Note 2 — Earnings perShare of Common Stock

 

The factors used in theearnings per share computation follow:

 

| ** **                                                                      | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| **(Dollars in thousands)**                                                      | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| Basic                                                                           |       |                                   |       |   |   |
| Net  income (loss) available to common shareholders                             |       | $                                      | 1,354      |   | $ | (2,660 | ) |
|                                                                            |       |                                   |       |   |   |
| Weighted average common  shares outstanding                                     |       | 5,647,379                              |       | 4,731,696 |   |
|                                                                            |       |                                   |       |   |   |
| Basic  earnings (loss) per common share                                         |       | 0.24                                   |       | (0.56 | ) |
|                                                                            |       |                                   |       |   |   |
| Diluted                                                                         |       |                                   |       |   |   |
| Net  income (loss) available to common shareholders                             |       | $                                      | 1,354      |   | $ | (2,660 | ) |
|                                                                            |       |                                   |       |   |   |
| Weighted  average common shares outstanding for basic earnings per common share |       | 5,647,379                              |       | 4,731,696 |   |
| Add:  Dilutive effects of assumed exercises of stock options (1)                |       | 53,375                                 |       | — |   |
|                                                                            |       |                                   |       |   |   |
| Average  shares and dilutive potential common shares                            |       | 5,700,753                              |       | 4,731,696 |   |
|                                                                            |       |                                   |       |   |   |
| Diluted  earnings (loss)per common share                                        |       | $                                      | 0.24       |   | $ | (0.56 | ) |

 

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| (1) | All of the warrant and options were excluded from  the calculation of diluted earnings per share in 2009 because they were  anti-dilutive. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------|

 

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Note 3 — StockCompensation

 

Financial AccountingStandards Board (“FASB”) Accounting Standards Codification (ASC) Topic 718, “Share-Based“Payment” (“FASB ASC 718”), addresses the accounting for share-based paymenttransactions in which a company receives employee services in exchange forequity instruments. FASB ASC 718 eliminates the ability to account forshare-based compensation transactions, as the Corporation formerly did, usingthe intrinsic value method as prescribed by Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued to Employees,” and generally requiresthat such transactions be accounted for using a fair-value-based method andrecognized as expense in the accompanying consolidated statement of income.

 

Stock-based compensationexpense recognized during the period is based on the value of the portion ofstock-based payment awards that is ultimately expected to vest. Stock-basedcompensation expense recognized in the accompanying consolidated statements ofincome for the period ended March 31, 2010 included any compensationexpense for stock-based payment awards vesting during the period based on thegrant date fair value estimated in accordance with FASB ASC 718. As stock-basedcompensation expense recognized in the accompanying statement of income for theperiod ended March 31, 2010 is based on awards ultimately expected tovest, it has been reduced for estimated forfeitures. FASB ASC 718 requiresforfeitures to be estimated at the time of grant and revised, if necessary, insubsequent periods if actual forfeitures differ from those estimates.

 

For the three monthsended March 31, 2010, the Corporation did not grant any options topurchase shares of Corporation common stock or shares of restricted stock.There were 165,200 non-vested options and 6,047 shares of unvested restrictedstock outstanding at March 31, 2010. The Corporation recognizedstock-based expense of $99 for the three months ended March 31, 2010.

 

A summary of the activityin the Corporation’s stock-based compensation plan is as follows:

 
| ** **                                                                   | ** ** | ** ** | ** ** | ** **    | ** ** | **Weighted-**   | ** ** | ** **    | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|---------------|------------|-----------------|------------|---------------|------------|
| ** **                                                                   | ** ** | ** ** | ** ** | ** **    | ** ** | **Average**     | ** ** | ** **    | ** ** |
| ** **                                                                   | ** ** | ** ** | ** ** | **Weighted-** | ** ** | **Contractual** | ** ** | ** **    | ** ** |
| ** **                                                                   | ** ** | ** ** | ** ** | **Average**   | ** ** | **Remaining**   | ** ** | **Aggregate** | ** ** |
| ** **                                                                   | ** ** | ** ** | ** ** | **Exercise**  | ** ** | **Term**        | ** ** | **Intrinsic** | ** ** |
| **(Dollars  in thousands except for per share price)**                       | ** ** | **Number** | ** ** | **Price**     | ** ** | **(in years)**  | ** ** | **Value (1)** | ** ** |
| Stock-based  options outstanding at December 31, 2009                   |       | 865,820    |       | $             | 13.66      |            |       |          | $          | (8,043 | ) |
| Options  granted                                                             |       | —     |       | —        |       |            |       |          |       |
| Options  exercised                                                           |       | —     |       | —        |       |            |       |          |       |
| Options  forfeited or expired                                                |       | —     |       | —        |       |            |       |          |       |
| Stock-based  options outstanding at March 31, 2010                      |       | 865,820    |       | $             | 13.66      |            | 4.25       |          | $          | (5,290 | ) |
| Stock-based  options outstanding and expected to vest at March 31, 2010 |       | 865,820    |       | $             | 13.66      |            | 4.25       |          | $          | (5,290 | ) |
| Options  exercisable at March 31, 2010                                  |       | 700,620    |       | $             | 12.53      |            | 3.37       |          | $          | (3,505 | ) |

 

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(1)     Theaggregate intrinsic value is calculated as the difference between the exerciseprice of each option and the closing price per share of Corporation commonstock of $7.55 for the outstanding options to purchase 865,820 shares ofCorporation common stock and exercisable options to purchase 700,620 shares ofCorporation common stock at March 31, 2010.

 

| **(Dollars  in thousands)**                                                            | ** ** | **Number** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------|------------|
| Shares  of restricted stock outstanding at December 31, 2009                      |       | 8,063      |       |
| Shares  of restricted stock issued                                                     |       | —     |       |
| Restrictions  lapsed and shares released                                               |       | (2,016     | )          |
| Shares  of restricted stock forfeited or expired                                       |       | —     |       |
| Restricted  stock-based awards outstanding at March 31, 2010                      |       | 6,047      |       |
|                                                                                   |       |       |       |
| Restricted  stock-based awards outstanding and expected to vest at March 31, 2010 |       | 6,047      |       |

 

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The estimated fair valuesof options granted are computed using the Black-Scholes valuation model, usingthe following weighted-average assumptions:

 

| ** **               | ** ** | **March 31, 2010** | ** ** | **December 31, 2009** | ** ** |
|--------------------------|------------|-------------------------|------------|----------------------------|------------|
|                     |       |                    |       |                       |       |
| Risk-free  interest rate |       | —                  | %          | 0.30                       | %          |
| Expected  option life    |       | —                  |       | 10 years                   |       |
| Dividend  yield          |       | —                  | %          | 0.00                       | %          |
| Volatility               |       | —                  | %          | 45.00                      | %          |

 

Note 4 — Securities

 

The fair value ofavailable for sale securities and the related gross unrealized gains and lossesrecognized in accumulated other comprehensive income (loss) were as follows:

 

| ** **                  | ** ** | ** ** | ** ** | **Gross**      | ** ** | **Gross**      | ** ** | ** **    | ** ** |
|-----------------------------|------------|------------|------------|----------------|------------|----------------|------------|---------------|------------|
| ** **                  | ** ** | **Fair**   | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Amortized** | ** ** |
| **(Dollars  in thousands)** | ** ** | **Value**  | ** ** | **Gains**      | ** ** | **Losses**     | ** ** | **Cost**      | ** ** |
|                        |       |       |       |           |       |           |       |          |       |
| March 31,  2010        |       |       |       |           |       |           |       |          |       |
|                        |       |       |       |           |       |           |       |          |       |
| U.S.  Government agencies   |       | $          | 89,557     |           | $          | 96             |       | $             | (1,144     | ) | $ | 90,605 |   |
| Corporate  debt securities  |       | 175        |       | 5              |       | —         |       | 170           |       |
| Other                       |       | 6,774      |       | —         |       | —         |       | 6,774         |       |
|                        |       |       |       |           |       |           |       |          |       |
|                        |       | $          | 96,506     |           | $          | 101            |       | $             | (1,144     | ) | $ | 97,549 |   |
|                        |       |       |       |           |       |           |       |          |       |
| December 31,  2009     |       |       |       |           |       |           |       |          |       |
|                        |       |       |       |           |       |           |       |          |       |
| U.S.  Government agencies   |       | $          | 82,843     |           | $          | 57             |       | $             | (2,138     | ) | $ | 84,924 |   |
| Corporate  debt securities  |       | 188        |       | 6              |       | —         |       | 182           |       |
| Other                       |       | 10,637     |       | —         |       | —         |       | 10,637        |       |
|                        |       |       |       |           |       |           |       |          |       |
|                        |       | $          | 93,668     |           | $          | 63             |       | $             | (2,138     | ) | $ | 95,743 |   |

 

Contractual maturities ofdebt securities at March 31, 2010 are shown below. Expected maturitieswill differ from contractual maturities because borrowers may have the right tocall or prepay obligations with or without prepayment penalties.

 

| **(Dollars  in thousands)**       | ** ** | **Fair Value** | ** ** |
|-----------------------------------|------------|----------------|------------|
|                              |       |           |       |
| Due  in less than one year        |       | $              | —     |   |
| Due  after one through five years |       | 175            |       |
| Due  after five through ten years |       | 24,328         |       |
| Due  after ten years              |       | 72,003         |       |
|                              |       |           |       |
|                              |       | $              | 96,506     |   |

 

Gross proceeds from thesale of securities in 2010 and 2009 were $9,279 and $19,428, respectively.Gross gains of $419 and $418 on sales of securities were recognized in 2010and 2009, respectively. There were no gross losses on the sale ofsecurities recognized in 2010 and 2009, respectively. Securities carried at$63,136 and $100,013 at March 31, 2010 and December 31, 2009,respectively, were pledged to secure deposits and for other purposes as requiredor permitted by law.

 

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Securities withunrealized losses at March 31, 2010 and December 31, 2009, and the lengthof time they have been in continuous loss positions were as follows:

 
| ** **                  | ** ** | **Less than 12 Months** | ** ** | **12 Months or More** | ** ** | **Total** | ** ** |
|-----------------------------|------------|-------------------------|------------|-----------------------|------------|-----------|------------|
| ** **                  | ** ** | **Fair**                | ** ** | **Unrealized**        | ** ** | **Fair**  | ** ** | **Unrealized** | ** ** | **Fair** | ** ** | **Unrealized** | ** ** |
| **(Dollars  in thousands)** | ** ** | **Value**               | ** ** | **Loss**              | ** ** | **Value** | ** ** | **Loss** | ** ** | **Value** | ** ** | **Loss** | ** ** |
|                        |       |                    |       |                  |       |      |       |   |   |   |   |   |   |
| March 31, 2010         |       |                    |       |                  |       |      |       |   |   |   |   |   |   |
|                        |       |                    |       |                  |       |      |       |   |   |   |   |   |   |
| U.S. Government agencies    |       | $                       | 78,662     |                  | $          | 1,045     |       | $ | 10,895 |   | $ | 99 |   | $ | 89,557 |   | $ | 1,144 |   |
| Corporate bonds             |       | —                  |       | —                |       | —    |       | — |   | — |   | — |   |
|                        |       |                    |       |                  |       |      |       |   |   |   |   |   |   |
| **Total**                   | ** ** | **$**                   | 78,662     | ** **            | **$**      | 1,045     | ** ** | **$** | 10,895 | ** ** | **$** | 99 | ** ** | **$** | 89,557 | ** ** | **$** | 1,144 | ** ** |
|                        |       |                    |       |                  |       |      |       |   |   |   |   |   |   |
| December 31, 2009      |       |                    |       |                  |       |      |       |   |   |   |   |   |   |
|                        |       |                    |       |                  |       |      |       |   |   |   |   |   |   |
| U.S. Government agencies    |       | $                       | 54,552     |                  | $          | 1,882     |       | $ | 14,737 |   | $ | 256 |   | $ | 69,289 |   | $ | 2,138 |   |
| Corporate bonds             |       | —                  |       | —                |       | —    |       | — |   | — |   | — |   |
|                        |       |                    |       |                  |       |      |       |   |   |   |   |   |   |
| **Total**                   | ** ** | **$**                   | 54,552     | ** **            | **$**      | 1,882     | ** ** | **$** | 14,737 | ** ** | **$** | 256 | ** ** | **$** | 69,289 | ** ** | **$** | 2,138 | ** ** |

 

Unrealized losses on U.S.government agency securities have not been recognized into income because thesecurities are backed by the U.S. government or its agencies, management hasthe intent and ability to hold for the foreseeable future and the decline infair value is largely a result of increases in market interest rates. Theunrealized losses on corporate securities have not been recognized into incomebecause management has the intent and ability to hold for the foreseeablefuture, and the decline in fair value is largely a result of increases inmarket interest rates. The fair value of the securities above is expected torecover as the securities approach their maturity dates and/or market ratesdecline.

 

Note 5 — Federal HomeLoan Advances and Trust Preferred Securities

 

In October 2008, theBank was approved for funding advances in an aggregate amount of $30,000 withterms from one to 100 days from The Federal Home Loan Bank of Cincinnati (“FHLB”),based on a collateral standard. The Bank’s available advance is based on 150%of eligible one-to-four family loans as collateral. The Bank is also requiredto maintain a minimum required capital stock balance that is based upon itstotal assets.

 

In March 2005, theTrust I issued and sold 8,000 of its fixed/floating rate capital securities,with a liquidation amount of $1 per capital security, to First Tennessee BankNational Association. The securities pay a fixed rate of 6.73% payablequarterly for the first five years and a floating rate based on a three-month LIBORrate plus 1.98% thereafter. At the same time, the Corporation issued to theTrust I $8,248 of fixed/floating rate junior subordinated deferrable interestdebentures due 2035. The Corporation guarantees the payment of distributionsand payments for redemptions or liquidation of the capital securities. Thefixed/floating rate capital securities qualify as “Tier I Capital” for theCorporation under current regulatory definitions subject to certainlimitations.

 

The debentures pay afixed rate of 6.73% payable quarterly for the first five years and a floatingrate based on a three-month LIBOR rate plus 1.98% thereafter. The distributionson the capital securities are accounted for as interest expense by theCorporation. Interest payments on the debentures and the correspondingdistributions on the capital securities may be deferred at any time at theelection of the Corporation for up to 20 consecutive quarterly periods (fiveyears). The capital securities and debentures are redeemable at any timecommencing after June 2010 at par. The Corporation reports as liabilitiesthe subordinated debentures issued by the Corporation and held by the Trust I.

 

In June 2008, theTrust II issued and sold 14,500 of its floating rate capital securities, with aliquidation amount of $1 per capital security, in a private placement. Thesecurities pay a floating rate per annum, reset quarterly, equal to the primerate of interest published in*  The Wall Street Journal*  on the first business day of eachdistribution period plus 50 basis points (but in no event greater than 8.0% orless than 5.75%). At the same time, the Corporation issued to the Trust II$14,950 of floating rate junior subordinated deferrable interest debentures due2038. The Corporation guarantees the payment of distributions and payments forredemptions or liquidation of the capital securities. The floating rate capitalsecurities qualify as “Tier I Capital” for the Corporation under currentregulatory definitions subject to certain limitations.

 

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The debentures pay afloating rate per annum, reset quarterly, equal to the prime rate of interestpublished in*The Wall Street Journal*  on the first business day of eachdistribution period plus 50 basis points (but in no event greater than 8.0% orless than 5.75%). The distributions on the capital securities are accounted foras interest expense by the Corporation. Interest payments on the debentures andthe corresponding distributions on the capital securities may be deferred atany time at the election of the Corporation for up to 20 consecutive quarterlyperiods (five years). The capital securities and debentures are redeemable atany time commencing after June 2013 at par. The Corporation reports asliabilities the subordinated debentures issued by the Corporation and held bythe Trust II.

 

Note 6 — SubsequentEvents

 

Management has evaluatedevents occurring subsequent to the balance sheet date through May 6, 2010(the financial statement issuance date), and has determined that no eventsrequire adjustment to or additional disclosure in the consolidated financialstatements.

 

Note 7 — New AccountingStandards

 

Accounting Standards Update (ASU) No. 2009-16,“Transfers and Servicing (Topic 860) - Accounting for Transfers ofFinancial Assets.”  ASU 2009-16 amends prior accountingguidance to enhance reporting about transfers of financial assets, includingsecuritizations, and where companies have continuing exposure to the risksrelated to transferred financial assets. ASU 2009-16 eliminates theconcept of a “qualifying special-purpose entity” and changes the requirementsfor derecognizing financial assets. ASU 2009-16 also requires additionaldisclosures about all continuing involvements with transferred financial assetsincluding information about gains and losses resulting from transfers duringthe period. The provisions of ASU 2009-16 became effective on January 1,2010 and did not have a significant impact on the Corporation’s financialstatements.

 

ASU No. 2009-17, “Consolidations(Topic 810) - Improvements to Financial Reporting by Enterprises Involvedwith Variable Interest Entities.” ASU 2009-17 amends prior guidance to change how a companydetermines when an entity that is insufficiently capitalized or is notcontrolled through voting (or similar rights) should be consolidated. Thedetermination of whether a company is required to consolidate an entity isbased on, among other things, an entity’s purpose and design and a company’sability to direct the activities of the entity that most significantly impactthe entity’s economic performance. ASU 2009-17 requires additionaldisclosures about the reporting entity’s involvement with variable-interestentities and any significant changes in risk exposure due to that involvementas well as its affect on the entity’s financial statements. As furtherdiscussed below, ASU No. 2010-10, “Consolidations (Topic 810),”deferred the effective date of ASU 2009-17 for a reporting entity’sinterests in investment companies. The provisions of ASU 2009-17 becameeffective on January 1, 2010 and did not have a significant impact on theCorporation’s financial statements.

 

ASU No. 2010-06, “Fair ValueMeasurements and Disclosures (Topic 820) - Improving Disclosures AboutFair Value Measurements.”  ASU 2010-06 requiresexpanded disclosures related to fair value measurements including (i) theamounts of significant transfers of assets or liabilities between Levels 1and 2 of the fair value hierarchy and the reasons for the transfers, (ii) thereasons for transfers of assets or liabilities in or out of Level 3 of thefair value hierarchy, with significant transfers disclosed separately, (iii) thepolicy for determining when transfers between levels of the fair valuehierarchy are recognized and (iv) for recurring fair value measurements ofassets and liabilities in Level 3 of the fair value hierarchy, a grosspresentation of information about purchases, sales, issuances and settlements.ASU 2010-06 further clarifies that (i) fair value measurementdisclosures should be provided for each class of assets and liabilities (ratherthan major category), which would generally be a subset of assets orliabilities within a line item in the statement of financial position and (ii) company’sshould provide disclosures about the valuation techniques and inputs used tomeasure fair value for both recurring and nonrecurring fair value measurementsfor each class of assets and liabilities included in Levels 2 and 3 of thefair value hierarchy. The disclosures related to the gross presentation ofpurchases, sales, issuances and settlements of assets and liabilities includedin Level 3 of the fair value hierarchy will be required for theCorporation beginning January 1, 2011. The remaining disclosurerequirements and clarifications made by ASU 2010-06 became effective forthe Corporation on January 1, 2010. See Note 8 — Fair ValueMeasurements below for more information.

 

(“ASU 2010-11”),clarifies that the only forms of an embedded credit derivative that are exemptfrom embedded derivative bifurcation requirements are those that relate to thesubordination of one financial instrument to another. As a result, entitiesthat have contracts containing an embedded credit derivative feature in a formother than such subordination may need to separately account for the embeddedcredit derivative feature. The provisions of ASU 2010-11 will be effectivefor the Corporation on July 1, 2010 and are not expected to have asignificant impact on the Corporation’s financial statements.

 

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ASU No. 2010-10, “Consolidations(Topic 810) - Amendments for Certain Investment Funds.” ASU 2010-10 defers the effectivedate of the amendments to the consolidation requirements made by*ASU 2009-17* to a company’s interestin an entity (i) that has all of the attributes of an investment company,as specified under ASC Topic 946, “Financial Services - InvestmentCompanies,” or (ii) for which it is industry practice to apply measurementprinciples of financial reporting that are consistent with those in ASCTopic 946. As a result of the deferral, a company will not be required toapply the ASU 2009-17 amendments to the Subtopic 810-10 consolidationrequirements to its interest in an entity that meets the criteria to qualifyfor the deferral. ASU 2010-10 also clarifies that any interest held by arelated party should be treated as though it is an entity’s own interest whenevaluating the criteria for determining whether such interest represents avariable interest. In addition, ASU 2010-10 also clarifies that aquantitative calculation should not be the sole basis for evaluating whether adecision maker’s or service provider’s fee is a variable interest. Theprovisions of ASU 2010-10 became effective for the Corporation as of January 1,2010 and did not have a significant impact on the Corporation’s financialstatements.

 

Note 6 — Fair ValueMeasurement

 

The Bank has anestablished process for determining fair values in accordance with FASB ASC820. Fair value is based upon quoted market prices, where available. If listedprices or quotes are not available, fair value is based upon internallydeveloped models or processes that use primarily market-based or independently-sourcedmarket data, including interest rate yield curves, option volatilities andthird party information. Valuation adjustments may be made to ensure thatfinancial instruments are recorded at fair value. These adjustments includeamounts to reflect counterparty credit quality (for financial assets reflectedat fair value), the Bank’s creditworthiness (for financial liabilitiesreflected at fair value), liquidity and other unobservable parameters that areapplied consistently over time as follows:

 

·     Creditvaluation adjustments are necessary when the market price (or parameter) is notindicative of the credit quality of the counterparty.

 

·     Debitvaluation adjustments are necessary to reflect the credit quality of the Bankin the valuation of liabilities measured at fair value.

 

·     Liquidityvaluation adjustments are necessary when the Bank may not be able to observe arecent market price for a financial instrument that trades in inactive (or lessactive) markets or to reflect the cost of exiting larger-than-normalmarket-size risk positions

 

·     Unobservable parameter valuationadjustments are necessary when positions are valued using internally developedmodels that use as their basis unobservable parameters — that is, parametersthat must be estimated and are, therefore, subject to management judgment tosubstantiate the model valuation. These financial instruments are normallytraded less actively.

 

The methods describedabove may produce a fair value calculation that may not be indicative of netrealizable value or reflective of future fair values. Furthermore, while theBank believes its valuation methods are appropriate and consistent with othermarket participants, the use of different methodologies, or assumptions, todetermine the fair value of certain financial instruments could result in adifferent estimate of fair value at the reporting date.

 

**ValuationHierarchy**

 

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

 

·     Level 1 —inputs to the valuation methodology are quoted prices (unadjusted) foridentical assets or liabilities in active markets.

 

·     Level 2 —inputs to the valuation methodology include quoted prices for similar assetsand liabilities in active markets, and inputs that are observable for the assetor liability, either directly or indirectly, for substantially the full term ofthe financial instrument.

 

·     Level 3 —inputs to the valuation methodology are unobservable and significant to the fairvalue measurement.

 

A financial instrument’scategorization within the valuation hierarchy is based upon the lowest level ofinput that is significant to the fair value measurement.  Below is adescription of the valuation methodologies used for instruments measured atfair value, as well as the general classification of such instruments pursuantto the valuation hierarchy.

 

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**Assets**

 

*SecuritiesAvailable for Sale -*Available-for-sale securities are recorded at fair value on a recurringbasis.  Where quoted prices are available in an active market, securitiesare classified within level 1 of the valuation hierarchy.  Level 1securities include highly liquid government bonds, federal funds sold andcertain other products.  Fair value measurement is based upon quotedprices, if available.  If quoted prices are not available, securitieswould generally be classified within Level 2, and fair value would bedetermined by matrix pricing, which is a mathematical technique widely used inthe industry to value debt securities without relying exclusively on quotedprices for the specific securities but relying on the securities’ relationshipto other benchmark quoted securities. In certain cases where there is limitedactivity or less transparency around inputs to the valuation, securities areclassified within Level 3 of the valuation hierarchy. For the three monthsended March 31, 2010, All of the Bank’s available-for-sale securities werevalued using matrix pricing and were classified within Level 2 of the valuationhierarchy.  At March 31, 2010, the Bank had no available-for-salesecurities classified within Level 3.

 

*ServicingAssets -* Allseparately recognized servicing assets and servicing liabilities are initiallymeasured at fair value. Subsequent measurement methods include the amortizationmethod, whereby servicing assets or servicing liabilities are amortized overthe period of estimated net servicing income or net servicing loss, or the fairvalue method, whereby servicing assets or servicing liabilities are measured atfair value at each reporting date and changes in fair value are reported inearnings in the period in which they occur. Because of the unique nature of theBank’s servicing assets, quoted market prices may not be available. If noquoted market prices are available, the amortization method is used. The Bankassesses servicing assets or servicing liabilities for impairment or increasedobligation based on the fair value at each reporting date.  At March 31,2010, the Bank had servicing assets measured at fair value on a recurringbasis classified within Level 3 of the valuation hierarchy.

 

*Interest-OnlyStrips -* When theBank sells loans to others, it may hold interest-only strips, which is aninterest that continues to be held by the transferor in the securitizedreceivable. It may also obtain servicing assets or assume servicing liabilitiesthat are initially measured at fair value. Gain or loss on sale of thereceivables depends in part on both (a) the previous carrying amount ofthe financial assets involved in the transfer, allocated between the assetssold and the interests that continue to be held by the transferor based ontheir relative fair value at the date of transfer, and (b) the proceedsreceived. To obtain fair values, quoted market prices are used if available.However, quotes are generally not available for interests that continue to be heldby the transferor, so the Bank generally estimates fair value based on thefuture expected cash flows estimated using management’s best estimates of thekey assumptions — credit losses and discount rates commensurate with the risksinvolved. At March 31, 2010, the Bank had interest-only stripsmeasured at fair value on a recurring basis classified within Level 3 of thevaluation hierarchy.

 

*ImpairedLoans —* A loan isconsidered to be impaired when it is probable the Bank will be unable tocollect all principal and interest payments due in accordance with thecontractual terms of the loan agreement. Individually identified impaired loansare measured based on the present value of expected payments using the loan’soriginal effective rate as the discount rate, the loan’s observable marketprice, 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 fairvalue, a valuation allowance may be established as a component of the allowancefor loan losses. At March 31, 2010, the Bank had impaired loans measuredon a nonrecurring basis classified within Level 3 of the valuation hierarchy.

 

*Other Assets —* Included in other assets are certainassets carried at fair value, including repossessions and other real estateowned (“OREO”). The carrying amount is based on an observable market price orappraisal value. The Bank reflects these assets within Level 3 of the valuationhierarchy. At March 31, 2010, the Bank had repossessions and OREO measuredat fair value on a nonrecurring basis classified within Level 3 of thevaluation hierarchy.

 

*Bank-Owned Life Insurance**—* The Bank includes bank owned lifeinsurance (“BOLI”) within other assets, carried at cash surrender value. Thecash surrender value of bank owned life insurance is based on informationreceived from the insurance carriers indicating the financial performance ofthe policies and the amount the Bank would receive should the policies besurrendered. At March 31, 2010, the Bank had BOLI measured at fair valueon a recurring basis classified within Level 3 of the valuation hierarchy.

 

*Inventory—* Repossessedassets are resold at retail prices as soon as practicable.  If arepossession of the Bank is not resold within the six month holding periodallowed by Tennessee law, it is purchased by a subsidiary of the Corporation.It is held as inventory and carried at fair market value.  The solepurpose of the subsidiary is the resale of assets repossessed by the Bank. At March 31,2010, the subsidiary had inventory measured at fair value on anonrecurring basis classified within Level 3 of the valuation hierarchy.

 

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** **

**Liabilities**

 

*RecourseObligations* - Themaximum extent of the Bank’s recourse obligations on loans transferred is 10%of the amount transferred adjusted for any early payoffs or terminations, basedon the Bank’s payment history on loans of the type transferred. At March 31,2010, the Bank had recourse obligations measured at fair value on arecurring basis classified within level 3 of the valuation hierarchy.

 

The FASB updated ASC 820to include disclosure requirements surrounding transfers of assets andliabilities in and out of Levels 1 and 2. Previous guidance only required transfer disclosures for Level 3 assetsand liabilities.  The Bank monitors thevaluation technique utilized by various pricing agencies, in the case of thebond portfolio to ascertain when transfers between levels have beenaffected.  The nature of the remainingassets and liabilities is such that transfers in and out of any level areexpected to be rare.  For the quarterending March 31, 2010, there were no transfers between levels.  The new standard also requires an increasedlevel of disaggregation with asset/liability classes.  The Bank has disaggregated other assets andliabilities as shown to comply with the requirements of this standard.

 

The following tablepresents the financial instruments carried at fair value as of March 31,2010, by caption on the consolidated balance sheets and by FASB ASC 820valuation hierarchy (as described above):

 

**Assetsand liabilities measured at fair value on a recurring basis as of March 31,2010**

 
| ** **                          | ** ** | ** **       | ** ** | ** **       | ** ** | **Internal**    | ** ** | **Internal**     | ** ** |
|-------------------------------------|------------|------------------|------------|------------------|------------|-----------------|------------|------------------|------------|
| ** **                          | ** ** | **Total**        | ** ** | **Quoted**       | ** ** | **models with** | ** ** | **models with**  | ** ** |
| ** **                          | ** ** | **carrying**     | ** ** | **market**       | ** ** | **significant** | ** ** | **significant**  | ** ** |
| ** **                          | ** ** | **value in the** | ** ** | **prices in an** | ** ** | **observable**  | ** ** | **unobservable** | ** ** |
| ** **                          | ** ** | **consolidated** | ** ** | **active**       | ** ** | **market**      | ** ** | **market**       | ** ** |
| ** **                          | ** ** | **balance**      | ** ** | **market**       | ** ** | **parameters**  | ** ** | **parameters**   | ** ** |
| ** **                          | ** ** | **sheet**        | ** ** | **(Level 1)**    | ** ** | **(Level 2)**   | ** ** | **(Level 3)**    | ** ** |
| Securities  available for sale      |       |             |       |             |       |            |       |             |       |
| U.S.  Government agencies           |       | $                | 89,557     |             | $          | —          |       | $                | 89,557     |   | $ | — |   |
| Corporate  debt securities          |       | 175              |       | —           |       | 175             |       | —           |       |
| Other                               |       | 6,774            |       | —           |       | 6,774           |       | —           |       |
| Servicing  assets                   |       | 119              |       | —           |       | —          |       | 119              |       |
| Interest-only  strips               |       | 2,374            |       | —           |       | —          |       | 2,374            |       |
| Bank-owned  life insurance          |       | 25,860           |       | —           |       | —          |       | 25,860           |       |
| **Total assets at fair value**      | ** ** | $                | 124,859    |             | $          | —          |       | $                | 96,506     |   | $ | 28,353 |   |
|                                |       |             |       |             |       |            |       |             |       |
| Recourse  obligations               |       | $                | 275        |             | $          | —          |       | $                | —     |   | $ | 275 |   |
| **Total liabilities at fair value** | ** ** | $                | 275        |             | $          | —          |       | $                | —     |   | $ | 275 |   |

 

The Corporation may berequired, from time to time, to measure certain assets at fair value on anonrecurring basis in accordance with GAAP. These include assets that aremeasured at the lower of cost or market that were recognized at fair valuebelow the cost at the end of the period. The following table presents thefinancial instruments carried at fair value as of March 31, 2010, bycaption on the consolidated balance sheets and by FASB ASC 820 valuationhierarchy (as described above):

 

**Assetsand liabilities measured at fair value on a nonrecurring basis as of March 31,2010**

 
| ** **                     | ** ** | ** **                 | ** ** | ** **                 | ** ** | **Internal**       | ** ** | **Internal**       | ** ** |
|--------------------------------|------------|----------------------------|------------|----------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                     | ** ** | **Total**                  | ** ** | **Quoted**                 | ** ** | **models with**    | ** ** | **models with**    | ** ** |
| ** **                     | ** ** | **carrying**               | ** ** | **market**                 | ** ** | **significant**    | ** ** | **significant**    | ** ** |
| ** **                     | ** ** | **value in the** | ** ** | **prices in an** | ** ** | **observable**     | ** ** | **unobservable**   | ** ** |
| ** **                     | ** ** | **consolidated**           | ** ** | **active**                 | ** ** | **market**         | ** ** | **market**         | ** ** |
| ** **                     | ** ** | **balance**                | ** ** | **market**                 | ** ** | **parameters**     | ** ** | **parameters**     | ** ** |
| ** **                     | ** ** | **sheet**                  | ** ** | **(Level 1)**         | ** ** | **(Level 2)** | ** ** | **(Level 3)** | ** ** |
| Impaired  loans                |       | $                          | 44,464     |                       | $          | —             |       | $                  | —     |   | $ | 44,464 |   |
| Inventory                      |       | 8,711                      |       | —                     |       | —             |       | 8,711              |       |
| Other  Assets                  |       | 31,762                     |       | —                     |       | —             |       | 31,762             |       |
| **Total assets at fair value** |       | $                          | 84,937     |                       | $          | —             |       | $                  | —     |   | $ | 84,937 |   |

 

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** **

**Changesin Level 3 fair value measurements**

 

The table below includesa roll-forward of the balance sheet amounts for the first quarter of 2010(including the change in fair value) for financial instruments classified bythe Bank within Level 3 of the valuation hierarchy for assets and liabilitiesmeasured at fair value on a recurring basis. When a determination is made toclassify a financial instrument within Level 3 of the valuation hierarchy, thedetermination is based upon the significance of the unobservable factors to theoverall fair value measurement. However, since level 3 financial instrumentstypically include, in addition to the unobservable or Level 3 components,observable components (that is, components that are actively quoted and can bevalidated to external sources), the gains and losses in the table below includechanges in fair value due in part to observable factors that are part of thevaluation methodology.

 
| **Three  months ended March 31, 2010**                                                                                                            | ** ** | **Assets** | ** ** | **Liabilities** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|-----------------|------------|
| Fair  value, January 1, 2010                                                                                                                      |       | $          | 28,549     |            | $          | 317 |   |
| Total  realized and unrealized gains/losses included in income                                                                                         |       | (731       | )          | 23              |       |
| Purchases,  issuances and settlements, net                                                                                                             |       | 535        |       | (65             | )          |
| Transfers  in and/or out of level 3                                                                                                                    |       | —     |       | —          |       |
| Fair  value, March 31, 2010                                                                                                                       |       | $          | 28,353     |            | $          | 275 |   |
| Total  unrealized gains included in income related to financial assets and  liabilities still on the consolidated balance sheet at March 31, 2010 |       | $          | —     |            | $          | — |   |

 

FASB ASC 820 requiresdisclosure of the fair value of financial assets and financial liabilities,including those financial assets and financial liabilities that are notmeasured and reported at fair value on a recurring basis or nonrecurring basis.A detailed description of the valuation methodologies used in estimating thefair value of financial instruments is set forth in the Corporation’s AnnualReport on Form 10-K for the year ended December 31, 2009.

 

The estimated fair valuesof financial instruments were as follows:

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** | **Twelve Months Ended** | ** ** |
|---------------------------------------------------|------------|------------------------|------------|-------------------------|------------|
| ** **                                        | ** ** | **March 31,**     | ** ** | **December 31,**   | ** ** |
| ** **                                        | ** ** | **2010**               | ** ** | **2009**                | ** ** |
| ** **                                        | ** ** | **Carrying**           | ** ** | **Estimated Fair**      | ** ** | **Carrying** | ** ** | **Estimated Fair** | ** ** |
| ** **                                        | ** ** | **Amount**             | ** ** | **Value**               | ** ** | **Amount** | ** ** | **Value** | ** ** |
| Financial assets:                                 | ** ** | ** **             | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash  and due from banks                          |       | $                      | 6,710      |                    | $          | 6,710 |   | $ | 22,864 |   | $ | 22,864 |   |
| Federal  funds sold                               |       | 9,710                  |       | 9,710                   |       | 15,010 |   | 15,010 |   |
| Securities                                        |       | 96,506                 |       | 96,506                  |       | 93,668 |   | 93,668 |   |
| Loans,  net                                       |       | 1,166,061              |       | 1,250,002               |       | 1,151,388 |   | 1,250,425 |   |
| Accrued  interest receivable                      |       | 10,321                 |       | 10,321                  |       | 9,711 |   | 9,711 |   |
| Bank-owned  life insurance                        |       | 25,860                 |       | 25,860                  |       | 25,673 |   | 25,673 |   |
| Restricted  equity securities                     |       | 2,169                  |       | 2,169                   |       | 2,169 |   | 2,169 |   |
| Financial  liabilities:                           |       |                   |       |                    |       |   |   |   |   |
| Deposits                                          |       | 1,239,835              |       | 1,258,746               |       | 1,242,542 |   | 1,263,535 |   |
| Accrued  interest payable                         |       | 1,558                  |       | 1,558                   |       | 1,430 |   | 1,430 |   |
| Accrued  dividend payable                         |       | 188                    |       | 188                     |       | 187 |   | 187 |   |
| Short-term  borrowings                            |       | 8,750                  |       | 8,750                   |       | 14,000 |   | 14,000 |   |
| Long-term  subordinated debt and other borrowings |       | 26,521                 |       | 30,449                  |       | 23,198 |   | 27,175 |   |
|                                                   |            |                        |            |                         |            |  |  |  |  |  |  |  |  |

 

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** **

**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS.**

 

**Forward-LookingStatements**

 

Certain statementscontained in this report may not be based on historical facts and are “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of1933, as amended, and Section 21E of the Securities Exchange Act of 1934,as amended. These forward-looking statements may be identified by reference toa 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 orconditional verb tenses and variations or negatives of such terms. Theseforward-looking statements include, without limitation, those relating torecently adopted accounting standards, fair value measurements, maturities ofdebt securities, business bank strategy, loan sale transactions, tax rates,management’s review of the loan portfolio, loan classifications, allowance forloan losses, loan commitments, liquidity, capital resources, interest rates,interest rate sensitivity gap analysis, economic value of equity model, netinterest income, net interest margin, interest-bearing liabilities,non-interest income, stock-based compensation expense and our future growth andprofitability. We caution you not to place undue reliance on theforward-looking statements contained in this report because actual resultscould differ materially from those indicated in such forward-looking statementsas a result of a variety of factors. These factors include, but are not limitedto, our concentration of commercial loans and commercial real estate loans, thesufficiency of our current sources of funds, our reliance on internet andbrokered deposits, the effect of capital constraints on our pace of growth andour ability to raise additional capital when needed, the adequacy of ourallowance for loan losses, informal or formal enforcement actions to which wemay become subject, our heavy reliance on the services of key personnel, theprepayment of FDIC insurance premiums and higher FDIC assessment rates, thesuccess of the local economies in which we do business, the potentialdisposition of collateral upon foreclosure with respect to our national marketfunding outside of the Nashville MSA, the execution of our business strategies,competition from financial institutions and other financial service providers,material fluctuations in non-interest income, negative developments in thefinancial services industry and U.S. and global credit markets, the effect ofrecent legislative and regulatory initiatives to address difficult market andeconomic conditions on the stabilization of the U.S. banking system, changes ininterest rates, the limitation or restriction of our activities as a result ofthe extensive regulation to which we are subject, our ability to return capitalto our shareholders as a result of our issuance of securities to Treasury, theright of holders of our Series A Preferred Stock, the senior rights ofholders of our subordinated debentures, any future issuances of our commonstock or other equity securities and other factors detailed from time to timein our press releases and filings with the Securities and ExchangeCommission. We undertake no obligation to update these forward-lookingstatements 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 per share data, throughout this Item 2, including tabular information)

 

The results ofoperations, before charges for preferred dividends, for the quarter ended March 31,2010 compared to the quarter ended March 31, 2009 reflected a 178.02%increase in net income and a 142.86% increase in diluted earnings per share.The increase in earnings resulted partially from a lower provision for loanlosses and an increase in net interest income.  For the three months endedMarch 31, 2010, net income was $1,354, an increase of $4,014 or 150.90%compared to net loss of $2,660 for the same period in 2009. Diluted earningsper share increased $0.80 per share or 142.82% to $0.24 per share for the threemonths ended March 31, 2010 compared to the same period in 2009. The threemonths ended March 31, 2010 reflected a continuation of our bank’s trendof balance sheet management, as assets decreased by $581 or 0.04% from$1,383,432 at December 31, 2009 to $1,382,851 at March 31, 2010. Netloans increased by 1.27% or $14,673 from December 31, 2009 to March 31,2010, while total deposits decreased by 0.22% or $2,707 during that sameperiod.

 

**CorporationOverview**

 

We are headquartered inFranklin, Tennessee and are the bank holding company for the Bank. Organized in January 2000, the Bank has a focused strategy that serves thebanking needs of small to medium-sized businesses, entrepreneurs andprofessionals in the Nashville metropolitan statistical area, or the NashvilleMetropolitan Statistical Area (the “Nashville MSA”), as well as the fundingneeds of certain national and regional equipment vendors and financial servicescompanies.  We call this strategy our business bank strategy. We primarilyconduct business from a single location in the Cool Springs commercial area ofFranklin, Tennessee, 15 miles south of Nashville. We also operate threeloan production offices - one in each of Birmingham, Alabama, Minneapolis,Minnesota and Atlanta, Georgia. Each of these offices is staffed with onesenior lending officer.

 

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We offer a full range ofcompetitive retail and commercial banking services to local customers in theNashville MSA.  Our deposit services include a broad offering of checkingaccounts, savings accounts, money market investment accounts, certificates ofdeposits and retirement accounts.  Lending services include consumerinstallment loans, various types of mortgage loans, personal lines of credit,home equity loans, credit cards, real estate construction loans, commercialloans to small and medium-sized businesses and professionals, and letters ofcredit. We issue VISA credit cards and are a merchant depository for cardholderdrafts under VISA credit cards.  We also offer check cards and debit cardsand offer our local customers free courier services, access to third-partyautomated teller machines, or ATMs, remote deposit and state-of-the-artelectronic banking. We have trust powers but do not have a trust department.

 

**OurBusiness Strategy**

 

We execute our businessbank strategy by combining the personal service and appeal of a communitybanking institution with the sophistication of a larger bank.  We believethis strategy distinguishes us from our competitors in efforts to attract loansand deposits of local small to medium-sized businesses and national andregional equipment vendors and financial services companies.  Further, therapid growth within the Nashville MSA has left many business owners withoutsignificant banking relationships. We seek to take advantage of thisopportunity.

 

We do not compete basedon the traditional definition of “convenience” and currently have no plans todevelop a comprehensive branch bank network.  For us, convenience iscreated by technology and by a free courier service for local customers. We compete by providing responsive and personalized service to meet customerneeds.  We provide free electronic banking, cash management tools andon-site training for business customers.  We compete for consumer businessby providing superior products, attractive deposit rates, free internet bankingservices and access to a third-party regional ATM network.

 

The business bankstrategy is highlighted by differences between the financial statements of ourbank and more traditional financial institutions. The business bank modelcreates a high degree of leverage.  By avoiding the investment andmaintenance costs of a typical branch network, we are able to maintain earningassets at a higher level than peer institutions.  Management targets aminimum earning asset ratio of 95%**.**  At March 31, 2010 we had an earning asset ratio of 92.00%.

 

The business bank modelis also highly efficient.  We primarily target the non-retail (service,manufacturing and professional) sector of the commercial market, which ischaracterized by lower levels of transactions and processing costs.  Thecommercial customer mix and the strategic outsourcing of non-customerfunctions, such as data processing, information technology and internal audit,allow us to operate with a small, highly-trained staff.  Managementtargets a minimum asset per employee ratio of $10,000 compared to the averageratio of $3,812 assets per employee for Tennessee commercial banks at the endof the 12 months of 2009. At March 31, 2010, our assets per employee were$15,031.

 

In addition to ourNashville MSA focus, we have developed expertise in indirect lending thatallows us to access a national market. Our indirect lending transactions arefixed-rate monthly installment loans originated through a third-party equipmentvendor or financial services company. Our national market lending is dividedinto two programs based on loan size. In the first program, through anestablished network of vendors and financial services companies, we haveopportunities to finance business asset secured loan transactions nationallyfor middle-market and investment grade companies. In the second program, adifferent network of vendors and financial services companies located inTennessee, Alabama, Georgia, California**,**Minnesota and Michigan partner with us in financing smaller transactions(generally $150 or less per transaction). Both national market programs providegeographic and collateral diversity for our portfolio.

 

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**Comparisonof Operating Results for the Three Months Ended March 31, 2010 and March 31,2009**

 

**NetIncome** - Netincome for the three months ended March 31, 2010 was $1,354, an increaseof $4,014 or 150.90% compared to a net loss of $2,660 for the three monthsended March 31, 2009.  The increase is attributable to a $3,409increase in net interest income from $9,840 for the three months ended March 31,2009 to $13,249 for the same period in 2010, as well as a decrease in theprovision for loan losses of $3,914 from $8,514 for the three months ended March 31,2009 to $4,600 for the same period in 2010.  We experienced an increase of$1,576 in operating expense which was the result of our overall growth,including a $247 increase in loan collection expense at March 31, 2010compared to the same date in 2009, as well as an additional $366 in salariesexpense, primarily attributable to growth and the addition of employees.

 
| ** **                                           | ** ** | **Three Months Ended** | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|------------|------------|
| ** **                                           | ** ** | **March 31,**     | ** ** | ** ** | ** ** |
| ** **                                           | ** ** | **2010**               | ** ** | **2009**   | ** ** | **% Change** | ** ** |
|                                                 |       |                   |       |       |       |   |   |
| Interest  income                                     |       | $                      | 20,503     |       | $          | 19,456 |   | 5.38 | % |
| Interest  expense                                    |       | 7,254                  |       | 9,616      |       | (24.56 | ) |
| Net  interest income                                 |       | 13,249                 |       | 9,840      |       | 34.64 |   |
| Provision  for loan losses                           |       | 4,600                  |       | 8,514      |       | (45.97 | ) |
| Net  interest income after provision for loan losses |       | 8,649                  |       | 1,326      |       | 552.26 |   |
| Non-interest  income                                 |       | 687                    |       | 27         |       | 2,444.44 |   |
| Non-interest  expense                                |       | 6,509                  |       | 4,933      |       | 31.95 |   |
| Net  income (loss) before taxes                      |       | 2,827                  |       | (3,580     | )          | 178.97 |   |
| Income  tax expense (benefit)                        |       | 1,098                  |       | (1,364     | )          | 180.50 |   |
| Net  income (loss)                                   |       | 1,729                  |       | (2,216     | )          | 178.02 |   |
| Preferred  dividends                                 |       | (375                   | )          | (444       | )          | (15.54 | ) |
| Net  income (loss) available to common shareholders  |       | $                      | 1,354      |       | $          | (2,660 | ) | 150.90 | % |

 

**Provisionfor Loan Losses**- The provision for loan losses for the three months ended March 31, 2010was $4,600, a decrease of $3,914, or 45.97%, below the provision of $8,514for the same period in 2009.  This decrease was primarily a result ofreduced charge-offs and in write-downs of other real estate owned to appraisedvalues**.**  At March 31, 2010, the loan loss reserveof $20,110 was 1.70% of gross loans of $1,186,171.

 

**Non-interestIncome** -Non-interest income increased by 2,444.00% or $660, from $27 in the quarterended March 31, 2009 to $687 for the same period in 2010. The increase wasprimarily a result of documentary income on loans closed during thequarter. There was no net loss on loan sales for the three months ended March 31,2010 while there was a net loss on loan sales of $206 for the three-monthperiods ended March 31, 2009.

 

We did not earn anymortgage origination fees during the three months ended March 31, 2010compared to $14 earned during the same period in 2009, a decrease of $14 or100%.  We recognized $419 on the sale of securities in the three monthsended March 31, 2010 compared with $418 for the same period in 2009. Thegain on sale of securities in 2010 was a result of favorable market variations.

 

We had no loss on loansale transactions in the three months ended March 31, 2010, a 100.00% increasecompared to $206 loss during the same period in 2009. This increase wasprimarily as a result of increased loan sales and gains, offsetting buy-backson prior sales. Management will continue to consider loan sale transactions ifthe opportunity for a reasonable return is available.

 

**Non-interestExpense** -Non-interest expense for the three months ended March 31, 2010 was $6,509,an increase of $1,576 or 31.95%, over the $4,933 expensed in the same period in2009.  Approximately 39.21% of the increase was a result of increases inloan collections expense.  Approximately 23.22% of the increase innon-interest expense was attributable to the increased number of full-timeemployees. At March 31, 2010, the Bank had 93 full-time employees comparedwith 85 full-time employees at March 31, 2009.

 

**NetInterest Income**- Net interest income for the three months ended March 31, 2010 was$13,249 compared to $9,840 for the same period in 2009, a gain of $3,409 or34.64%.  The increase in net interest income was largely attributable tostrong loan growth.  The average net loan balance increased by 10.06% or$105,872 from $1,052,076 for the three months ended March 31, 2009 to$1,157,948 for the same period in 2010. Loan growth was accompanied by anincrease in average interest bearing deposits from $1,054,630 for the threemonths ended March 31, 2009 to $1,202,175 for the same period in 2010, anincrease of $147,545 or 13.99%.

 

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The following tableoutlines the components of net interest income for the three-month periodsended March 31, 2010 and 2009 and identifies the impact of changes involume and rate:

 
| ** **                    | ** ** | **March 31, 2010 change from** | ** ** |
|-------------------------------|------------|-------------------------------------|------------|
| ** **                    | ** ** | **March 31, 2009 due to:**     | ** ** |
| ** **                    | ** ** | **Volume**                          | ** ** | **Rate** | ** ** | **Total** | ** ** |
|                          |       |                                |       |   |   |   |   |
| Interest  income              |       |                                |       |   |   |   |   |
| Loans                         |       | $                                   | 1,768      |   | $ | (400 | ) | $ | 1,368 |   |
| Securities  (taxable) (1)     |       | (178                                | )          | (140 | ) | (318 | ) |
| Federal  funds sold           |       | (4                                  | )          | 1 |   | (3 | ) |
| **Total interest income**     |       | 1,586                               |       | (539 | ) | 1,047 |   |
|                          |       |                                |       |   |   |   |   |
| Interest  expense             |       |                                |       |   |   |   |   |
| Deposits  (other than demand) |       | 1,149                               |       | (3,557 | ) | (2,408 | ) |
| Federal  funds purchased      |       | (32                                 | )          | 5 |   | (27 | ) |
| Subordinated  debt            |       | 42                                  |       | 31 |   | 73 |   |
| **Total interest expense**    |       | 1,159                               |       | (3,521 | ) | (2,362 | ) |
|                          |       |                                |       |   |   |   |   |
| Net  interest income          |       | $                                   | 427        |   | $ | 2,982 |   | $ | 3,409 |   |

 

----

(1)     Unrealized (loss) gain of $(1,537) and$(94) is excluded from yield calculation for the three months ended March 31,2010 and 2009, respectively.

 

**NetInterest Margin**— The net interest margin increased from 3.39% for the three months ended March 31,2009 to 4.25% for the same period in 2010 because of a larger decrease in ourcost for deposits, partially offset by a lower average yield from the loanportfolio.  Interest income increased by $1,047 or 5.38%, from $19,456during the three months ended March 31, 2009 to $20,503 during the sameperiod in 2010. The increase was primarily a result of increased rates on newand re-priced loans. Average earning assets increased from $1,176,360 inthe three months ended March 31, 2009 to $1,261,872 in the same period in2010, an increase of $85,512 or 7.27%.  The increase in earning assets wasprimarily a result of loan growth. Average loan balances increased by $105,872or 10.06% for the quarter ended March 31, 2010, from the same quarter in2009.  The average yield on earning assets decreased from 6.71% in thethree months ended March 31, 2009 to 6.58% in the same period in 2010. Thedecrease in the cost of funds, as a percentage of average balances, from 3.45%for the three months ended March 31, 2009 to 2.32% for the same period in2010 was primarily a result of decreases in short-term interest rates paid ondeposits that support our loan growth.

 

**InterestExpense** —Interest expense decreased from $9,616 in the three months ended March 31,2009 to $7,254 in the three months ended March 31, 2010. While averageinterest earning liabilities increased by $134,145 or 12.11%, the cost of fundsdecreased from 3.45% in the three months ended March 31, 2009 to 2.32%during the same three months in 2010, resulting in the $2,362, or 24.56%,decrease in interest expense.

 

**IncomeTaxes** - Oureffective tax rate for the three months ended March 31, 2010 was 38.84%compared to 38.10% for the three months ended March 31, 2009. Managementanticipates that tax rates in future periods will approximate the rates paid in2009.

 

**EfficiencyRatio** - Ourefficiency ratio, the ratio of non-interest expense to total revenues, for thethree months ended March 31, 2010 and 2009 was 46.71% and 49.99%,respectively, a decrease of 328 basis points. The following table reflects thecalculation of the efficiency ratio:

 
| ** **            | ** ** | **Three Months Ended** | ** ** |
|-----------------------|------------|------------------------|------------|
| ** **            | ** ** | **March 31,**     | ** ** |
| ** **            | ** ** | **2010**               | ** ** | **2009** | ** ** |
| Non-interest  expense |       | $                      | 6,509      |   | $ | 4,933 |   |
|                  |       |                   |       |   |   |
| Net  interest income  |       | 13,249                 |       | 9,840 |   |
| Non-interest  income  |       | 687                    |       | 27 |   |
| Net  revenues         |       | $                      | 13,936     |   | $ | 9,867 |   |
|                  |       |                   |       |   |   |
| Efficiency  ratio     |       | 46.71                  | %          | 49.99 | % |

 

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*AverageBalance Sheets, Net Interest Income, and Changes in Interest Income andInterest Expense*

 

The table below shows theaverage daily balances of each principal category of our assets, liabilitiesand shareholders’ equity, and an analysis of net interest income, and thechange in interest income and interest expense segregated into amountsattributable to changes in volume and changes in rates for the three-monthperiods ended March 31, 2010 and 2009. The table is presented on a taxequivalent basis, as applicable.

 
| ** **                                          | ** ** | **Three Months**         | ** ** | ** **   | ** ** | **Three Months**         | ** ** | ** **  | ** ** |
|-----------------------------------------------------|------------|--------------------------|------------|--------------|------------|--------------------------|------------|-------------|------------|
| ** **                                          | ** ** | **Ended March 31,** | ** ** | ** **   | ** ** | **Ended March 31,** | ** ** | ** **  | ** ** |
| ** **                                          | ** ** | **2010**                 | ** ** | ** **   | ** ** | **2009**                 | ** ** | ** **  | ** ** |
| ** **                                          | ** ** | **Average**              | ** ** | ** **   | ** ** | **Average**              | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| ** **                                          | ** ** | **Balance**              | ** ** | **Interest** | ** ** | **Rate**                 | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** |
| **ASSETS**                                          |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
|                                                |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
| Interest  earning assets                            |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
| Securities  (taxable) (1)                           |       | $                        | 100,283    |         | $          | 1,237                    |       | 4.93        | %          | $ | 114,115 |   | $ | 1,555 |   | 5.52 | % |
| Loans  (2) (3)                                 |       | 1,157,948                |       | 19,264       |       | 6.75                     | %          | 1,052,076   |       | 17,896 |   | 6.90 | % |
| Federal  funds sold                                 |       | 3,641                    |       | 2            |       | 0.22                     | %          | 10,169      |       | 5 |   | 0.20 | % |
| **Total interest earning assets**                   |       | 1,261,872                |       | 20,503       |       | 6.58                     | %          | 1,176,360   |       | 19,456 |   | 6.71 | % |
|                                                |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
| Non-interest  earning assets                        |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
| Cash  and due from banks                            |       | 8,581                    |       |         |       |                     |       | 5,973       |       |   |   |   |   |
| Net  fixed assets and equipment                     |       | 1,967                    |       |         |       |                     |       | 2,290       |       |   |   |   |   |
| Accrued  interest and other assets                  |       | 99,106                   |       |         |       |                     |       | 56,874      |       |   |   |   |   |
|                                                |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
| **Total assets**                                    |       | $                        | 1,371,526  |         |       |                     |       |        | $          | 1,241,497 |   |   |   |   |   |
|                                                |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
| **LIABILITIES AND SHAREHOLDERS EQUITY**             |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
|                                                |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
| Interest-bearing  liabilities                       |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
| Deposits  (other than demand)                       |       | 1,202,175                |       | 6,721        |       | 2.27                     | %          | 1,054,630   |       | 9,129 |   | 3.51 | % |
| Federal  funds purchased                            |       | 3,961                    |       | 8            |       | 0.82                     | %          | 20,328      |       | 35 |   | 0.70 | % |
| Subordinated  debt                                  |       | 36,165                   |       | 525          |       | 5.89                     | %          | 33,198      |       | 452 |   | 5.52 | % |
| **Total interest-bearing liabilities**              |       | 1,242,301                |       | 7,254        |       | 2.37                     | %          | 1,108,156   |       | 9,616 |   | 3.52 | % |
|                                                |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
| Non-interest  bearing liabilities                   |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
| Non-interest  bearing demand deposits               |       | 23,052                   |       |         |       |                     |       | 21,748      |       |   |   |   |   |
| Other  liabilities                                  |       | 9,003                    |       |         |       |                     |       | 11,319      |       |   |   |   |   |
| Shareholders’  equity                          |       | 97,170                   |       |         |       |                     |       | 100,274     |       |   |   |   |   |
|                                                |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
| **Total liabilities and shareholders’ equity** |       | $                        | 1,371,526  |         |       |                     |       |        | $          | 1,241,497 |   |   |   |   |   |
|                                                |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
| Net  interest spread                                |       | 4.21                     | %          |         |       |                     |       | 3.19        | %          |   |   |   |   |
|                                                |       |                     |       |         |       |                     |       |        |       |   |   |   |   |
| Net  interest margin                                |       | 4.25                     | %          |         |       |                     |       | 3.39        | %          |   |   |   |   |
|                                                     |            |                          |            |              |            |                          |            |             |            |  |  |  |  |  |  |  |  |

 

----

(1)                       Unrealized (loss) of $(1,537) and $(94)is excluded from yield calculation for the three months ended March 31,2010 and 2009, respectively.

 

(2)                       Non-accrual loans are included in averageloan balances and loan fees of $1,505 and $1,973 are included in interestincome for the three months ended March 31, 2010 and 2009, respectively.

 

(3)                       Loans are presented net of allowance forloan loss.

 

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**Comparisonof Financial Condition at March 31, 2010 and December 31, 2009**

 

**Assets****-** Total assets at March 31, 2010 were$1,382,851, a decrease of $581, or 0.04%, from total assets of $1,383,432 at December 31,2009. Lower cash and cash equivalents were the primary reason for the decrease,partially offset by an increase in net loans. The cash and cash equivalentsbalance decreased by $21,454 between December 31, 2009 and March 31,2010, as funds were used to fund loans made in the first quarter of 2010 aswell as to restructure deposits. At March 31, 2010, net loans equaled$1,166,061, up $14,673, or 1.27%, over the December 31, 2009 total netloans of $1,151,388.

 

Our business bank modelof operation generally results in a higher level of earning assets than ourpeer banks. Earning assets are defined as assets that earn interest income andinclude short-term investments, the investment portfolio and net loans. We generally maintain a higher level of earning assets than our peer banksbecause fewer assets are allocated to facilities, cash and “due from” bankaccounts used for transaction processing.  Earning assets at March 31,2010 were $1,272,277 or 92.00% of total assets of $1,382,851.  Earningassets at December 31, 2009 were $1,260,066, or 91.08% of total assets of$1,383,432.

 

**Loans** - We had total net loans of $1,166,061at March 31, 2010. The following table sets forth the composition of ourloan portfolio at March 31, 2010 and December 31, 2009:

 
| ** **                              | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| Real  estate                            |       |               |       |                  |       |
| Construction                            |       | $                  | 135,416    |                  | $          | 142,109 |   |
| 1 to  4 family residential              |       | 44,339             |       | 42,425                |       |
| Other                                   |       | 268,119            |       | 259,220               |       |
| Commercial,  financial and agricultural |       | 651,382            |       | 649,475               |       |
| Consumer                                |       | 3,581              |       | 3,476                 |       |
| Tax  leases                             |       | 83,334             |       | 74,596                |       |
|                                    |       |               |       |                  |       |
| **Total loans**                         |       | 1,186,171          |       | 1,171,301             |       |
| Less:  allowance for loan losses        |       | (20,110            | )          | (19,913               | )          |
|                                    |       |               |       |                  |       |
| Net  loans                              |       | $                  | 1,166,061  |                  | $          | 1,151,388 |   |

 

The following table setsforth the percentage composition of our loan portfolio by type at March 31,2010 and December 31, 2009:

 
| ** **                              | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| Real  estate                            |       |               |       |                  |       |
| Construction                            |       | 11.42              | %          | 12.13                 | %          |
| 1 to  4 family residential              |       | 3.74               |       | 3.62                  |       |
| Other                                   |       | 22.60              |       | 22.13                 |       |
| Commercial,  financial and agricultural |       | 54.91              |       | 55.45                 |       |
| Consumer                                |       | 0.30               |       | 0.30                  |       |
| Tax  leases                             |       | 7.03               |       | 6.37                  |       |
|                                    |       |               |       |                  |       |
| **Total loans**                         |       | 100.00             | %          | 100.00                | %          |

 

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The following table setsforth the composition of our commercial loan portfolio by source at March 31,2010 and December 31, 2009:

 
| ** **         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------|------------|--------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| ** **         | ** ** | **Amount**         | ** ** | **%**                 | ** ** | **Amount** | ** ** | **%** | ** ** |
|               |       |               |       |                  |       |   |   |   |   |
| Direct  funding    |       | $                  | 369,772    |                  | 56.77      | % | $ | 351,933 |   | 54.19 | % |
| Indirect  funding: |       |               |       |                  |       |   |   |   |   |
| Large              |       | 124,745            |       | 19.15                 |       | 130,573 |   | 20.10 |   |
| Small              |       | 156,865            |       | 24.08                 |       | 166,969 |   | 25.71 |   |
| **Total**          |       | $                  | 651,382    |                  | 100.00     | % | $ | 649,475 |   | 100.00 | % |

 

Management periodicallyreviews our loan portfolio, particularly non-accrual and renegotiatedloans.  The review may result in a determination that a loan should beplaced on a non-accrual status for income recognition. When a loan isclassified as non-accrual, any unpaid interest is reversed against currentincome.  Interest is included in income thereafter only to the extentreceived in cash.  The loan remains in a non-accrual classification untilsuch time as the loan is brought current, when it may be returned to accrualclassification.

 

The following tablepresents information regarding non-accrual, past due and restructured loans at March 31,2010 and December 31, 2009:

 
| ** **                                                                                              | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                              | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| Non-accrual  loans:                                                                                     |       |               |       |                  |       |
| Number                                                                                                  |       | 405                |       | 225                   |       |
| Amount                                                                                                  |       | $                  | 34,792     |                  | $          | 19,151 |   |
|                                                                                                    |       |               |       |                  |       |
| Accruing  loans which are contractually past due 90 days or more as to principal and  interest payments |       |               |       |                  |       |
| Number                                                                                                  |       | 117                |       | 30                    |       |
| Amount                                                                                                  |       | $                  | 6,232      |                  | $          | 1,328 |   |
|                                                                                                    |       |               |       |                  |       |
| Loans  defined as troubled debt restructurings :                                                        |       |               |       |                  |       |
| Number                                                                                                  |       | 1                  |       | 1                     |       |
| Amount                                                                                                  |       | $                  | 104        |                  | $          | 111 |   |
|                                                                                                    |       |               |       |                  |       |
| Gross  income lost to non-accrual loans                                                                 |       | $                  | 753        |                  | $          | 2,708 |   |
|                                                                                                    |       |               |       |                  |       |
| Interest  income included in net income on the accruaing loans                                          |       | $                  | 148        |                  | $          | 112 |   |

 

As of March 31,2010, there were no loans which represented trends or uncertainties thatmanagement reasonably expects will materially impact future operating results,liquidity, or capital resources that have not been disclosed in the above tableand classified for regulatory purposes as doubtful or substandard.

 

The Bank had no tax-exemptloans during the quarter ended March 31, 2010 or the year ended December 31,2009. The Bank had no loans outstanding to foreign borrowers at March 31,2010 and December 31, 2009.

 

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**Allowancefor Loan Losses**- The maintenance of an adequate allowance for loan losses, or ALL, is one ofthe fundamental concepts of risk management for every financial institution.Management is responsible for ensuring that controls are in place to ensure theadequacy of the loan loss reserve in accordance with GAAP, our stated policiesand procedures, and regulatory guidance.

 

It is management’s intentto maintain an ALL that is adequate to absorb current and estimated losseswhich are inherent in a loan portfolio.  The historical loss ratio (netcharge-offs as a percentage of average loans) was 0.37% for the three monthsended March 31, 2010 and 0.61% for the three months ended March 31,2009. The ALL as a percentage of the outstanding loans at the end of theperiods was 1.70% at March 31, 2010 and 1.40% at March 31, 2009.

 

An analysis of our ALLand net charge-offs is furnished in the following table for the three monthsended March 31, 2010 and the same period ended March 31, 2009:

 

| ** **                                                                                      | ** ** | **March 31,** | ** ** | **March 31,** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|--------------------|------------|--------------------|------------|
| ** **                                                                                      | ** ** | **2010**           | ** ** | **2009**           | ** ** |
| Allowance  for loan losses at beginning of period                                               |       | $                  | 19,913     |               | $          | 13,454 |   |
| Charge-offs:                                                                                    |       |               |       |               |       |
| Real  estate:                                                                                   |       |               |       |               |       |
| Construction                                                                                    |       | 80                 |       | 2,218              |       |
| 1 to  4 family residential                                                                      |       | 78                 |       | 346                |       |
| Other                                                                                           |       | —             |       | 202                |       |
| Commercial,  financial and agricultural                                                         |       | 4,348              |       | 3,897              |       |
| Consumer                                                                                        |       | —             |       | 7                  |       |
| **Total Charge-offs**                                                                           |       | 4,506              |       | 6,670              |       |
|                                                                                            |       |               |       |               |       |
| Recoveries:                                                                                     |       |               |       |               |       |
| Real  estate:                                                                                   |       |               |       |               |       |
| Construction                                                                                    |       | 42                 |       | —             |       |
| 1 to  4 family residential                                                                      |       | —             |       | —             |       |
| Other                                                                                           |       | 10                 |       | —             |       |
| Commercial,  financial and agricultural                                                         |       | 51                 |       | 126                |       |
| Consumer                                                                                        |       | —             |       | —             |       |
| **Total Recoveries**                                                                            |       | 103                |       | 126                |       |
|                                                                                            |       |               |       |               |       |
| Net  Charge-offs                                                                                |       | 4,403              |       | 6,544              |       |
|                                                                                            |       |               |       |               |       |
| Provision  for loans charged to expense                                                         |       | 4,600              |       | 8,514              |       |
| Allowance  for loan losses at end of period                                                     |       | $                  | 20,110     |               | $          | 15,424 |   |
|                                                                                            |       |               |       |               |       |
| Net  charge-offs as a percentage of average total loans outstanding during the  period          |       | 0.37               | %          | 0.61               | %          |
|                                                                                            |       |               |       |               |       |
| Ending  allowance for loan losses as a percentage of total loans outstanding during  the period |       | 1.70               | %          | 1.40               | %          |

 

The allowance for loanlosses is established by charges to operations based on management’s evaluationof the loan portfolio, past due loan experience, collateral values, currenteconomic conditions and other factors considered necessary to maintain theallowance at an adequate level.

 

**Securities** - The securities portfolio at March 31,2010 was $96,506 compared to $93,668 at December 31, 2009.  We viewthe securities portfolio as a source of income and liquidity.  Thesecurities portfolio was 6.98% of total assets at March 31, 2010 and 6.77%of total assets at December 31, 2009.

 

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**Liabilities****-** We depend on a growing deposit base tofund loan and other asset growth. We compete for local deposits by offeringattractive products with premium rates.  We also obtain funding in thewholesale deposit market which is accessed by means of an electronic bulletinboard.  This electronic market links banks and acquirers of funds tocredit unions, school districts, labor unions and other organizations withexcess liquidity. Wholesale deposits are categorized as “Purchased timedeposits” on the detail of deposits shown in the table below.

 

**Depositsand Funding** —Total deposits at March 31, 2010 were $1,239,835, down $2,707 or 0.22%from total deposits of $1,242,542 at December 31, 2009 . Totalaverage deposits during the three months ended March 31, 2010 were$1,225,227, an increase of $148,849, or 13.83% over the total average depositsof $1,076,378 during the three months ended March 31, 2009. Average non-interestbearing deposits increased by $1,304, or 6.00%, from $21,748 in the threemonths ended March 31, 2009, to $23,052 in the three months ended March 31,2010.

 

Utilizing a combinationof funding sources from the pledging of investment securities and the FederalHome Loan Bank (FHLB), this funding portfolio has a weighted average maturityof one month and a weighted average rate of 0.26%. This strategy was primarilyexecuted to reduce overnight liquidity risk and to mitigate interest ratesensitivity on the balance sheet. At March 31, 2010, the maximum availableadvance was $5,480 with no outstanding principal balance. At December 31,2009, there was no outstanding principle balance. At March 31, 2010, thetotal capital stock balance was 2,169 shares with a value of $2,169.

 

The following table setsforth average deposit balances for the three months ended March 31, 2010and 2009 and the average rates paid on those balances:

 
| ** **                            | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------|------------|----------------------------------|------------|
| ** **                            | ** ** | **2010**                         | ** ** | **2009** | ** ** |
| ** **                            | ** ** | **Average  Balance**             | ** ** | **Average  Rate  Paid (1)** | ** ** | **Average  Balance** | ** ** | **Average  Rate  Paid (1)** | ** ** |
| Types  of Deposits:                   |       |                             |       |   |   |   |   |   |   |
| Non-interest-bearing  demand deposits |       | $                                | 23,051     |   | — | % | $ | 21,747 |   | — | % |
| Interest-bearing  demand deposits     |       | 8,473                            |       | 0.21 |   | 6,890 |   | 0.15 |   |
| Money  market accounts                |       | 47,412                           |       | 1.67 |   | 47,681 |   | 0.72 |   |
| Savings  accounts                     |       | 242,181                          |       | 2.19 |   | 9,621 |   | 2.55 |   |
| IRA  accounts                         |       | 35,709                           |       | 2.85 |   | 33,032 |   | 4.15 |   |
| Purchased  time deposits              |       | 506,191                          |       | 2.39 |   | 525,810 |   | 3.96 |   |
| Time  deposits                        |       | 362,210                          |       | 2.22 | % | 431,597 |   | 3.29 | % |
| **Total deposits**                    |       | $                                | 1,225,227  |   |   |   | $ | 1,076,378 |   |   |   |

 

----

(1)                 Rate is annualized

 

**Short-TermDebt** —In December 2009, TCB entered into ashort-term revolving line of credit with a qualified investor, pursuant towhich the qualified investor agreed to loan TCB up to $5,000 at an interestrate of prime plus 1.00% with a floor of 6.25%. The qualified investor’sobligation to make advances to TCB under this line of credit terminated on March 31,2010. This line was paid off on March 30, 2010.

 

In May 2009,we entered into a short-term revolving line of credit with a qualifiedinvestor, pursuant to which the qualified investor agreed to loan us up to$10,000 at an interest rate of 5.00%. The qualified investor’s obligation to make advances to us under thisline of credit has been extended through February 4, 2011 in the principalbalance of $8,750.  We agreed with thequalified investor that, until the note, together with interest, and all of ourother indebtedness to the lender are paid in full, we will (i) make allfinancial information available, (ii) pay all taxes and claims prior todate of penalty, (iii) preserve our corporate status, (iv) givenotice of adverse events, (v) maintain capital ratios and (vi) givenotice of changes in management.

 

Both outstandinglines of credit are secured by all inventories at TCB and 100% of alloutstanding stock of the Bank.

 

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**SubordinatedDebt and Long Term Debt**— In March 2005, we formed a financingsubsidiary, Tennessee Commerce Statutory Trust I, a Delaware statutory trust,or the Trust I. In March 2005, the Trust I issued and sold 8,000 of theTrust I’s fixed/floating rate capital securities, with a liquidation amount of$1 per capital security, to First Tennessee Bank, National Association. At thesame time, we issued to Trust I $8,248 of fixed/floating rate juniorsubordinated deferrable interest debentures due 2035. The debentures pay a6.73% fixed rate payable quarterly for the first five years and a floating ratebased on a three-month LIBOR rate plus a margin thereafter.

 

In April 2008, weformed a financing subsidiary, Tennessee Commerce Statutory Trust II, aDelaware statutory trust, or the Trust II. In June 2008, the Trust II issuedand sold 14,500 of the Trust II’s floating rate capital securities, with aliquidation amount of $1 per capital security, in a private placement. At thesame time, we issued to Trust II $14,950 of floating rate junior subordinateddeferrable interest debentures due 2038. The debentures pay a floating rate perannum, reset quarterly, equal to the prime rate of interest published in*  The Wall Street Journal*   onthe first business day of each distribution period plus 50 basis points (but inno event greater than 8.00% or less than 5.75%).

 

In accordance with GAAP,neither the Trust I nor the Trust II is consolidated. We report as liabilitiesthe subordinated debentures issued by us and held by the Trust I and Trust II.

 

On March 29, 2010,TCB entered into a short-term revolving line with a qualified investor,pursuant to which the qualified investor agreed to loan TCB up to $5,000 at aninterest rate of prime plus 1.00% with a floor of 6.25%.  The qualified investor’s obligation to makeadvances to TCB under this line of credit terminates on March 29, 2012.TCB had outstanding borrowings of $3,323 under this line of credit at March 31,2010.

 

**Off-BalanceSheet Arrangements**

 

We are a party tofinancial instruments with off-balance sheet risk in the normal course ofbusiness to meet the financing needs of our customers. At March 31, 2010,we had unfunded loan commitments outstanding of $266,049 and standbyletters of credit and financial guarantees of $10,028. Those instrumentsinvolve, to varying degrees, elements of credit risk in excess of the amountrecognized in the balance sheet.  The contract or notional amounts ofthose instruments reflect the extent of our involvement in those particularfinancial instruments. We use the same credit policies in making commitmentsand conditional obligations as we do for on-balance sheet instruments.

 

Because these commitmentsgenerally have fixed expiration dates and many will expire without being drawnupon, the total commitment level does not necessarily represent future cashrequirements. If needed, we can liquidate federal funds sold or securitiesavailable for sale or borrow and purchase federal funds from other financialinstitutions, where we have available federal fund lines totaling $38,800 at March 31,2010.

 

**Liquidity** - Of primary importance to depositors,creditors and regulators is the ability to have readily available fundssufficient 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 areavailable at all times, the Bank devotes resources to projecting on a monthlybasis the amount of funds that will be required and maintains relationshipswith a diversified customer base so funds are accessible.  Liquidityrequirements can also be met through short-term borrowings or the dispositionof short-term assets which are generally matched to correspond to the maturityof liabilities.

 

Although the Bank has noformal liquidity policy, in the opinion of management, its liquidity levels areconsidered adequate.  The Bank is subject to general FDIC guidelines whichdo not require a minimum level of liquidity.  Management believes the Bank’sliquidity ratios meet or exceed general FDIC guidelines.  Management doesnot know of any trends or demands that are reasonably likely to result inliquidity increasing or decreasing in any material manner over the next threemonths.

 

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**CapitalResources****-**Our objective is to maintain a level of capitalization that is sufficient totake advantage of profitable growth opportunities while meeting regulatoryrequirements. To continue to grow, we must increase capital by generatingearnings, issuing equities, borrowing funds or a combination of thoseactivities.

 

The Federal Reserve Boardhas adopted capital guidelines governing the activities of bank holdingcompanies.  These guidelines require the maintenance of an amount ofcapital based on risk-adjusted assets so that categories of assets withpotentially higher credit risk will require more capital backing than assetswith lower risk.  In addition, banks and bank holding companies arerequired to maintain capital to support, on a risk-adjusted basis, certainoff-balance sheet activities such as loan commitments.

 

The capital guidelinesclassify capital into two tiers, referred to as Tier I and Tier II.Under risk-based capital requirements, total capital consists of Tier Icapital which is generally common shareholders’ equity less goodwill and TierII capital which is primarily a portion of the ALL and certain preferred stockand qualifying debt instruments. In determining risk-based capitalrequirements, assets are assigned risk-weights of 0.00% to 100.00%, dependingprimarily on the regulatory assigned levels of credit risk associated with suchassets. Off-balance sheet items are considered in the calculation ofrisk-adjusted assets through conversion factors established by bank regulators.The framework for calculating risk-based capital requires banks and bankholding companies to meet the regulatory minimums of 4.00% Tier I and8.00% total risk-based capital. In 1990, regulators added a leveragecomputation to the capital requirements, comparing Tier I capital to totalaverage assets less goodwill.

 

The Federal DepositInsurance Corporation Improvement Act of 1991 established five capitalcategories for banks and bank holding companies. The bank regulators adoptedregulations defining these five capital categories in September 1992.Under these regulations, each bank is classified into one of the fivecategories based on its level of risk-based capital as measured by Tier Icapital, total risk-based capital, Tier I leverage ratios and itssupervisory ratings.

 

At March 31,2010 and December 31, 2009, the Bank’s and the Corporation’s risk-basedcapital ratios and the minimums for capital adequacy to be consideredadequately capitalized and well-capitalized under the Federal Reserve Board’sprompt corrective action guidelines were as follows:

 
| ** **                                      | ** ** | ** **         | ** ** | ** **            | ** ** | ** **      | ** ** | **Minimum to**    | ** ** |
|-------------------------------------------------|------------|--------------------|------------|-----------------------|------------|-----------------|------------|-------------------|------------|
| ** **                                      | ** ** | ** **         | ** ** | ** **            | ** ** | **Minimum**     | ** ** | **be considered** | ** ** |
| ** **                                      | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **for capital** | ** ** | **well-**         | ** ** |
| ** **                                      | ** ** | **2010**           | ** ** | **2009**              | ** ** | **adequacy**    | ** ** | **capitalized**   | ** ** |
| ** **                                      | ** ** | **%**              | ** ** | **%**                 | ** ** | **%**           | ** ** | **%**             | ** ** |
| **Tier 1 leverage ratio**                       |       |               |       |                  |       |            |       |              |       |
| Tennessee  Commerce Bank                        |       | 8.78               |       | 8.74                  |       | 4.00            |       | 5.00              |       |
| Tennessee  Commerce Bancorp, Inc.          |       | 8.86               |       | 8.93                  |       | 4.00            |       | N/A               |       |
|                                            |       |               |       |                  |       |            |       |              |       |
| **Tier 1 core capital to risk-weighted assets** |       |               |       |                  |       |            |       |              |       |
| Tennessee  Commerce Bank                        |       | 9.46               |       | 9.37                  |       | 4.00            |       | 6.00              |       |
| Tennessee  Commerce Bancorp, Inc.          |       | 9.56               |       | 9.54                  |       | 4.00            |       | N/A               |       |
|                                            |       |               |       |                  |       |            |       |              |       |
| **Total capital to risk-weighted assets**       |       |               |       |                  |       |            |       |              |       |
| Tennessee  Commerce Bank                        |       | 10.72              |       | 10.63                 |       | 8.00            |       | 10.00             |       |
| Tennessee  Commerce Bancorp, Inc.          |       | 10.82              |       | 10.83                 |       | 8.00            |       | N/A               |       |

 

Based solely on ouranalysis of federal banking regulatory categories, on March 31, 2010 and December 31,2009, the Bank met the “well capitalized” categories under the regulations.

 

**Impactof Inflation and Changing Prices** - The financial statements and related financial datapresented herein have been prepared in accordance with U.S. generally acceptedaccounting principles which require the measurement of financial position andoperating results in terms of historical dollars without considering thechanges in the relative purchasing power of money over time and resulting frominflation. The impact of inflation on operations of the Bank is reflected inincreased operating costs. Unlike most industrial companies, almost all of theassets and liabilities of the Bank are monetary in nature. As a result,interest rates have a more significant impact on the Bank’s performance thanthe effects of general levels of inflation. Interest rates do not necessarilymove in the same direction or in the same magnitude as the price of goods andservices.

 

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**ITEM 3. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK.**

 

Like all financialinstitutions, we are subject to market risk from changes in interest rates.Interest rate risk is inherent in the balance sheet because of the mismatchbetween the maturities of rate sensitive assets and rate sensitive liabilities.If rates are rising, and the level of rate sensitive liabilities exceeds thelevel of rate sensitive assets, the net interest margin will be negativelyimpacted. Conversely, if rates are falling, and the level of rate sensitiveliabilities is greater than the level of rate sensitive assets, the impact onthe net interest margin will be favorable. Managing interest rate risk isfurther 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 remainstable. In addition, different types of rate sensitive assets and ratesensitive liabilities react differently to changes in rates.

 

To manage interest raterisk, we must take a position on the expected future trend of interest rates.Rates may rise, fall or remain the same. The Bank’s asset liability committeedevelops its view of future rate trends and strives to manage rate risk withina targeted range by monitoring economic indicators, examining the views ofeconomists and other experts, and understanding the current status of ourbalance sheet. Our annual budget reflects the anticipated rate environment forthe next twelve months. The asset liability committee conducts a quarterlyanalysis of the rate sensitivity position and reports its results to the Bank’sboard of directors.

 

The asset liabilitycommittee uses a computer model to analyze the maturities of rate sensitiveassets and liabilities. The model measures the “gap” which is defined as thedifference between the dollar amount of rate sensitive assets re-pricing duringa period and the volume of rate sensitive liabilities re-pricing during thesame period. Gap is also expressed as the ratio of rate sensitive assetsdivided by rate sensitive liabilities. If the ratio is greater than one, thedollar value of assets exceeds the dollar value of liabilities, and the balancesheet is “asset sensitive.” Conversely, if the value of liabilities exceeds thevalue of assets, the ratio is less than one and the balance sheet is “liabilitysensitive.” Our internal policy requires management to maintain the gap withina range of 0.75 to 1.25.

 

The model measuresscheduled maturities in periods of one to three months, four to 12 months, oneto five years and over five years. The chart below illustrates our ratesensitive position at March 31, 2010. Management uses the one-year gap asthe appropriate time period for setting strategy.

 

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Rate Sensitivity GapAnalysis

(Dollars in thousands)

 
| ** **                                                       | ** ** | ** **   | ** ** | **1-3**    | ** ** | **4-12**   | ** ** | **1-5**   | ** ** | **Over**    | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|--------------|------------|------------|------------|------------|------------|-----------|------------|-------------|------------|------------|------------|
| ** **                                                       | ** ** | **Floating** | ** ** | **Months** | ** ** | **Months** | ** ** | **Years** | ** ** | **5 years** | ** ** | **Total**  | ** ** |
| Maturities  :                                                    |       |         |       |       |       |       |       |      |       |        |       |       |       |
| Interest-Earnings  Assets                                        |       |         |       |       |       |       |       |      |       |        |       |       |       |
| Federal  funds sold                                              |       | $            | —     |       | $          | 9,710      |       | $         | —     |        | $          | —     |       | $ | — |   | $ | 9,710 |   |
|                                                             |       |         |       |       |       |       |       |      |       |        |       |       |       |
| Securities                                                       |       |         |       |       |       |       |       |      |       |        |       |       |       |
| U.S.  government agencies                                        |       | —       |       | 34         |       | 108        |       | 629       |       | 95,566      |       | 96,337     |       |
| Mortgage-backed  securities                                      |       | —       |       | —     |       | —     |       | —    |       | 169         |       | 169        |       |
| **Total securities**                                             |       | —       |       | 34         |       | 108        |       | 629       |       | 95,735      |       | 96,506     |       |
|                                                             |       |         |       |       |       |       |       |      |       |        |       |       |       |
| **Total loans**                                                  |       | —       |       | 205,325    |       | 326,858    |       | 622,271   |       | 31,717      |       | 1,186,171  |       |
|                                                             |       |         |       |       |       |       |       |      |       |        |       |       |       |
| **Total interest-earning assets**                                |       | —       |       | 215,069    |       | 326,966    |       | 622,900   |       | 127,452     |       | 1,292,387  |       |
|                                                             |       |         |       |       |       |       |       |      |       |        |       |       |       |
| Other  assets                                                    |       | —       |       | —     |       | —     |       | —    |       | 90,464      |       | 90,464     |       |
|                                                             |       |         |       |       |       |       |       |      |       |        |       |       |       |
| **Total assets**                                                 |       | —       |       | 215,069    |       | 326,966    |       | 622,900   |       | 217,916     |       | 1,382,851  |       |
|                                                             |       |         |       |       |       |       |       |      |       |        |       |       |       |
| Interest-bearing  liabilities                                    |       |         |       |       |       |       |       |      |       |        |       |       |       |
| Deposits                                                         |       |         |       |       |       |       |       |      |       |        |       |       |       |
| Interest  checking                                               |       | $            | —     |       | $          | 388        |       | $         | 986        |        | $          | 2,531      |       | $ | 882 |   | $ | 4,787 |   |
| Money  market and savings                                        |       | —       |       | 32,204     |       | 73,266     |       | 150,630   |       | 46,537      |       | 302,637    |       |
| Time  deposits                                                   |       | —       |       | 215,931    |       | 277,919    |       | 416,368   |       | (915        | )          | 909,303    |       |
| **Total deposits**                                               |       | —       |       | 248,523    |       | 352,171    |       | 569,529   |       | 46,504      |       | 1,216,727  |       |
|                                                             |       |         |       |       |       |       |       |      |       |        |       |       |       |
| Federal  funds purchased                                         |       |         |       |       |       |       |       |      |       |        |       |       |       |
| Short-term  debt                                                 |       | —       |       | —     |       | 8,750      |       | —    |       | —      |       | 8,750      |       |
| Subordinated  debt                                               |       | —       |       | —     |       | —     |       | 3,323     |       | 23,198      |       | 26,521     |       |
|                                                             |       |         |       |       |       |       |       |      |       |        |       |       |       |
| **Total interest-bearing liabilities**                           |       | —       |       | 248,523    |       | 360,921    |       | 572,852   |       | 69,702      |       | 1,251,998  |       |
|                                                             |       |         |       |       |       |       |       |      |       |        |       |       |       |
| Other  liabilities                                               |       | —       |       | —     |       | —     |       | —    |       | 32,446      |       | 32,446     |       |
|                                                             |       |         |       |       |       |       |       |      |       |        |       |       |       |
| Shareholders  equity                                             |       | —       |       | —     |       | —     |       | —    |       | 98,407      |       | 98,407     |       |
|                                                             |       |         |       |       |       |       |       |      |       |        |       |       |       |
| **Total liabilities and shareholders equity**                    |       | $            | —     |       | $          | 248,523    |       | $         | 360,921    |        | $          | 572,852    |       | $ | 200,555 |   | $ | 1,382,851 |   |
|                                                             |       |         |       |       |       |       |       |      |       |        |       |       |       |
| Rate  sensitive gap by period                                    |       | $            | —     |       | $          | (33,454    | )          | $         | (33,955    | )           | $          | 50,048     |       | $ | 57,750 |   |   |   |
| Cumulative  gap                                                  |       |         |       | $          | (33,454    | )          | $          | (67,409   | )          | $           | (17,361    | )          | $          | 40,389 |   |   |   |
|                                                             |       |         |       |       |       |       |       |      |       |        |       |       |       |
| Cumulative  gap as a percentage of total assets                  |       |         |       | (2.42      | )%         | (4.87      | )%         | (1.26     | )%         | 2.92        | %          |       |       |
| Rate  sensitive assets / rate sensitive liabilities (cumulative) |       | $            | —     |       | $          | 0.87       |       | $         | 0.89       |        | $          | 0.99       |       | $ | 1.03 |   |   |   |

 

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Our earnings simulationmodel measures the impact of changes in interest rates on net interest income.To limit interest rate risk, we have a guideline for our earnings at risk whichsets a limit on the variance of net interest income to less than a5% percent decline for a 100-basis point change up or down in rates frommanagement’s flat interest rate forecast over the next twelve months. At March 31,2010, we were in compliance with this guideline.

 

Our economic value ofequity model measures the extent that estimated economic values of our assets,liabilities and off-balance sheet items will change as a result of interestrate changes. To help limit interest rate risk, we have a guideline statingthat for an instantaneous 100-basis point increase or decrease in interestrates, the economic value of equity will not decrease by more than 10% from thebase case. At March 31, 2010, we were in compliance with this guideline.

 

The above analysis maynot on its own be an entirely accurate indicator of how net interest income ornet interest margin will be affected by changes in interest rates. Incomeassociated with interest-earning assets and costs associated withinterest-bearing liabilities may not be affected uniformly by changes ininterest rates. In addition, the magnitude and duration of changes in interestrates may have a significant impact on net interest income. Interest rates oncertain types of assets and liabilities fluctuate in advance of changes ingeneral market rates, while interest rates on other types may lag behindchanges in general market rates. The asset liability committee develops itsview of future rate trends by monitoring economic indicators, examining theviews of economists and other experts, and understanding the current status ofour balance sheet and conducts a quarterly analysis of the rate sensitivityposition. The results of the analysis are reported to the Bank’s board ofdirectors.

 

**ITEM4. CONTROLS AND PROCEDURES.**

 

Evaluation of DisclosureControls and Procedures

 

We maintain disclosurecontrols and procedures, as defined in Rule 13a-15(e) promulgatedunder the Securities Exchange Act of 1934, as amended (the “Exchange Act”),that are designed to ensure that information required to be disclosed by us inthe reports that we file or submit under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms and that suchinformation is accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate, to allowtimely decisions regarding required disclosure. We carried out an evaluation,under the supervision and with the participation of our management, includingour Chief Executive Officer and Chief Financial Officer, of the effectiveness ofthe design and operation of our disclosure controls and procedures as of theend of the period covered by this report. Based on the evaluation of thesedisclosure controls and procedures, the Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures areeffective to allow timely decisions regarding disclosure in the reports that wefile or submit to the Securities and Exchange Commission under the ExchangeAct.

 

Internal Control OverFinancial Reporting

 

There were no changes inour internal control over financial reporting during the quarter ended March 31,2010 that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

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**PART II: OTHER INFORMATION**

 

**ITEM1A. RISK FACTORS.**

 

There were no materialchanges to our risk factors included in Part I, Item 1A of our AnnualReport on  Form 10-K for the year ended December 31, 2009, asfiled with the Securities and Exchange Commission on March 9, 2010.

 

**ITEM6. EXHIBITS.**

 
| **Exhibit  No.** | ** ** | **Description** |
|------------------|------------|-----------------|
|             |       |            |
| 3.1              |       |            | 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              |       |            | Shareholders’  Agreement(2) |
| 4.2              |       |            | Form of Stock  Certificate(4) |
| 4.3              |       |            | Indenture, dated as of  June 20, 2008, between Tennessee Commerce Bancorp, Inc. and  Wilmington Trust Company, as trustee(5) |
| 4.4              |       |            | 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(6) |
| 4.5              |       |            | Guarantee Agreement,  dated as of June 20, 2008, between Tennessee Commerce Bancorp, Inc.  and Wilmington Trust Company(5) |
| 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 |

 

----

(1)       Previously filed as an exhibit to Tennessee CommerceBancorp, Inc.’s Registration Statement on Form 10-Q, as filed withthe Securities and Exchange Commission on November 6, 2009, andincorporated herein by reference.

 

(2)       Previously filed as an exhibit to Tennessee CommerceBancorp, Inc.’s Registration Statement on Form 10, as filed with theSecurities and Exchange Commission on April 29, 2005, and incorporatedherein by reference.

 

(3)       Previously filed as an exhibit to Tennessee CommerceBancorp, Inc.’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on February 5, 2008, and incorporatedherein by reference.

 

(4)       Previously filed as an exhibit to Tennessee CommerceBancorp, Inc.’s Registration Statement on Form S-8, as filed with theSecurities and Exchange Commission on December 31, 2007 (Registration No. 333-148415),and incorporated herein by reference.

 

(5)       Previously filed as an exhibit to Tennessee CommerceBancorp, Inc.’s Current Report on Form-8-K, as filed with the Securitiesand Exchange Commission on June 23, 2008, and incorporated herein byreference.

 

(6)       Previously filed as an exhibit to Tennessee CommerceBancorp, Inc.’s Current Report on Form-8-K/A, as filed with the Securitiesand Exchange Commission on June 30, 2008, and incorporated herein byreference.

 

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SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|             |   | Tennessee Commerce  Bancorp, Inc. |
|------------------|--------|----------------------------------------|
|             |   | (Registrant)                           |
|             |   |                                   |
|             |   |                                   |
| May 7, 2010 |   | /s/ Frank Perez                        |
| (Date)           |   | Frank Perez                            |
|             |   | Chief Financial Officer                |

 

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**INDEXOF EXHIBITS**

 
| **Exhibit  No.** | ** ** | **Description** |
|------------------|------------|-----------------|
|             |       |            |
| 3.1              |       |            | 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              |       |            | Shareholders’  Agreement(2) |
| 4.2              |       |            | Form of Stock  Certificate(4) |
| 4.3              |       |            | Indenture, dated as of June 20,  2008, between Tennessee Commerce Bancorp, Inc. and Wilmington Trust  Company, as trustee(5) |
| 4.4              |       |            | 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(6) |
| 4.5              |       |            | Guarantee Agreement,  dated as of June 20, 2008, between Tennessee Commerce Bancorp, Inc.  and Wilmington Trust Company(5) |
| 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 |

 

----

(1)       Previously filed as an exhibit to Tennessee CommerceBancorp, Inc.’s Registration Statement on Form 10-Q, as filed withthe Securities and Exchange Commission on November 6, 2009, andincorporated herein by reference.

 

(2)       Previously filed as an exhibit to Tennessee CommerceBancorp, Inc.’s Registration Statement on Form 10, as filed with theSecurities and Exchange Commission on April 29, 2005, and incorporatedherein by reference.

 

(3)       Previously filed as an exhibit to Tennessee CommerceBancorp, Inc.’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on February 5, 2008, and incorporatedherein by reference.

 

(4)       Previously filed as an exhibit to Tennessee CommerceBancorp, Inc.’s Registration Statement on Form S-8, as filed with theSecurities and Exchange Commission on December 31, 2007 (Registration No. 333-148415),and incorporated herein by reference.

 

(5)       Previously filed as an exhibit to Tennessee CommerceBancorp, Inc.’s Current Report on Form-8-K, as filed with the Securitiesand Exchange Commission on June 23, 2008, and incorporated herein byreference.

 

(6)       Previously filed as an exhibit to Tennessee CommerceBancorp, Inc.’s Current Report on Form-8-K/A, as filed with the Securitiesand Exchange Commission on June 30, 2008, and incorporated herein byreference.

 

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