**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

**FORM 10-Q**

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**FOR THE QUARTERLY PERIOD ENDEDMarch 31, 2007**

**Commission File Number 000-51281**

**TENNESSEECOMMERCE BANCORP, INC.**

(Exact Name of Registrant As Specified in Its Charter)

| **Tennessee**                                |   | **62-1815881**                     |
|----------------------------------------------|--------|------------------------------------|
| (State or Other  Jurisdiction of             |   | (IRS Employer  Identification No.) |
| Incorporation or  Organization)              |   |                               |
|                                         |   |                               |
| **381  Mallory Station Rd., Suite 207** |   | **Franklin,  Tennessee 37067**     |

(Address of Principal Executive Offices and Zip Code)

**(615) 599-2274**

(Registrant’s Telephone Number, Including Area Code)

**NotApplicable**

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

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

Yes x               No o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act. (Check one): 
| Large Accelerated Filer o |   | Accelerated Filer o |   | Non-accelerated Filer x |
|---------------------------|--------|--------------------------|--------|------------------------------|

 

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 2, 2007 there were 4,507,024shares of common stock, $0.50 par value per share, issued and outstanding.

 

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**Tennessee Commerce Bancorp, Inc.**

Table of Contents
| **Part I**  | ** ** | **Financial Information**                                                                                                        |   | 3      |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|             |       |                                                                                                                             |   |   |
| Item 1.          |       | Financial Statements                                                                                                             |   | 3      |
|             |       |                                                                                                                             |   |   |
|             |       | Consolidated Balance  Sheets at March 31, 2007 (unaudited) and December 31, 2006                                       |   | 3      |
|             |       |                                                                                                                             |   |   |
|             |       | Consolidated  Statements of Income (unaudited) for the Three Months Ended March 31,  2007 and 2006                          |   | 4      |
|             |       |                                                                                                                             |   |   |
|             |       | Consolidated  Statements of Changes in Shareholders’ Equity (unaudited) for the Three  Months Ended March 31, 2007 and 2006 |   | 5      |
|             |       |                                                                                                                             |   |   |
|             |       | Consolidated  Statements of Cash Flows (unaudited) for the Three Months Ended March 31,  2007 and 2006                           |   | 6      |
|             |       |                                                                                                                             |   |   |
|             |       | Notes to  Consolidated Financial Statements (unaudited)                                                                          |   | 7      |
|             |       |                                                                                                                             |   |   |
| Item 2.          |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                      |   | 10     |
|             |       |                                                                                                                             |   |   |
| Item 3.          |       | Quantitative  and Qualitative Disclosures About Market Risk                                                                      |   | 23     |
|             |       |                                                                                                                             |   |   |
| Item 4.          |       | Controls and  Procedures                                                                                                         |   | 26     |
|             |       |                                                                                                                             |   |   |
| **Part II** | ** ** | **Other Information**                                                                                                            |   | 26     |
|             |       |                                                                                                                             |   |   |
| Item  1.         |       | Legal  Proceedings                                                                                                               |   | 26     |
|             |       |                                                                                                                             |   |   |
| Item  1A.        |       | Risk  Factors                                                                                                                    |   | 26     |
|             |       |                                                                                                                             |   |   |
| Item 2.          |       | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                     |   | 27     |
|             |       |                                                                                                                             |   |   |
| Item 3.          |       | Defaults Upon  Senior Securities                                                                                                 |   | 27     |
|             |       |                                                                                                                             |   |   |
| Item 4.          |       | Submission of  Matters to a Vote of Security Holders                                                                             |   | 27     |
|             |       |                                                                                                                             |   |   |
| Item  5.         |       | Other  Information                                                                                                               |   | 27     |
|             |       |                                                                                                                             |   |   |
| Item  6.         |       | Exhibits                                                                                                                         |   | 28     |
|             |       |                                                                                                                             |   |   |
| Signatures       |       |                                                                                                                             |   | 29     |

 

2

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**PART I:FINANCIAL INFORMATION**

**ITEM 1:FINANCIAL STATEMENTS**

TENNESSEE COMMERCEBANCORP, INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2007 (UNAUDITED) AND DECEMBER 31,2006

(dollars in thousands except share data)
| ** **                                                                                                                                                                                                 | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                                 |       |                     |       |                        |       |
| Cash and due from  financial institutions                                                                                                                                                                  |       | $                        | 7,538      |                        | $          | 177 |   |
| Federal funds sold                                                                                                                                                                                         |       | 3,434                    |       | 13,820                      |       |
| Cash and cash  equivalents                                                                                                                                                                                 |       | 10,972                   |       | 13,997                      |       |
| Securities available  for sale                                                                                                                                                                             |       | 58,943                   |       | 56,943                      |       |
| Loans                                                                                                                                                                                                      |       | 591,245                  |       | 545,518                     |       |
| Allowance for loan  losses                                                                                                                                                                                 |       | (7,758                   | )          | (6,968                      | )          |
| Net loans                                                                                                                                                                                                  |       | 583,487                  |       | 538,550                     |       |
|                                                                                                                                                                                                       |       |                     |       |                        |       |
| Premises and equipment,  net                                                                                                                                                                               |       | 1,583                    |       | 1,633                       |       |
| Accrued interest  receivable                                                                                                                                                                               |       | 4,413                    |       | 4,116                       |       |
| Restricted equity  securities                                                                                                                                                                              |       | 633                      |       | 633                         |       |
| Deferred tax asset                                                                                                                                                                                         |       | 588                      |       | 635                         |       |
| Other assets                                                                                                                                                                                               |       | 8,555                    |       | 7,011                       |       |
|                                                                                                                                                                                                       |       |                     |       |                        |       |
| Total assets                                                                                                                                                                                               |       | $                        | 669,174    |                        | $          | 623,518 |   |
|                                                                                                                                                                                                       |       |                     |       |                        |       |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                                                                                                             |       |                     |       |                        |       |
| Liabilities                                                                                                                                                                                                |       |                     |       |                        |       |
| Deposits                                                                                                                                                                                                   |       |                     |       |                        |       |
| Non-interest  bearing                                                                                                                                                                                      |       | $                        | 21,205     |                        | $          | 17,001 |   |
| Interest-bearing                                                                                                                                                                                           |       | 582,636                  |       | 543,566                     |       |
| Total deposits                                                                                                                                                                                             |       | 603,841                  |       | 560,567                     |       |
|                                                                                                                                                                                                       |       |                     |       |                        |       |
| Accrued interest  payable                                                                                                                                                                                  |       | 1,749                    |       | 1,728                       |       |
| Long-term  subordinated debt                                                                                                                                                                               |       | 8,248                    |       | 8,248                       |       |
| Other  liabilities                                                                                                                                                                                         |       | 1,842                    |       | 1,751                       |       |
| Total  liabilities                                                                                                                                                                                         |       | 615,680                  |       | 572,294                     |       |
| Shareholders’ equity                                                                                                                                                                                  |       |                     |       |                        |       |
| Preferred stock,  no par value. Authorized 1,000,000 shares; none issued                                                                                                                                   |       | —                   |       | —                      |       |
| Common stock,  $0.50 par value. Authorized 10,000,000 shares at March 31, 2007 and at  December 31, 2006; issued and outstanding 4,495,024 at March 31, 2007  and 4,451,674 at December 31, 2006 |       | 2,247                    |       | 2,226                       |       |
| Additional  paid-in capital                                                                                                                                                                                |       | 41,521                   |       | 40,755                      |       |
| Retained  earnings                                                                                                                                                                                         |       | 9,936                    |       | 8,530                       |       |
| Accumulated  other comprehensive loss                                                                                                                                                                      |       | (210                     | )          | (287                        | )          |
| Total  shareholders’ equity                                                                                                                                                                           |       | 53,494                   |       | 51,224                      |       |
|                                                                                                                                                                                                       |       |                     |       |                        |       |
| Total liabilities and  shareholders’ equity                                                                                                                                                           |       | $                        | 669,174    |                        | $          | 623,518 |   |

 

Note: The balance sheet presented above atDecember 31, 2006 has been derived from the audited consolidated financialstatements at that date but does not include all of the information andfootnotes required by generally accepted accounting principles for completefinancial statements.

See accompanying notes to consolidated financialstatements.

3

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TENNESSEE COMMERCEBANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

THREE MONTHS ENDED MARCH 31, 2007 AND 2006(UNAUDITED)

(dollarsin thousands except share data)
| ** **                                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                           | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Interest income                                      |       |                                             |       |   |   |
| Loans, including fees                                |       | $                                                | 12,099     |   | $ | 7,847 |   |
| Securities                                           |       | 764                                              |       | 451 |   |
| Federal funds sold                                   |       | 108                                              |       | 106 |   |
| Total interest income                                |       | 12,971                                           |       | 8,404 |   |
|                                                 |       |                                             |       |   |   |
| Interest expense                                     |       |                                             |       |   |   |
| Deposits                                             |       | 7,226                                            |       | 4,002 |   |
| Other                                                |       | 160                                              |       | 147 |   |
| Total interest expense                               |       | 7,386                                            |       | 4,149 |   |
|                                                 |       |                                             |       |   |   |
| Net interest  income                                 |       | 5,585                                            |       | 4,255 |   |
|                                                 |       |                                             |       |   |   |
| Provision for  loan losses                           |       | 1,500                                            |       | 1,000 |   |
|                                                 |       |                                             |       |   |   |
| Net interest  income after provision for loan losses |       | 4,085                                            |       | 3,255 |   |
|                                                 |       |                                             |       |   |   |
| Non interest  income                                 |       |                                             |       |   |   |
| Service charges on deposit accounts                  |       | 61                                               |       | 49 |   |
| Securities gains (losses)                            |       | 10                                               |       | — |   |
| Gain on sale of loans                                |       | 817                                              |       | 254 |   |
| Other                                                |       | (66                                              | )          | (58 | ) |
| Total non-interest income                            |       | 822                                              |       | 245 |   |
|                                                 |       |                                             |       |   |   |
| Non interest  expense                                |       |                                             |       |   |   |
| Salaries and employee benefits                       |       | 1,472                                            |       | 1,200 |   |
| Occupancy and equipment                              |       | 268                                              |       | 200 |   |
| Data processing fees                                 |       | 226                                              |       | 157 |   |
| Professional fees                                    |       | 238                                              |       | 191 |   |
| Other                                                |       | 411                                              |       | 270 |   |
| Total non-interest expense                           |       | 2,615                                            |       | 2,018 |   |
|                                                 |       |                                             |       |   |   |
| Income before  income taxes                          |       | 2,292                                            |       | 1,482 |   |
|                                                 |       |                                             |       |   |   |
| Income tax  expense                                  |       | 886                                              |       | 573 |   |
| Net income                                           |       | $                                                | 1,406      |   | $ | 909 |   |
|                                                 |       |                                             |       |   |   |
| Earnings per  share (EPS):                           |       |                                             |       |   |   |
| Basic EPS                                            |       | $                                                | 0.31       |   | $ | 0.28 |   |
| Diluted EPS                                          |       | 0.29                                             |       | 0.25 |   |
|                                                 |       |                                             |       |   |   |
| Weighted average  shares outstanding:                |       |                                             |       |   |   |
| Basic                                                |       | 4,480,289                                        |       | 3,240,563 |   |
| Diluted                                              |       | 4,827,045                                        |       | 3,565,727 |   |

 

Seeaccompanying notes to consolidated financial statements.

4

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TENNESSEE COMMERCEBANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’EQUITY

THREE MONTHS ENDED MARCH 31, 2007 AND 2006(UNAUDITED)

(dollarsin thousands except share data)
| ** **                                                            | ** ** | ** ** | ** ** | ** **     | ** ** | ** **    | ** ** | **Accumulated**   | ** ** | ** **             | ** ** |
|-----------------------------------------------------------------------|------------|------------|------------|----------------|------------|---------------|------------|-------------------|------------|------------------------|------------|
| ** **                                                            | ** ** | ** ** | ** ** | ** **     | ** ** | ** **    | ** ** | **Other**         | ** ** | ** **             | ** ** |
| ** **                                                            | ** ** | ** ** | ** ** | **Additional** | ** ** | **Retained**  | ** ** | **Comprehensive** | ** ** | **Total**              | ** ** |
| ** **                                                            | ** ** | **Common** | ** ** | **Paid-In**    | ** ** | **Earnings**  | ** ** | **Income**        | ** ** | **Shareholders’** | ** ** |
| ** **                                                            | ** ** | **Stock**  | ** ** | **Capital**    | ** ** | **(Deficit)** | ** ** | **(Loss)**        | ** ** | **Equity**             | ** ** |
| Balance at  December 31, 2005                                    |       | $          | 1,619      |           | $          | 21,401        |       | $                 | 3,781      |                   | $          | (371 | ) | $ | 26,430 |   |
| Comprehensive  income                                                 |       |       |       |           |       |          |       |              |       |                   |       |
| Net income                                                            |       | —     |       | —         |       | 909           |       | —            |       | 909                    |       |
| Other comprehensive income, net of income taxes                       |       |       |       |           |       |          |       |              |       |                   |       |
| Unrealized losses on securities available for sale  during the period |       | —     |       | —         |       | —        |       | (129              | )          | (129                   | )          |
|                                                                  |       |       |       |           |       |          |       |              |       |                   |       |
|  Total  comprehensive income                                     |       |       |       |           |       |          |       |              |       | 780                    |       |
|                                                                  |       |       |       |           |       |          |       |              |       |                   |       |
|  Stock  option transactions                                      |       | 1          |       | 66             |       | —        |       | —            |       | 67                     |       |
|                                                                  |       |       |       |           |       |          |       |              |       |                   |       |
| Balance at  March 31, 2006                                       |       | $          | 1,620      |           | $          | 21,467        |       | $                 | 4,690      |                   | $          | (500 | ) | $ | 27,277 |   |
|                                                                  |       |       |       |           |       |          |       |              |       |                   |       |
| Balance at  December 31, 2006                                    |       | $          | 2,226      |           | $          | 40,755        |       | $                 | 8,530      |                   | $          | (287 | ) | $ | 51,224 |   |
| Comprehensive  income                                                 |       |       |       |           |       |          |       |              |       |                   |       |
| Net income                                                            |       | —     |       | —         |       | 1,406         |       | —            |       | 1,406                  |       |
| Other comprehensive income, net of income taxes                       |       |       |       |           |       |          |       |              |       |                   |       |
| Unrealized losses on securities available for sale  during the period |       | —     |       | —         |       | —        |       | 77                |       | 77                     |       |
|                                                                  |       |       |       |           |       |          |       |              |       |                   |       |
| Total  comprehensive income                                           |       |       |       |           |       |          |       |              |       | 1,483                  |       |
|                                                                  |       |       |       |           |       |          |       |              |       |                   |       |
| Stock option  transactions                                            |       | 21         |       | 766            |       | —        |       | —            |       | 787                    |       |
|                                                                  |       |       |       |           |       |          |       |              |       |                   |       |
| Balance at  March 31, 2007                                       |       | $          | 2,247      |           | $          | 41,521        |       | $                 | 9,936      |                   | $          | (210 | ) | $ | 53,494 |   |

 

Seeaccompanying notes to consolidated financial statements.

5

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TENNESSEE COMMERCEBANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED MARCH 31, 2007 AND 2006(UNAUDITED)

(dollarsin thousands except share data)
| ** **                                                                        | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| **Cash  flows from operating activities**                                         |       |                                                 |       |   |   |
| Net income                                                                        |       | $                                                    | 1,406      |   | $ | 909 |   |
| Adjustments to reconcile net income to net cash used  by operating activities     |       |                                                 |       |   |   |
| Depreciation                                                                      |       | 84                                                   |       | 50 |   |
| Deferred loan fees                                                                |       | (102                                                 | )          | (10 | ) |
| Provision for loan losses                                                         |       | 1,500                                                |       | 1,000 |   |
| FHLB stock dividends                                                              |       | —                                               |       | (6 | ) |
| Stock-based compensation expense                                                  |       | —                                               |       | 44 |   |
| Deferred Income Tax                                                               |       | (1                                                   | )          | (18 | ) |
| Net amortization of investment securities                                         |       | 2                                                    |       | 8 |   |
| Gain on sales of securities                                                       |       | (10                                                  | )          | — |   |
| Change in:                                                                        |       |                                                 |       |   |   |
| Accrued interest payable                                                          |       | 21                                                   |       | (44 | ) |
| Accrued interest receivable                                                       |       | (297                                                 | )          | (433 | ) |
| Other assets and liabilities                                                      |       | (1,478                                               | )          | 37 |   |
| Net cash from operating activities                                                |       | 1,125                                                |       | 1,537 |   |
|                                                                              |       |                                                 |       |   |   |
| **Cash  flows from investing activities**                                         |       |                                                 |       |   |   |
| Purchases of securities available for sale                                        |       | (11,005                                              | )          | (8,625 | ) |
| Proceeds from sales of securities available for sale                              |       | 8,319                                                |       | — |   |
| Proceeds from maturities, prepayments and calls of  securities available for sale |       | 819                                                  |       | 356 |   |
| Investment in unconsolidated subsidiary                                           |       | —                                               |       | — |   |
| Net change in loans                                                               |       | (46,335                                              | )          | (36,067 | ) |
| Purchases of Federal Home Loan Bank Stock                                         |       | —                                               |       | — |   |
| Net purchases of premises and equipment                                           |       | (34                                                  | )          | (104 | ) |
| Net cash from investing activities                                                |       | (48,236                                              | )          | (44,440 | ) |
|                                                                              |       |                                                 |       |   |   |
| **Cash  flows from financing activities**                                         |       |                                                 |       |   |   |
| Net change in deposits                                                            |       | 43,274                                               |       | 33,272 |   |
| Net change in Fed Funds purchased and repurchase  agreements                      |       | 25                                                   |       | — |   |
| Proceeds from issuance of common stock                                            |       | —                                               |       | — |   |
| Proceeds from exercise of common stock options                                    |       | 787                                                  |       | 23 |   |
| Excess tax benefit from option exercises                                          |       | —                                               |       | — |   |
| Net cash from financing activities                                                |       | 44,086                                               |       | 33,295 |   |
|                                                                              |       |                                                 |       |   |   |
| **Net  change in cash and cash equivalents**                                      |       | (3,025                                               | )          | (9,608 | ) |
|                                                                              |       |                                                 |       |   |   |
| Cash and cash  equivalents at beginning of period                                 |       | 13,997                                               |       | 19,412 |   |
|                                                                              |       |                                                 |       |   |   |
| **Cash  and cash equivalents at end of period**                                   |       | $                                                    | 10,972     |   | $ | 9,804 |   |
|                                                                              |       |                                                 |       |   |   |
| **Supplemental  cash flow information:**                                          |       |                                                 |       |   |   |
| Cash paid during period for interest                                              |       | $                                                    | 7,365      |   | $ | 4,193 |   |
| Cash paid during  period for income taxes                                         |       | 1,039                                                |       | 55 |   |

 

Seeaccompanying notes to consolidated financial statements.

6

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TENNESSEECOMMERCE BANCORP, INC.

Notes to Consolidated Financial Statements (unaudited)

Note 1— Basis of Presentation

Tennessee Commerce Bancorp, Inc. (the “Corporation”)is a holding company for Tennessee Commerce Bank (the “Bank”).  In March,2005, the Corporation formed a wholly owned subsidiary, Tennessee Commerce BankStatutory Trust I, (the “Trust I”). The Bank and the Trust I are the onlysubsidiaries of the Corporation. The accompanying consolidated financialstatements include the accounts of the Corporation, and the Bank. The Trust Iis not consolidated in accordance with FASB Interpretation No. 46 (revisedDecember 2003) Consolidation of Variable Interest Entities (FIN46R).Material intercompany accounts and transactions have been eliminated.

The unaudited consolidated financial statements as ofMarch 31, 2007 and for the three month periods ended March 31, 2007 and 2006have been prepared in accordance with accounting principles generally acceptedin the United States of America and in accordance with the instructions toForm 10-Q and Article 10 of Regulation S-X as promulgated by theSecurities and Exchange Commission (“SEC”), and in the opinion of management,include all adjustments, consisting of normal recurring adjustments, to presentfairly the information. They do not include all the information and footnotesrequired by generally accepted accounting principles for complete financialstatements. Operating results for the three month periods ended March 31, 2007are not necessarily indicative of the results that may be expected for the yearending December 31, 2007. For further information, refer to the 2006consolidated financial statements and footnotes thereto included in ourForm 10K.

Note 2 — Earnings per Share of Common Stock

The factors used in the earnings per share computationfollow.

(dollarsin thousands except share data)
| ** **                                                                      | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                      | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Basic                                                                           |       |                                             |       |   |   |
| Net income                                                                      |       | $                                                | 1,406      |   | $ | 909 |   |
|                                                                            |       |                                             |       |   |   |
| Weighted average  common shares outstanding                                     |       | 4,480,289                                        |       | 3,240,563 |   |
|                                                                            |       |                                             |       |   |   |
| Basic earnings  per common share                                                |       | $                                                | 0.31       |   | $ | 0.28 |   |
|                                                                            |       |                                             |       |   |   |
| Diluted                                                                         |       |                                             |       |   |   |
| Net income                                                                      |       | $                                                | 1,406      |   | $ | 909 |   |
|                                                                            |       |                                             |       |   |   |
| Weighted average  common shares outstanding for basic earnings per common share |       | 4,480,289                                        |       | 3,240,563 |   |
| Add: Dilutive  effects of assumed exercises of stock options                    |       | 346,756                                          |       | 325,164 |   |
|                                                                            |       |                                             |       |   |   |
| Average shares  and dilutive potential common shares                            |       | 4,827,045                                        |       | 3,565,727 |   |
|                                                                            |       |                                             |       |   |   |
| Diluted earnings per  common share                                              |       | $                                                | 0.29       |   | $ | 0.25 |   |

 

No options were antidilutive.

7

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Note 3— Stock Compensation

On January 1, 2006, we adoptedSFAS No. 123(R), that addresses the accounting for share-basedpayment transactions in which a company receives employee services in exchangefor equity instruments. SFAS No. 123(R) eliminates the ability to accountfor share-based compensation transactions, as we formerly did, using theintrinsic value method as prescribed by Accounting Principles Board, or APB,Opinion No. 25, “Accounting for Stock Issued to Employees,” and generallyrequires that such transactions be accounted for using a fair-value-basedmethod and recognized as expense in the accompanying consolidated statement ofincome.

We adopted SFAS No. 123(R) using themodified prospective method which requires the application of the accountingstandard as of January 1, 2006. The accompanying consolidated financialstatements as of and for the periods ending March 31, 2007 reflect the impactof adopting SFAS No. 123(R). In accordance with the modifiedprospective method, the consolidated financial statements for prior periodshave not been restated to reflect, and do not include, the impact ofSFAS No. 123(R).

Stock-based compensation expense recognized during theperiod is based on the value of the portion of stock-based payment awards thatis ultimately expected to vest. Stock-based compensation expense recognized inthe accompanying consolidated statements of income for the periods ending March31, 2007 included compensation expense for stock-based payment awards grantedprior to, but not yet vested, as of March 31, 2007 based on the grant date fairvalue estimated in accordance with SFAS No. 123(R). As stock-basedcompensation expense recognized in the accompanying statement of income for theperiod ending March 31, 2007 is based on awards ultimately expected to vest, ithas been reduced for estimated forfeitures. SFAS No. 123(R) 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 months ended March 31, 2007, there wereno stock option grants and all options outstanding were vested prior to thatperiod. There was no stock-based expense recognized for the three months endedMarch 31, 2007.

8

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A summary of the activity in the stock option plan isas follows :
| ** **                                          | ** ** | ** ** | ** ** | ** **    | ** ** | **Weighted-**       | ** ** | ** **         | ** ** |
|-----------------------------------------------------|------------|------------|------------|---------------|------------|---------------------|------------|--------------------|------------|
| ** **                                          | ** ** | ** ** | ** ** | ** **    | ** ** | **Average**         | ** ** | ** **         | ** ** |
| ** **                                          | ** ** | ** ** | ** ** | **Weighted-** | ** ** | **Contractual**     | ** ** | **Aggregate**      | ** ** |
| ** **                                          | ** ** | ** ** | ** ** | **Average**   | ** ** | **Remaining**       | ** ** | **Intrinsic**      | ** ** |
| ** **                                          | ** ** | ** ** | ** ** | **Exercise**  | ** ** | **Term**            | ** ** | **Value (1)** | ** ** |
| ** **                                          | ** ** | **Number** | ** ** | **Price**     | ** ** | **(in years)** | ** ** | **(000’s)**   | ** ** |
| Outstanding at  December 31, 2006                   |       | 871,092    |       | $             | 8.77       |                |       |               |       |   |
| Granted                                             |       | —     |       | —        |       |                |       |               |       |
| Exercised                                           |       | (43,350    | )          | 10.83         |       |                |       |               |       |
| Forfeited or  expired                               |       | —     |       | —        |       |                |       |               |       |
| Outstanding at  March 31, 2007                      |       | 827,742    |       | $             | 8.67       |                | 4.98       |               | $          | 15,172 |   |
| Outstanding and  expected to vest at March 31, 2007 |       | 827,742    |       | $             | 8.67       |                | 4.98       |               | $          | 15,172 |   |
| Options exercisable at  March 31, 2007              |       | 827,742    |       | $             | 8.67       |                | 4.98       |               | $          | 15,172 |   |

 

----

|  | (1) | The aggregate intrinsic  value is calculated as the difference between the exercise price of the  underlying options and the quoted price of our stock of $27.00 per common  share for the 827,742 options that were in-the-money at March 31, 2007. |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

The estimated fair values are computed using theBlack-Scholes option valuation model, using the following weighted-averageassumptions as of grant date shown below. No options were granted during thethree months ending March 31, 2007. The options granted in 2005 were granted inJuly, August and November and had an estimated fair value of $3.96, $4.07and $4.26 respectively.
| ** **               | ** ** | **2005**     | ** ** | **2004**     | ** ** | **2003**     | ** ** |
|--------------------------|------------|--------------|------------|--------------|------------|--------------|------------|
|                     |       |         |       |         |       |         |       |
| Risk-free  interest rate |       | 3.96         | %          | 3.23         | %          | 3.82         | %          |
| Expected option  life    |       | 5 years |       | 7 years |       | 7 years |       |
| Dividend yield           |       | 0.0          | %          | 0.0          | %          | 0.0          | %          |

 

The weighted average fair value of options grantedduring the year was $4.03 for 2005, $2.23 for 2004 and $2.29 for 2003. Nooptions were granted in 2006.

Note 4— Trust Preferred Securities

In March 2005, we formed a financing subsidiary,Tennessee Commerce Statutory Trust I, a Delaware statutory trust, or the TrustI. In March 2005, Trust I issued and sold 8,000 of Trust I’sFixed/Floating rate capital securities, with a liquidation amount of $1,000 percapital security, to First Tennessee Bank National Association. At the sametime, we issued to Trust I $8,248,000 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 3 month Libor rate plus a margin thereafter. In accordance with FASBInterpretation No. 46 (revised December 2003) Consolidation ofVariable Interest Entities (FIN46R), the Trust I is not consolidated. We reportas liabilities the subordinated debentures issued by the Corporation and heldby Trust I.

Note 5— Stock Issuance

On July 3, 2006 and on July 28, 2006, we issued1,000,000 and 150,000 shares respectively of our common stock. After theissuance, there were 4,390,674 shares of common stock outstanding.

Note 6 — New AccountingStandards

InJuly 2006, the FASB issued FASB Interpretation No. 48, *Accountingfor Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109*(FIN 48), which prescribes a recognition threshold and measurement attributefor a tax position taken or expected to be taken in a tax return.  FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition.  FIN48 is effective for fiscal years beginning after December 15, 2006.  Our adoption of FIN 48 did not have amaterial effect on our consolidated financial statements.

9

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**ITEM 2.  MANAGEMENT’S DISCUSSIONAND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

**Forward-Looking Statements**

Management’s discussion about us and management’sanalysis of our operations and prospects, and other matters, may includeforward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995 and other provisions of federal and statesecurities laws.  Although we believe that the assumptions underlying suchforward-looking statements contained in this report are reasonable, any of theassumptions could be inaccurate and, accordingly, there can be no assurancethat the forward-looking statements included herein will prove to beaccurate.  The use of such words as expect, anticipate, forecast, andcomparable terms should be understood by the reader to indicate that thestatement is “forward-looking” and thus subject to change in a manner that canbe unpredictable.  Factors that could cause actual results to differmaterially from the results anticipated, but not guaranteed, in this report,include (without limitation) economic and social conditions, competition forloans, mortgages, and other financial services and products, changes ininterest rates, unforeseen changes in liquidity, results of operations, andfinancial conditions affecting our customers, as well as other risks thatcannot be accurately quantified or completely identified.  Many factorsaffecting our financial condition and profitability, including changes ineconomic conditions, the volatility of interest rates, political events andcompetition from other providers of financial services simply cannot bepredicted. These factors are unpredictable and beyond our control, soearnings may fluctuate from period to period.  The purpose of this type ofinformation is to provide readers with information relevant to understandingand assessing our financial condition and results of operations, and not topredict the future or to guarantee results.  We are unable to predict thetypes of circumstances, conditions, and factors that can cause anticipatedresults to change.  We undertake no obligation to publish revisedforward-looking statements to reflect the occurrence of changes orunanticipated events, circumstances, or results.

**Corporation Overview**

Tennessee CommerceBancorp, Inc., headquartered in Franklin, Tennessee, is the bank holdingcompany for Tennessee Commerce Bank.  Organized in January 2000,Tennessee Commerce Bank has a focused strategy that serves the banking needs ofsmall to medium-sized businesses, entrepreneurs and professionals in theNashville metropolitan statistical area, or the Nashville MSA, as well as thefunding needs of certain national and regional equipment vendors and financialservices companies.  We call this strategy our “business bank” strategy.We primarily conduct business from a single location in the Cool Springscommercial area of Franklin, Tennessee, fifteen miles south of Nashville. Franklin is in Williamson County, one of the most rapidly growing counties inthe nation. According to the U.S. Census Bureau, Williamson County ranked59th out of the top 100 fastest growing counties in the nation fromJuly 2004 to July 2005. We also operate a loan production office inBirmingham, Alabama, which we opened in February 2006 and which is staffedwith one senior lending officer.

We offer a fullrange of competitive retail and commercial banking services to local customersin the Nashville MSA.  Our deposit services include a broad offering ofchecking accounts, savings accounts, money market investment accounts, certificatesof deposits, 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 debitcards.  We offer our local customers free courier services, access tothird-party automated teller machines, or ATMs, and state of the art electronicbanking. We have trust powers but do not have a trust department.

**Our Business Strategy**

We execute ourbusiness bank strategy by combining the personal service and appeal of acommunity banking institution with the sophistication of a larger bank. We believe this strategy distinguishes us from our competitors in efforts toattract loans and deposits of local small to medium-sized businesses and nationaland regional equipment vendors and financial services companies.  Further,the rapid growth within the Nashville MSA along with several bank mergers andacquisitions has left many business owners without significant bankingrelationships. We seek to take advantage of this opportunity.

10

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We do not competebased on the traditional definition of “convenience” and currently have noplans to develop a comprehensive branch bank network.  For us, convenienceis created by technology and by a free courier service for local customerswhich transports deposits directly from the business location to thebank.  We conduct business primarily from a single banking office with noteller line, drive-through window or extended banking hours.  We competeby providing responsive and personalized service to meet customer needs. We provide free electronic banking and cash management tools and on-sitetraining for business customers.  We compete for consumer business byproviding superior products, attractive deposit rates, free internet bankingservices, and access to a third party regional ATM network. We primarily targetservice, manufacturing, and professional customers and avoid retail businesseswith high transaction volume.

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 97% compared to the average of 85% to 90% forall FDIC-insured banks and at March 31, 2007 we had an earning asset ratio of96.52%.

The business bankmodel is also highly efficient.  We target the non-retail sector of thecommercial market, which is characterized by lower levels of transactions andprocessing costs.  The commercial customer mix and the strategicoutsourcing of non-customer functions, such as data processing, informationtechnology and internal audit, allow us to operate with a smaller, morehighly-trained staff.  Management targets an average assets per employeeratio of $7.5 million, compared to the average ratio of approximately $4.1million assets per employee for middle Tennessee banks at the end of the fourthquarter 2006. At March 31, 2007, assets per employee were $12.6 million.

In addition to ourWilliamson County and Nashville MSA focus, we have also developed an expertisein indirect lending that allows us to access a national market. Thetransactions are fixed rate monthly installment loans originated through athird party equipment vendor or financial services company. Our national marketlending is divided into two programs based on loan size. In the first program,through an established network of vendors and financial service companies, wehave opportunities to finance business asset secured loan transactions fornational middle-market and investment grade companies. In the second program, adifferent network of vendors and financial service companies located inTennessee, Alabama, Georgia, California and Michigan partner with us infinancing smaller transactions (generally $150,000 or less per transaction).Both national market programs provide geographic and collateral diversity forthe portfolio.

**Our Market Area**

The Bank’s primary market area is Davidson County andWilliamson County in Tennessee.  In Davidson County, as of June 30, 2006,there were 26 banks and no savings and loan institutions, with at least 193offices actively engaged in banking activities, including 10 major state-widefinancial institutions.  Total deposits held by banks in Davidson Countyas of June 30, 2006, were approximately $15.8 billion.  In WilliamsonCounty, as of June 30, 2006, there were 24 banks and 2 savings and loaninstitutions, with at least 83 offices actively engaged in banking activities,including 9 major state-wide financial institutions.  Total deposits heldby banks and savings and loan associations in Williamson County as of June 30,2006, were approximately $4.3 billion.  In addition, there are numerouscredit unions, finance companies, and other financial services providers.

Demographic information published by SNL Financial,shows a total estimated population of 159,022 for Williamson County in 2006.That is a 25.57% increase from 126,638 in 2000. The estimated number ofhouseholds in the county in 2006 is 56,994 up from 44,725 in 2000, averaging2.79 persons per household. In 2006, the median household income was $88,410,while per capita income was $44,023.  At the end of 2006, the unemploymentrate was 2.6%.

Demographic information published by SNL Financialshows an estimated population of 596,829 for Davidson County in 2006. That is a4.73% increase over the population of 569,891 in 2000. The estimated number ofhouseholds in the county in 2006 is 250,628 averaging 2.38 persons perhousehold. In 2006, the median household income was $50,420, while per capitaincome was $29,695.  At the end of 2006, the unemployment rate was 3.6%.

11

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**Overviewof Operating Results for the Three Months ended March 31, 2007 and March 31,2006 and Financial Condition at March 31, 2007 and December 31, 2006.**

(dollars in thousands except share data in theremainder of this Item 2)

The results of operations for the quarter ended March31, 2007, compared to the quarter ended March 31, 2006 reflected a 54.68%increase in net income and a 16% increase in diluted earnings per share. Theincrease in earnings resulted primarily from a 31.26% increase in net interestincome due to higher average loan balances. The increased net interest incomewas partially offset by increases in non-interest expense. For the three monthsended March 31, 2007, net income was $1,406, an increase of $497 or 54.68%compared to net income of $909 for the same period in 2006. Diluted earningsper share increased $0.04 per share or 16% for the three months ended March 31,2007 compared to the same period in 2006. The three months ended March 31,2007, reflected a continuation of the Bank’s trend of rapid asset growthincreasing by $45,656 or 7.32% from $623,518 at December 31, 2006 to$669,174 at March 31, 2007. Net loans increased by 8.34% or $44,937 fromDecember 31, 2006 to March 31, 2007, while total deposits increased by7.72% or $43,274 during that same period.

**Comparison of Operating Results forthe Three Months ended March 31, 2007 and March 31, 2006**

**Net Income** -Net income for the quarter ended March 31, 2007 was $1,406 an increase of $497or 54.68%, compared to the net income of $909 for the quarter ended March 31,2006.  The increase is attributable to a 31.26% increase in net interestincome from $4,255 for the quarter ended March 31, 2006 to $5,585 for the sameperiod in 2007. The increase of $1,330 in net interest income was the result ofour overall growth, including a 53.85% increase in net loan balances at March31, 2007 compared to the same date in 2006. This increase in net interestincome was partially offset by increased non-interest expense. Non-interestexpense increased by 29.58% to $2,615 for the three month period ended March31, 2007 compared to $2,018 for the same period in 2006. The increase innon-interest expense was due to an increase in personnel and general operatingexpenses due to our growth.

(dollars in thousands)
| ** **                                   | ** ** | **Three Months Ended  March 31,** | ** ** | ** ** | ** ** |
|----------------------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| ** **                                   | ** ** | **2007**                                         | ** ** | **2006**   | ** ** | **% Change** | ** ** |
|                                         |       |                                             |       |       |       |   |   |
| Interest income                              |       | $                                                | 12,971     |       | $          | 8,404 |   | 54.34 | % |
| Interest expense                             |       | 7,386                                            |       | 4,149      |       | 78.02 |   |
| Net interest income                          |       | 5,585                                            |       | 4,255      |       | 31.26 |   |
| Provision for  loan losses                   |       | 1,500                                            |       | 1,000      |       | 50.00 |   |
| Net interest after provision for loan losses |       | 4,085                                            |       | 3,255      |       | 25.50 |   |
| Non-interest  income                         |       | 822                                              |       | 245        |       | 235.51 |   |
| Non-interest  expense                        |       | 2,615                                            |       | 2,018      |       | 29.58 |   |
| Net income before taxes                      |       | 2,292                                            |       | 1,482      |       | 54.66 |   |
| Income tax  expense                          |       | 886                                              |       | 573        |       | 54.62 |   |
| Net income                                   |       | $                                                | 1,406      |       | $          | 909 |   | 54.68 | % |

 

12

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**Net Interest Income**- Net interest income for the quarter ended March 31, 2007 was $5,585 comparedto $4,255 for the same period in 2006, a gain of $1,330 or 31.26%.  Theincrease of $1,330 in net interest income was the result of our overall growth,including a 53.85% increase in net loan balances at March 31, 2007 compared tothe same date in 2006.

**Provision for Loan Losses**- The provision for loan losses for the three months ended March 31, 2007was $1,500, an increase of $500, or 50%, above the provision of $1,000expensed in the same period in 2006.  This increase was primarily due tothe increase in loan volume. The provision is discussed as it relates to theallowance for loan losses in the following Comparison of Financial Conditionsection. At March 31, 2007, the loan loss reserve of $7,758 was 1.31% ofgross loans of $591,245.

**Non-interest Income**- Non-interest income increased by 235.51% or $577, from $245 in the quarterended March 31, 2006 to $822 for the same period in 2007. The increase wasprimarily due to gain on loan sales.  The gain on loan sales was $817 and$254 for the three month periods ended March 31, 2007 and 2006 respectively.

**Non-interest Expense**- Non-interest expense for the three months ended March 31, 2007 was$2,615, an increase of $597 or 29.58%, over the $2,018 expensed in the sameperiod in 2006.  Approximately 45.56% of the increase was due toadditional employee expense. At March 31, 2007, we had 53 full timeemployees.

**Net Interest Income**- Net interest income for the three months ended March 31, 2007 was $5,585compared to $4,255 for the same period in 2006, an increase of $1,330 or31.26%.  The increase in net interest income was largely attributable tostrong loan growth.  The average net loan balance for the three monthsended March 31 increased by 54.14% or $196,760 from $363,408 for that period in2006 to $560,168 for the same period in 2007. Loan growth was matched by anincrease in average interest bearing deposits from $367,933 for the threemonths ended March 31, 2006 to $560,863 for the same period in 2007 — anincrease of $192,930 or 52.44%.

**Net Interest Margin**- The net interest margin decreased from 4.18% for the three months endedMarch 31, 2006 to 3.62% for the same period in 2007 due to an increase in thecost of funds which offset an increase in the yield on earning assets. Interest income increased by $4,567 or 54.34%, from $8,404 during the threemonths ended March 31, 2006 to $12,971 during the same period in 2007. Theincrease was primarily due to increased volume.  Average earning assetsincreased from $412,545 in the three months ended March 31, 2006 to $625,714 inthe same period in 2007, an increase of $213,169 or 51.67%.  The increasein earning assets was primarily due to loan growth. Average loan balancesincreased by $196,760 or 54.14%.  The average yield on earning assetsincreased from 8.25% in the three months ended March 31, 2006 to 8.40% in thesame period in 2007. The increase in yield on earning assets and cost of funds,as a percentage of average balances was primarily due to increases in shortterm interest rates by the Federal Reserve Open Market Committee, or FOMC.Between March 31, 2006 and March 31, 2007, the FOMC raised the federal fundsrate by 50 basis points.

Interest expense increased from $4,149 in the threemonths ended March 31, 2006, to $7,386 in the three months ended March 31,2007. The $3,237 or 78.02%, increase in expense was due to increases in thevolume of deposits as well as rate increases. Average interest bearing liabilitiesincreased by $193,633 or 51.37%.  The cost of funds increased from 4.46%in the three months ended March 31, 2006 to 5.25% in the same three months in2007, an increase of 79 basis points.

13

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

The following table shows the average daily balancesof each principal category of our assets, liabilities and stockholders’ equity,and an analysis of net interest income, and the change in interest income andinterest expense segregated into amounts attributable to changes in volume andchanges in rates for the three month periods ended March 31, 2007 and 2006. Thetable is presented on a tax equivalent basis if applicable.
| ** **                                       | ** ** | **Three Months Ended March 31,  2007** | ** ** | **Three Months Ended March 31,  2006** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                       | ** ** | **Average**                                                | ** ** | ** **                                                 | ** ** | **Average** | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **(dollars in thousands)**             | ** ** | **Balance**                                                | ** ** | **Interest**                                               | ** ** | **Rate** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** |
| **ASSETS**                                       |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Interest earning  assets                         |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Securities  (taxable) (1)                        |       | $                                                          | 58,140     |                                                       | $          | 764 |   | 5.27 | % | $ | 37,634 |   | $ | 451 |   | 4.78 | % |
| Loans  (2) (3)                              |       | 560,168                                                    |       | 12,099                                                     |       | 8.76 | % | 363,408 |   | 7,847 |   | 8.76 | % |
| Federal funds  sold                              |       | 7,406                                                      |       | 108                                                        |       | 5.91 | % | 11,503 |   | 106 |   | 3.74 | % |
| Total interest  earning assets                   |       | 625,714                                                    |       | $                                                          | 12,971     |   | 8.40 | % | 412,545 |   | $ | 8,404 |   | 8.25 | % |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Non-interest  earning assets                     |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Cash and due from banks                          |       | 5,030                                                      |       |                                                       |       |   |   | 3,221 |   |   |   |   |   |
| Net fixed assets and equipment                   |       | 1,618                                                      |       |                                                       |       |   |   | 785 |   |   |   |   |   |
| Accrued interest and other assets                |       | 12,912                                                     |       |                                                       |       |   |   | 8,317 |   |   |   |   |   |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Total assets                                     |       | $                                                          | 645,274    |                                                       |       |   |   |   | $ | 424,868 |   |   |   |   |   |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**    |       |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Interest bearing  liabilities                    |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Deposits (other than demand)                     |       | $                                                          | 560,863    |                                                       | $          | 7,226 |   | 5.23 | % | $ | 367,933 |   | $ | 4,002 |   | 4.41 | % |
| Federal funds purchased                          |       | 1,455                                                      |       | 21                                                         |       | 5.85 | % | 752 |   | 9 |   | 4.85 | % |
| Subordinated debt                                |       | 8,248                                                      |       | 139                                                        |       | 6.83 | % | 8,248 |   | 138 |   | 6.74 | % |
| Total interest bearing liabilities               |       | 570,566                                                    |       | $                                                          | 7,386      |   | 5.25 | % | 376,933 |   | $ | 4,149 |   | 4.46 | % |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Non-interest  bearing liabilities                |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Non-interest bearing demand deposits             |       | 19,108                                                     |       |                                                       |       |   |   | 19,663 |   |   |   |   |   |
| Other liabilities                                |       | 3,453                                                      |       |                                                       |       |   |   | 1,419 |   |   |   |   |   |
| Shareholders’ equity                        |       | 52,147                                                     |       |                                                       |       |   |   | 26,853 |   |   |   |   |   |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Total  liabilities and shareholders’ equity |       | $                                                          | 645,274    |                                                       |       |   |   |   | $ | 424,868 |   |   |   |   |   |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Net Interest  Spread                             |       | 3.15                                                       | %          |                                                       |       |   |   | 3.79 | % |   |   |   |   |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Net Interest Margin                              |       | 3.62                                                       | %          |                                                       |       |   |   | 4.18 | % |   |   |   |   |

 

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| (1) |   | Unrealized loss of $652  and $625 is excluded from yield calculation for the three months ended March  31, 2007 and 2006, respectively.                                                     |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Non-accrual loans are  included in average loan balances and loan fees of $643 and $612 are included  in interest income for the three months ended March 31, 2007 and 2006,  respectively. |
| (3) |   | Loans are presented net  of allowance for loan loss.                                                                                                                                        |

 

14

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The followingtable outlines the components of the net interest margin for the three monthperiods ended March 31, 2007 and 2006 and identifies the impact of changes involume and the changes in rate.
| ** **                           | ** ** | **March 31, 2007 change from  March 31, 2006 due to:** | ** ** |
|--------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|
| **(dollars in thousands)** | ** ** | **Volume**                                                                                     | ** ** | **Rate** | ** ** | **Total** | ** ** |
|                                 |       |                                                                                           |       |   |   |   |   |
| Interest income                      |       |                                                                                           |       |   |   |   |   |
| Loans                                |       | $                                                                                              | 4,250      |   | $ | 2 |   | $ | 4,252 |   |
| Securities — taxable (1)        |       | 263                                                                                            |       | 50 |   | 313 |   |
| Federal funds sold                   |       | (46                                                                                            | )          | 48 |   | 2 |   |
| Total interest  income               |       | 4,467                                                                                          |       | 100 |   | 4,567 |   |
|                                 |       |                                                                                           |       |   |   |   |   |
| Interest expense                     |       |                                                                                           |       |   |   |   |   |
| Deposits (other than demand)         |       | 2,385                                                                                          |       | 839 |   | 3,224 |   |
| Federal funds purchased              |       | 10                                                                                             |       | 2 |   | 12 |   |
| Subordinated debt                    |       | —                                                                                         |       | 1 |   | 1 |   |
| Total interest  expense              |       | 2,395                                                                                          |       | 842 |   | 3,237 |   |
|                                 |       |                                                                                           |       |   |   |   |   |
| Net interest income                  |       | $                                                                                              | 2,072      |   | $ | (742 | ) | $ | 1,330 |   |

 

----

| (1) |   | Unrealized loss of $652  and $625 is excluded from yield calculation for the three months ended March  31, 2007 and 2006 respectively. |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------|

 

**Provision for Loan Losses**- The provision for loan losses for the three months ended March 31, 2007 was$1,500, an increase of $500, or 50%, above the provision of $1,000 expensed inthe same period in 2006.  This increase was primarily due to significantloan growth. The provision is discussed as it relates to the allowance for loanlosses in the following Comparison of Financial Condition section. At March 31,2007, the loan loss reserve of $7,758 was 1.31% of gross loans of $591,245.

**Non-interest Income**- We earned $24 in mortgage origination fees during the three months endedMarch 31, 2007 compared to $22 earned in 2006, an increase of $2 or 9.09%. No gain or loss was recognized on the sale of securities in the three monthsended March 31, 2006 compared with a gain of $10 for the same period in 2007.

The Bank earned $817 on loan sale transactions in thethree months ended March 31, 2007, a 221.65% increase compared to $254 duringthe same period in 2006. This increase was primarily due to demand frompurchasers. Management will continue to consider loan sale transactions if theopportunity for a reasonable return is available.

**Non-interest Expense**- Non-interest expense for the three months ended March 31, 2007, was $2,615,an increase of $597 or 29.58%, over the $2,018 expensed in the same period in2006.  Approximately 45.56% of the increase was due to the addition of 2new employees during the period between the two quarter end dates. At March 31,2007, we had 53 full time employees. Assets per employee were $12.6million at March 31, 2007 and $8.6 million at March 31, 2006. Managementtargets $7.5 million per full time employee as a measure of staffingefficiency.

Our efficiency ratio for the three months ending March31, 2007 was 40.81%, an improvement from 44.84% for the three months endingMarch 31, 2006.

15

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Efficiency Ratio

(dollarsin thousands )
| ** **            | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------|------------|--------------------------------------------------|------------|
| ** **            | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Non-interest  expense |       | $                                                | 2,615      |   | $ | 2,018 |   |
|                  |       |                                             |       |   |   |
| Net interest  income  |       | 5,585                                            |       | 4,255 |   |
| Non-interest  income  |       | 822                                              |       | 245 |   |
| Total Revenues        |       | $                                                | 6,407      |   | $ | 4,500 |   |
|                  |       |                                             |       |   |   |
| Efficiency Ratio      |       | 40.81                                            | %          | 44.84 | % |

 

**Income Taxes** -Our effective tax rate for the three months ended March 31, 2007 was 38.66%compared to 38.66% for the three months ended March 31, 2006. Managementanticipates that tax rates in future periods will approximate the rates paid in2007.

**Comparison of Financial Condition atMarch 31, 2007 and December 31, 2006**

**Assets -**Totalassets at March 31, 2007 were $669,174, an increase of $45,656, or 7.32%, overtotal assets of $623,518 at December 31, 2006. Loan growth was the primaryreason for the increase.  March 31, 2007 net loans were $583,487, up$44,937, or 8.34% over the December 31, 2006 total net loans of $538,550.The cash and cash equivalents balance decreased by $3,025 betweenDecember 31, 2006 and March 31, 2007 as funds were used to fund loans madein the first quarter of 2007.

Our business bank model of operation results in ahigher level of earning assets than peer banks.  Earning assets aredefined as assets which earn interest income.  Earning assets includeshort-term investments, the investment portfolio, and net loans.  We maintaina higher level of earning assets because fewer assets are allocated tofacilities, cash, and due-from bank accounts used for transactionprocessing.  Earning assets at March 31, 2007, were $645,864, or 96.52% oftotal assets of $669,174.  Earning assets at December 31, 2006, were$609,313, or 97.72% of total assets of $623,518.

16

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**Loans** - We hadtotal net loans of $583,487 million at March 31, 2007. The following table setsforth the composition of our loan portfolio at March 31, 2007 andDecember 31, 2006:
| **(dollars in thousands)**    | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Real estate                             |       |                     |       |                        |       |
| Construction                            |       | $                        | 71,952     |                        | $          | 74,482 |   |
| 1 to 4 family residential               |       | 27,531                   |       | 22,873                      |       |
| Other                                   |       | 95,224                   |       | 83,985                      |       |
| Commercial,  financial and agricultural |       | 385,687                  |       | 353,996                     |       |
| Consumer                                |       | 4,040                    |       | 3,246                       |       |
| Other                                   |       | 6,811                    |       | 6,936                       |       |
|                                    |       |                     |       |                        |       |
| Total loans                             |       | 591,245                  |       | 545,518                     |       |
| Less: allowance  for loan losses        |       | (7,758                   | )          | (6,968                      | )          |
|                                    |       |                     |       |                        |       |
| Net loans                               |       | $                        | 583,487    |                        | $          | 538,550 |   |

 

Composition of loan portfolio by type
| ** **                              | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Real estate:                            |       |                     |       |                        |       |
| Construction                            |       | 12.17                    | %          | 13.65                       | %          |
| 1 to 4 family residential               |       | 4.66                     | %          | 4.19                        | %          |
| Other                                   |       | 16.11                    | %          | 15.40                       | %          |
| Commercial,  financial and agricultural |       | 65.23                    | %          | 64.89                       | %          |
| Consumer                                |       | 0.68                     | %          | 0.60                        | %          |
| Other                                   |       | 1.15                     | %          | 1.27                        | %          |
|                                    |       |                     |       |                        |       |
| Total                                   |       | 100.00                   | %          | 100.00                      | %          |

 

17

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The following table sets forth the composition of ourcommercial loan portfolio by source at March 31, 2007 and December 31,2006:
| ** **                           | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|--------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **(dollars in thousands)** | ** ** | **Amount**               | ** ** | **%**                       | ** ** | **Amount** | ** ** | **%** | ** ** |
|                                 |       |                     |       |                        |       |   |   |   |   |
| Direct funding                       |       | $                        | 161,041    |                        | 41.75      | % | $ | 151,692 |   | 42.85 | % |
| Indirect funding                     |       |                     |       |                        |       |   |   |   |   |
| Large                                |       | 101,816                  |       | 26.40                       | %          | 88,569 |   | 25.02 | % |
| Small                                |       | 122,830                  |       | 31.85                       | %          | 113,735 |   | 32.13 | % |
| Total                                |       | $                        | 385,687    |                        | 100.00     | % | $ | 353,996 |   | 100.00 | % |

 

Management periodically reviews the loan portfolio,particularly non-accrual and renegotiated loans.  The review may result ina determination that a loan should be placed on a non-accrual status for incomerecognition. When a loan is classified as non-accrual, any unpaid interest isreversed against current income.  Interest is included in income thereafteronly to the extent received in cash.  The loan remains in a non-accrualclassification until such time as the loan is brought current, when it may bereturned to accrual classification.

The following table presents information regardingnon-accrual, past due and restructured loans at March 31, 2007 andDecember 31, 2006:
| **(dollars in thousands)**                                                                     | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Non-accrual  loans                                                                                       |       |                     |       |                        |       |
| Number                                                                                                   |       | 62                       |       | 60                          |       |
| Amount                                                                                                   |       | $                        | 3,121      |                        | $          | 2,689 |   |
|                                                                                                     |       |                     |       |                        |       |
| Accruing loans  which are contractually past due 90 days or more as to principal and interest  payments: |       |                     |       |                        |       |
| Number                                                                                                   |       | 54                       |       | 18                          |       |
| Amount                                                                                                   |       | $                        | 2,172      |                        | $          | 940 |   |
|                                                                                                     |       |                     |       |                        |       |
| Loans defined as  “troubled debt restructurings”                                               |       |                     |       |                        |       |
| Number                                                                                                   |       | 3                        |       | 3                           |       |
| Amount                                                                                                   |       | $                        | 1,108      |                        | $          | 1,114 |   |

 

As of March 31, 2007 and December 31, 2006, thereare no loans classified for regulatory purposes as doubtful or substandard thathave not been disclosed in the above table, which (i) represent or resultfrom trends or uncertainties which management reasonably expects willmaterially impact future operating results, liquidity, or capital resources, or(ii) represent material credits about which management is aware of anyinformation which causes management to have serious doubts as to the ability ofsuch borrowers to comply with the loan repayment terms.

18

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**Allowance for 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 insure theadequacy of the loan loss reserve in accordance with generally acceptedaccounting principles (GAAP), our stated policies and procedures, andregulatory guidance.

It is management’s intent to maintain an ALL which isadequate to absorb current and estimated losses which are inherent in a loanportfolio.  The historical loss ratio (net charge-offs as a percentage ofaverage loans) was 0.13% for the three months ended March 31, 2007 and 0.10%for the three months ended March 31, 2006. The ALL as a percentage of theoutstanding loans at the end of the period was 1.31% at March 31, 2007 and1.31% at March 31, 2006.

An analysis of our loss experience is furnished in thefollowing table for the three months ended March 31, 2007 and the same periodended March 31, 2006:
| **(dollars in thousands)**              | ** ** | **March 31,  2007** | ** ** | **March 31,  2006** | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Allowance for  loan losses at beginning of period |       | $                        | 6,968      |                     | $          | 4,399 |   |
| Charge-offs:                                      |       |                     |       |                     |       |
| Real estate:                                      |       |                     |       |                     |       |
| Construction                                      |       | —                   |       | —                   |       |
| 1 to 4 family residential                         |       | —                   |       | —                   |       |
| Other                                             |       | —                   |       | —                   |       |
| Commercial, financial and agricultural            |       | 842                      |       | 480                      |       |
| Consumer                                          |       | —                   |       | 3                        |       |
| Total Charge-offs                                 |       | 842                      |       | 483                      |       |
|                                              |       |                     |       |                     |       |
| Recoveries:                                       |       |                     |       |                     |       |
| Real estate:                                      |       |                     |       |                     |       |
| Construction                                      |       | —                   |       | —                   |       |
| 1 to 4 family residential                         |       | —                   |       | —                   |       |
| Other                                             |       | —                   |       | —                   |       |
| Commercial, financial and agricultural            |       | 132                      |       | 83                       |       |
| Consumer                                          |       | —                   |       | 21                       |       |
| Total Recoveries                                  |       | 132                      |       | 104                      |       |
|                                              |       |                     |       |                     |       |
| Net Charge-offs                                   |       | 710                      |       | 379                      |       |
|                                              |       |                     |       |                     |       |
| Provision for  loans charged to expense           |       | 1,500                    |       | 1,000                    |       |
| Allowance for loan  losses at end of period       |       | $                        | 7,758      |                     | $          | 5,020 |   |

 
| ** **                                                                                         | ** ** | **March 31,  2007** | ** ** | **March 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Net charge-offs  as a percentage of average total loans outstanding during the period              |       | 0.13                     | %          | 0.10                     | %          |
|                                                                                               |       |                     |       |                     |       |
| Ending allowance  for loan losses as a percentage of total loans outstanding at end of the  period |       | 1.31                     | %          | 1.31                     | %          |
|                                                                                               |       |                     |       |                     |       |

 

The allowance for loan losses is established by chargesto operations based on management’s evaluation of the loan portfolio, past dueloan experience, collateral values, current economic conditions and otherfactors considered necessary to maintain the allowance at an adequate level.

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**Securities** -The securities portfolio at March 31, 2007 was $58,943 compared to $56,943 atDecember 31, 2006.  We view the securities portfolio as a source ofincome and liquidity.  The securities portfolio was 8.81% of total assetsat March 31, 2007 and 9.13% of total assets at December 31, 2006.

**Liabilities -**We depend on a growing deposit base to fund loan and other asset growth. Wecompete for local deposits by offering attractive products with premiumrates.  We also obtain funding in the wholesale deposit market which isaccessed by means of an electronic bulletin board.  This electronic marketlinks banks and acquirers of funds to credit unions, school districts, laborunions, and other organizations with excess liquidity. The process is highlyefficient and the average rate is generally less than rates paid in the localmarket. Wholesale deposits are categorized as “Purchased Time Deposits” on thedetail of deposits shown in the table below.

Total deposits at March 31, 2007 were $603,841, up$43,274 or 7.72% over the December 31, 2006, total deposits of $560,567.Total average deposits during the three months ending March 31, 2007, were$579,971, an increase of $192,375, or 49.63% over the total average deposits of$387,596 during the three months ending March 31, 2006. Average non-interestbearing deposits decreased by $555, or 2.82%, from $19,663 in the three monthsending March 31, 2006, to $19,108 in the three months ending March 31, 2007.Average deposit balances for the three months ended March 31, 2007 and 2006 andthe average rates paid on those balances are shown below.

Deposits
| ** **                            | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------|------------|------------------------------------------------------|------------|
| ** **                            | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| **(dollars in thousands)**  | ** ** | **Average  Balance**                                 | ** ** | **Average  Rate  Paid (1)** | ** ** | **Average  Balance** | ** ** | **Average  Rate  Paid (1)** | ** ** |
| Types of Deposits                     |       |                                                 |       |   |   |   |   |   |   |
| Non-interest-bearing  demand deposits |       | $                                                    | 19,108     |   | — |   | $ | 19,663 |   | — |   |
| Interest-bearing demand  deposits     |       | 6,155                                                |       | 3.95 | % | 5,847 |   | 3.40 | % |
| Money market accounts                 |       | 109,146                                              |       | 5.28 | % | 54,825 |   | 4.84 | % |
| Savings accounts                      |       | 8,186                                                |       | 2.71 | % | 16,675 |   | 2.64 | % |
| IRA accounts                          |       | 11,285                                               |       | 5.15 | % | 4,536 |   | 4.81 | % |
| Purchased time deposits               |       | 220,514                                              |       | 5.25 | % | 156,593 |   | 4.22 | % |
| Time deposits                         |       | 205,577                                              |       | 5.31 | % | 129,457 |   | 4.73 | % |
| Total deposits                        |       | $                                                    | 579,971    |   |   |   | $ | 387,596 |   |   |   |

 

----

(1)             Rateis annualized

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**SubordinatedDebt** - In March 2005, we formed a financingsubsidiary, Tennessee Commerce Statutory Trust I, a Delaware statutory trust,or the Trust I. In March 2005, Trust I issued and sold 8,000 of Trust I’sFixed/Floating rate capital securities, with a liquidation amount of $1,000 percapital security, to First Tennessee Bank, National Association. At the sametime, we issued to Trust I $8,248,000 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 3 month Libor rate plus a margin thereafter.

In accordance with FASB Interpretation No. 46(revised December 2003) Consolidation of Variable Interest Entities(FIN46R), the Trust I is not consolidated. We report as liabilities thesubordinated debentures issued by us and held by Trust I.

**Off-balance Sheet Arrangements**

We are a party to financial instruments withoff-balance sheet risk in the normal course of business to meet the financingneeds of our customers. At March 31, 2007, we had unfunded loan commitmentsoutstanding of $84.5 million and standby letters of credit and financialguarantees of $7.4 million. Those instruments involve, to varying degrees,elements of credit risk in excess of the amount recognized in the balancesheet.  The contract or notional amounts of those instruments reflect theextent of our involvement in those particular financial instruments. We use thesame credit policies in making commitments and conditional obligations as we dofor on-balance sheet instruments.

Because these commitments generally have fixedexpiration dates and many will expire without being drawn upon, the totalcommitment level does not necessarily represent future cash requirements. Ifneeded, we can liquidate Federal funds sold or securities available for sale orborrow and purchase Federal funds from other financial institutions where wehave available federal fund lines totaling $25.4 million.

# **Capital Resources/Liquidity**

**Liquidity** - Ofprimary importance to depositors, creditors and regulators is the ability tohave readily available funds sufficient to repay fully maturingliabilities.  We are subject to general FDIC guidelines which do notrequire a minimum level of liquidity. Liquidity requirements can also be met throughshort-term borrowings or the disposition of short-term assets which aregenerally matched to correspond to the maturity of liabilities. Managementbelieves its liquidity ratios meet the general FDIC guidelines and we haveassets and borrowing capacity to provide adequate liquidity. Management doesnot know of any trends or demands which are reasonably likely to result inliquidity increasing or decreasing in any material manner.

**Capital Adequacy -**Ourobjective is to maintain a level of capitalization that is sufficient to takeadvantage of profitable growth opportunities while meeting regulatoryrequirements.****To continue to grow,we must increase capital by generating earnings, issuing equities, borrowingfunds, or a combination of those activities. In 2004, we issued equitysecurities increasing capital by $8.5 million.  In March 2005, oursubsidiary Trust I issued $8 million in Trust Preferred Securities that meetthe capital guidelines to be classified as Tier I capital as explained below.On July 3, 2006, and July 28, 2006, we issued 1,000,000 shares and 150,000shares respectively of our common stock in order to raise $19.1 million incapital in 2006.

The Federal Reserve Board has adopted capitalguidelines governing the activities of bank holding companies.  Theseguidelines require the maintenance of an amount of capital based onrisk-adjusted assets so that categories of assets with potentially highercredit risk will require more capital backing than assets with lowerrisk.  In addition, banks and bank holding companies are required tomaintain capital to support, on a risk-adjusted basis, certain off-balancesheet activities such as loan commitments.

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The capital guidelines classify capital into twotiers, referred to as Tier I and Tier II. Under risk-based capitalrequirements, total capital consists of Tier I capital which is generallycommon stockholders’ equity less goodwill and Tier II capital which isprimarily a portion of the allowance for loan losses and certain qualifyingdebt instruments. In determining risk-based capital requirements, assets areassigned risk-weights of 0% to 100%, depending primarily on the regulatoryassigned levels of credit risk associated with such assets. Off-balance sheetitems are considered in the calculation of risk-adjusted assets throughconversion factors established by the regulators. The framework for calculatingrisk-based capital requires banks and bank holding companies to meet theregulatory minimums of 4% Tier I and 8% total risk-based capital. In 1990,regulators added a leveraged computation to the capital requirements, comparingTier I capital to total average assets less goodwill.

The Federal Deposit Insurance Corporation ImprovementAct of 1991 (“FDICIA”) established five capital categories for banks and bankholding companies. The bank regulators adopted regulations defining these fivecapital categories in September 1992. Under these new regulations eachbank is classified into one of the five categories based on its level ofrisk-based capital as measured by Tier I capital, total risk-basedcapital, and Tier I leverage ratios and its supervisory ratings.

At March 31, 2007 and December 31, 2006, the Bank’sand our risk-based capital ratios and the minimums for capital adequacy and tobe considered well-capitalized under the Federal Reserve Board’s promptcorrective action guidelines were as follows:
| ** **                                               | ** ** | ** **         | ** ** | ** **            | ** ** | **Minimum**          | ** ** | **Minimum to**    | ** ** |
|----------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|----------------------|------------|------------------------|------------|
| ** **                                               | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **for capital** | ** ** | **be considered** | ** ** |
| ** **                                               | ** ** | **2007**           | ** ** | **2006**              | ** ** | **adequacy**         | ** ** | **well-capitalized**   | ** ** |
|                                                     |       |               |       |                  |       |                 |       |                   |       |
| Tier 1 leverage  ratio                                   |       |               |       |                  |       |                 |       |                   |       |
| Tennessee Commerce Bank                                  |       | 8.75               | %          | 8.78                  | %          | 4.00                 | %          | 5.00                   | %          |
| Tennessee Commerce Bancorp, Inc.                    |       | 9.56               | %          | 9.94                  | %          | 4.00                 | %          | n/a                    |       |
|                                                     |       |               |       |                  |       |                 |       |                   |       |
| Tier 1 “core”  capital to risk-weighted assets |       |               |       |                  |       |                 |       |                   |       |
| Tennessee Commerce Bank                                  |       | 9.20               | %          | 9.23                  | %          | 4.00                 | %          | 6.00                   | %          |
| Tennessee Commerce Bancorp, Inc.                    |       | 10.06              | %          | 10.45                 | %          | 4.00                 | %          | n/a                    |       |
|                                                     |       |               |       |                  |       |                 |       |                   |       |
| Total capital to  risk-weighted assets                   |       |               |       |                  |       |                 |       |                   |       |
| Tennessee Commerce Bank                                  |       | 10.45              | %          | 10.45                 | %          | 8.00                 | %          | 10.00                  | %          |
| Tennessee  Commerce Bancorp, Inc.                   |       | 11.31              | %          | 11.68                 | %          | 8.00                 | %          | n/a                    |       |

 

Based solely on our analysis of federal bankingregulatory categories, it appears on March 31, 2007 and December 31, 2006 thatwe and the Bank fall within the “well capitalized” categories under theregulations.

**Impact of Inflation and ChangingPrices** - The financial statements and related financialdata presented herein have been prepared in accordance with U.S. generallyaccepted accounting principles which require the measurement of financialposition and operating results in terms of historical dollars without consideringthe changes in the relative purchasing power of money over time and due toinflation. The impact of inflation on operations of the Bank is reflected inincreased operating costs. Unlike most industrial companies, virtually all ofthe assets and liabilities of the Bank are monetary in nature. As a result,interest rates have a more significant impact on the Bank’s performance 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 QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Like all financial institutions, we are subject tomarket risk from changes in interest rates. Interest rate risk is inherent inthe balance sheet due to the mismatch between the maturities of rate sensitiveassets and rate sensitive liabilities. If rates are rising, and the level ofrate sensitive liabilities exceeds the level of rate sensitive assets, the netinterest margin will be negatively impacted. Conversely, if rates are falling,and the level of rate sensitive liabilities is greater than the level of ratesensitive assets, the impact on the net interest margin will be favorable.Managing interest rate risk is further complicated by the fact that all ratesdo not change at the same pace, in other words, short term rates may be risingwhile longer term rates remain stable. In addition, different types of ratesensitive assets and rate sensitive liabilities react differently to changes inrates.

To manage interest rate risk, we must take a positionon the expected future trend of interest rates. Rates may rise, fall, or remainthe same. Our asset liability committee develops its view of future rate trendsand strives to manage rate risk within a targeted range by monitoring economicindicators, examining the views of economists and other experts, andunderstanding the current status of our balance sheet. Our annual budgetreflects the anticipated rate environment for the next twelve months. The assetliability committee conducts a quarterly analysis of the rate sensitivityposition and reports its results to our board of directors.

The asset liability committee uses a computer model toanalyze the maturities of rate sensitive assets and liabilities. The modelmeasures the “gap” which is defined as the difference between the dollar amountof rate sensitive assets repricing during a period and the volume of ratesensitive liabilities repricing during the same period. Gap is also expressedas the ratio of rate sensitive assets divided by rate sensitive liabilities. Ifthe ratio is greater than “one”, the dollar value of assets exceeds the dollarvalue of liabilities, and the balance sheet is “asset sensitive”. Conversely,if the value of liabilities exceeds the value of assets, the ratio is less thanone and the balance sheet is “liability sensitive”. Our internal policyrequires management to maintain the gap within a range of 0.75 to 1.25.

The model measures scheduled maturities in periods ofthree months, four to twelve months, one to five years and over five years. Thechart below illustrates our rate sensitive position at March 31, 2007.Management uses the one year gap as the appropriate time period for settingstrategy.

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RateSensitivity Gap Analysis(dollars in thousands)
| ** **                                                       | ** ** | ** **   | ** ** | **1-3**    | ** ** | **4-12**   | ** ** | **1-5**   | ** ** | **Over**         | ** ** | ** ** | ** ** |
|------------------------------------------------------------------|------------|--------------|------------|------------|------------|------------|------------|-----------|------------|------------------|------------|------------|------------|
| ** **                                                       | ** ** | **Floating** | ** ** | **Months** | ** ** | **Months** | ** ** | **Years** | ** ** | **5 years** | ** ** | **Total**  | ** ** |
| **Maturities  :**                                                |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Interest  Earnings Assets                                        |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Federal funds  sold                                              |       | $            | 3,434      |       | $          | —     |       | $         | —     |             | $          | —     |       | $ | — |   | $ | 3,434 |   |
| Interest bearing  deposits in banks                              |       |         |       |       |       |       |       |      |       |             |       |       |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Securities                                                       |       |         |       |       |       |       |       |      |       |             |       |       |       |
| U.S. government agencies                                         |       | —       |       | —     |       | —     |       | 12,128    |       | 40,325           |       | 52,453     |       |
| Mortgage-backed securities                                       |       | —       |       | 804        |       | 2,307      |       | 2,485     |       | 894              |       | 6,490      |       |
| Total securities                                                 |       |         |       | 804        |       | 2,307      |       | 14,613    |       | 41,219           |       | 58,943     |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total loans                                                      |       | 173,556      |       | 62,576     |       | 162,257    |       | 179,310   |       | 13,546           |       | 591,245    |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total Interest  Earning Assets                                   |       | 176,990      |       | 63,380     |       | 164,564    |       | 193,923   |       | 54,765           |       | 653,622    |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Other Assets                                                     |       | —       |       | —     |       | —     |       | —    |       | 15,552           |       | 15,552     |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total Assets                                                     |       | $            | 176,990    |       | $          | 63,380     |       | $         | 164,564    |             | $          | 193,923    |       | $ | 70,317 |   | $ | 669,174 |   |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Interest Bearing  Liabilities                                    |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Deposits                                                         |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Interest checking                                                |       | $            | 6,475      |       | $          | —     |       | $         | —     |             | $          | —     |       | $ | — |   | $ | 6,475 |   |
| Money market and savings                                         |       | 91,394       |       | —     |       | —     |       | 39,169    |       | —           |       | 130,563    |       |
| Time deposits                                                    |       | —       |       | 92,955     |       | 268,108    |       | 84,535    |       | —           |       | 445,598    |       |
| Total deposits                                                   |       | 97,869       |       | 92,955     |       | 268,108    |       | 123,704   |       | —           |       | 582,636    |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Fed Funds  Purchased                                             |       | 25           |       |       |       |       |       |      |       |             |       | 25         |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Subordinated  Debt                                               |       | —       |       | —     |       | —     |       | —    |       | 8,248            |       | 8,248      |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total Interest  Bearing Liabilities                              |       | 97,894       |       | 92,955     |       | 268,108    |       | 123,704   |       | 8,248            |       | 590,909    |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Other  Liabilities                                               |       | —       |       | —     |       | —     |       | —    |       | 24,771           |       | 24,771     |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Shareholders’  Equity                                       |       | —       |       | —     |       | —     |       | —    |       | 53,494           |       | 53,494     |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total  Liabilities and Shareholders’ Equity                 |       | $            | 97,894     |       | $          | 92,955     |       | $         | 268,108    |             | $          | 123,704    |       | $ | 86,513 |   | $ | 669,174 |   |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Rate Sensitive  Gap by period                                    |       | $            | 79,096     |       | $          | (29,575    | )          | $         | (103,544   | )                | $          | 70,219     |       | $ | 46,517 |   |   |   |
| Cumulative Gap                                                   |       |         |       | $          | 49,521     |       | $          | (54,023   | )          | $                | 16,196     |       | $          | 62,713 |   |   |   |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Cumulative Gap  as a percent of Total Assets                     |       |         |       | 7.40       | %          | -8.07      | %          | 2.42      | %          | 9.37             | %          |       |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Rate sensitive assets /  Rate sensitive liabilities (cumulative) |       | 1.81         |       | 1.26       |       | 0.88       |       | 1.03      |       | 1.11             |       |       |       |

 

24

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From March 31, 2006 to March 31, 2007, the FederalReserve Open Market Committee has raised interest rates by 50 basis points.Management has positioned the balance sheet to be slightly liabilitysensitivie. At March 31, 2007, our one year GAP was 0.88.

Theinterest rate risk model that defines the GAP position also performs a “rateshock” test of the balance sheet using an earnings simulation model and aneconomic value of equity model. The rate shock test measures the impact on thenet interest margin and the economic value of equity of an immediate shift ininterest rates in either direction.

Ourearnings simulation model measures the impact of changes in interest rates onnet interest income. To limit interest rate risk, we have a guideline for ourearnings at risk which set a limit on the variance of net interest income toless than a 5% percent decline for a 100 basis point change up or down inrates from management’s flat interest rate forecast over the next twelvemonths. At March 31, 2007, we are in compliance with our current guidelines.

Oureconomic value of equity model measures the extent that estimated economicvalues of our assets, liabilities and off-balance sheet items will change as aresult of interest rate changes. To help limit interest rate risk, we have aguideline stating that for an instantaneous 100 basis point change in interestrates up or down, the economic value of equity will not decrease by more than10 percent from the base case. At March 31, 2007, we are in compliancewith our current guidelines.

The above analysis may not on its own be an entirelyaccurate indicator of how net interest income or net interest margin will beaffected by changes in interest rates. Income associated with interest-earningassets and costs associated with interest-bearing liabilities may not be affecteduniformly by changes in interest rates. In addition, the magnitude and durationof changes in interest rates may have a significant impact on net interestincome. Interest rates on certain types of assets and liabilities fluctuate inadvance of changes in general market rates, while interest rates on other typesmay lag behind changes in general market rates. The asset liability committeedevelops its view of future rate trends by monitoring economic indicators,examining the views of economists and other experts, and understanding thecurrent status of our balance sheet and conducts a quarterly analysis of therate sensitivity position. The results of the analysis are reported to theboard.

25

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**ITEM 4:CONTROLS AND PROCEDURES**

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, asdefined in Rule 13a-15(e) promulgated under the Securities ExchangeAct of 1934 (the “Exchange Act”), that are designed to ensure that informationrequired to be disclosed by us in the reports that we file or submit under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in the Securities and Exchange Commission’s rules andforms and that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate, to allow timely decisions regarding required disclosure. Wecarried out an evaluation, under the supervision and with the participation ofour management, including our Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of our disclosurecontrols and procedures as of the end of the period covered by this report.Based on the evaluation of these disclosure controls and procedures, the ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective.

Changes in Internal Controls and Procedures

There were no changes in our internal controls overfinancial reporting during the quarter ended Match 31, 2007, that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting.

**PART II:OTHER INFORMATION**

**ITEM 1:LEGAL PROCEEDINGS**

None

**ITEM 1A:RISK FACTORS**

There were no material changes to our riskfactors included in Part I, Item 1A of our Form 10-K as filed withthe Securities and Exchange Commission on April 2, 2007.

26

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**ITEM 2:UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

(a)   None

(b)   None

(c)   None

Our ability to declare and pay dividends on our commonstock is limited by law and we may be unable to pay future dividends. We deriveour income solely from dividends on the shares of common stock of the bank. Thebank’s ability to declare and pay dividends to us is limited by its obligationsto maintain sufficient capital and by other general restrictions on itsdividends that are applicable to banks that are regulated by the FDIC and theTDFI. In addition, the Federal Reserve Board may impose restrictions on ourability to pay dividends on our common stock. As a result, we cannot assure ourshareholders that we will declare or pay dividends on shares of our commonstock in the future.

**ITEM 3:DEFAULTS UPON SENIOR SECURITIES**

(a)   None

(b)   None

**ITEM 4:SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

None

**ITEM 5:OTHER INFORMATION**

(a)   None

(b)   None

27

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**ITEM 6:EXHIBITS**
| Exhibit No. | ** ** | **Description**                                                                                          |
|------------------|------------|----------------------------------------------------------------------------------------------------------|
|             |       |                                                                                                     |
| 2.1*             |       | Articles of Share Exchange of Tennessee Commerce  Bank and Tennessee Commerce Bancorp, Inc.         |
|             |       |                                                                                                     |
| 2.2*             |       | Plan of Share Exchange of Tennessee Commerce Bank  and Tennessee Commerce Bancorp, Inc.             |
|             |       |                                                                                                     |
| 3.1*             |       | Charter of Tennessee Commerce Bancorp, Inc.                                                         |
|             |       |                                                                                                     |
| 3.2*             |       | Bylaws of Tennessee Commerce Bancorp, Inc.                                                          |
|             |       |                                                                                                     |
| 31.1             |       | Certification of Chief Executive Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |
|             |       |                                                                                                     |
| 31.2             |       | Certification of Chief Financial Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 |
|             |       |                                                                                                     |
| 32.1             |       | Certification of Chief Executive Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |
|             |       |                                                                                                     |
| 32.2             |       | Certification of Chief Financial Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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| * |   | Previously filed as an Exhibit to Tennessee  Commerce Bancorp, Inc.’s Form 10 as filed with the Securities  Exchange Commission on April 29, 2005 and incorporated by reference  herein. |
|---|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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SIGNATURES

In accordance with the requirements of the ExchangeAct, the Registrant caused this report to be signed on its behalf by theundersigned thereunto duly authorized.
|                     |   | Tennessee Commerce  Bancorp, Inc. |
|---------------------|--------|----------------------------------------|
|                |   | (Registrant)                           |
|                |   |                                   |
| May 14,   2007 |   |                                   | /s/ Arthur F. Helf |
| (Date)              |   | Arthur F. Helf                         |
|                |   | Chairman and Chief Executive Officer   |
|                |   |                                   |
| May 14, 2007        |   |                                   | /s/ George W. Fort |
| (Date)              |   | George W. Fort                         |
|                |   | Chief Financial Officer                |

 

29

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