** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C.  20549**

 

**FORM 10-Q**

 

**(Mark One)**

 
| **x**      | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|------------|-----------------------------------------------------------------------------------------------|
|       |       |                                                                                          |
| ** ** | ** ** | **For the  quarterly period ended September 30, 2007**                                        |
|       |       |                                                                                          |
| **OR**     |
|       |       |                                                                                          |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**CommissionFile Number 000-51281**

** **

**TENNESSEE COMMERCE BANCORP, INC.**

(Exact name of registrant asspecified in its charter)

 

| **Tennessee**                                                     | ** ** | **62-1815881**      |
|-------------------------------------------------------------------|------------|---------------------|
| (State or other  jurisdiction                                     |       | (I.R.S. Employer    |
| of incorporation or  organization)                                |       | Identification No.) |
|                                                              |       |                |
| **381  Mallory Station Road, Suite 207****Franklin,   Tennessee** | ** ** | **37067**           |
| (Address of principal  executive offices)                         |       | (Zip Code)          |

 

**(615) 599-2274**

(Registrant’s Telephone Number,Including Area Code)

 

**NotApplicable**

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

 

Indicate by check mark whether registrant (1) hasfiled reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements 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” in Rule 12b-2 ofthe Exchange Act.(Checkone):

 

Largeaccelerated filer  o           Accelerated filer  o            Non-accelerated filer  x

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes  o  No  x

 

As of November 5, 2007 there were 4,714,196 sharescommon stock, $0.50 par value per share, issued and outstanding.

 

 

----

 

**TennesseeCommerce Bancorp, Inc.**

 

Table of Contents

 
| **Part I**  | **Financial  Information**                                                                                                                                                 |   |
|------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|             |                                                                                                                                                                       |   |
| Item 1.          | Financial Statements                                                                                                                                                       |   |
|             |                                                                                                                                                                       |   |
|             | Consolidated  Balance Sheets at September 30, 2007 (unaudited) and December 31,  2006                                                                            |   |
|             |                                                                                                                                                                       |   |
|             | Consolidated  Statements of Income (unaudited) for the Nine Months Ended September 30,  2007 and 2006 and for the Three Months Ended September 30, 2007 and 2006 |   |
|             |                                                                                                                                                                       |   |
|             | Consolidated  Statements of Changes in Shareholders’ Equity (unaudited) for the Nine Months  Ended September 30, 2007 and 2006                                        |   |
|             |                                                                                                                                                                       |   |
|             | Consolidated  Statements of Cash Flows (unaudited) for the Nine Months Ended September 30,  2007 and 2006                                                                  |   |
|             |                                                                                                                                                                       |   |
|             | Notes to Consolidated Financial Statements (unaudited)                                                                                                                     |   |
|             |                                                                                                                                                                       |   |
| Item 2.          | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                                                |   |
|             |                                                                                                                                                                       |   |
| Item 3.          | Quantitative  and Qualitative Disclosures About Market Risk                                                                                                                |   |
|             |                                                                                                                                                                       |   |
| Item 4.          | Controls and  Procedures                                                                                                                                                   |   |
|             |                                                                                                                                                                       |   |
| **Part II** | **Other Information**                                                                                                                                                      |   |
|             |                                                                                                                                                                       |   |
| Item 1.          | Legal Proceedings                                                                                                                                                          |   |
|             |                                                                                                                                                                       |   |
| Item 1A.         | Risk Factors                                                                                                                                                               |   |
|             |                                                                                                                                                                       |   |
| Item 2.          | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                                                               |   |
|             |                                                                                                                                                                       |   |
| Item 3.          | Defaults Upon  Senior Securities                                                                                                                                           |   |
|             |                                                                                                                                                                       |   |
| Item 4.          | Submission of  Matters to a Vote of Security Holders                                                                                                                       |   |
|             |                                                                                                                                                                       |   |
| Item 5.          | Other Information                                                                                                                                                          |   |
|             |                                                                                                                                                                       |   |
| Item 6.          | Exhibits                                                                                                                                                                   |   |
|             |                                                                                                                                                                       |   |
| Signatures       |                                                                                                                                                                       |   |

 

2

----

 

**PART I:FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS.**

 

TENNESSEE COMMERCE BANCORP,INC.CONSOLIDATED BALANCE SHEETSSEPTEMBER 30, 2007 (UNAUDITED) AND DECEMBER 31, 2006

 

(Dollarsin thousands, except share data)

 
| ** **                                                                                                                                                                                                                              | ** ** | **September 30,   2007** | ** ** | **December 31,   2006 (1)** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                              |       |                               |       |                                       |       |
| Cash and due from financial institutions                                                                                                                                                                                                |       | $                                  | 5,968      |                                       | $          | 177 |   |
| Federal funds sold                                                                                                                                                                                                                      |       | 11,811                             |       | 13,820                                     |       |
| Cash and cash equivalents                                                                                                                                                                                                               |       | 17,779                             |       | 13,997                                     |       |
| Securities available for sale                                                                                                                                                                                                           |       | 68,742                             |       | 56,943                                     |       |
| Loans                                                                                                                                                                                                                                   |       | 739,155                            |       | 545,518                                    |       |
| Allowance for loan losses                                                                                                                                                                                                               |       | (9,250                             | )          | (6,968                                     | )          |
| Net loans                                                                                                                                                                                                                               |       | 729,905                            |       | 538,550                                    |       |
|                                                                                                                                                                                                                                    |       |                               |       |                                       |       |
| Premises and equipment, net                                                                                                                                                                                                             |       | 1,470                              |       | 1,633                                      |       |
| Accrued interest receivable                                                                                                                                                                                                             |       | 6,372                              |       | 4,116                                      |       |
| Restricted equity securities                                                                                                                                                                                                            |       | 938                                |       | 633                                        |       |
| Deferred tax asset                                                                                                                                                                                                                      |       | 2,091                              |       | 635                                        |       |
| Other assets                                                                                                                                                                                                                            |       | 12,898                             |       | 7,011                                      |       |
|                                                                                                                                                                                                                                    |       |                               |       |                                       |       |
| Total assets                                                                                                                                                                                                                            |       | $                                  | 840,195    |                                       | $          | 623,518 |   |
|                                                                                                                                                                                                                                    |       |                               |       |                                       |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                                           |       |                               |       |                                       |       |
| Liabilities                                                                                                                                                                                                                             |       |                               |       |                                       |       |
| Deposits                                                                                                                                                                                                                                |       |                               |       |                                       |       |
| Non-interest bearing                                                                                                                                                                                                                    |       | $                                  | 28,098     |                                       | $          | 17,001 |   |
| Interest-bearing                                                                                                                                                                                                                        |       | 738,192                            |       | 543,566                                    |       |
| Total deposits                                                                                                                                                                                                                          |       | 766,290                            |       | 560,567                                    |       |
|                                                                                                                                                                                                                                    |       |                               |       |                                       |       |
| Accrued interest payable                                                                                                                                                                                                                |       | 1,996                              |       | 1,728                                      |       |
| Short- term debt                                                                                                                                                                                                                        |       | 2,000                              |       | —                                     |       |
| Long-term subordinated debt                                                                                                                                                                                                             |       | 8,248                              |       | 8,248                                      |       |
| Other liabilities                                                                                                                                                                                                                       |       | 1,453                              |       | 1,751                                      |       |
| Total liabilities                                                                                                                                                                                                                       |       | 779,987                            |       | 572,294                                    |       |
| Shareholders’ equity                                                                                                                                                                                                               |       |                               |       |                                       |       |
| Preferred stock, no par value per share.  Authorized 1,000,000 shares; none issued                                                                                                                                                      |       | —                             |       | —                                     |       |
| Common stock, $0.50 par value per share.  Authorized 10,000,000 shares at September 30, 2007 and December 31, 2006;  Issued and outstanding 4,707,196 shares at September 30, 2007 and  4,451,674 shares at December 31, 2006 |       | 2,354                              |       | 2,226                                      |       |
| Additional paid-in capital                                                                                                                                                                                                              |       | 44,738                             |       | 40,755                                     |       |
| Retained earnings                                                                                                                                                                                                                       |       | 13,324                             |       | 8,530                                      |       |
| Accumulated other comprehensive loss                                                                                                                                                                                                    |       | (208                               | )          | (287                                       | )          |
| Total shareholders’ equity                                                                                                                                                                                                         |       | 60,208                             |       | 51,224                                     |       |
|                                                                                                                                                                                                                                    |       |                               |       |                                       |       |
| Total liabilities and shareholders’ equity                                                                                                                                                                                         |       | $                                  | 840,195    |                                       | $          | 623,518 |   |

 

----

(1) 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 and notesrequired by generally accepted accounting principles for complete financialstatements.

 

Seeaccompanying notes to consolidated financial statements.

 

3

----

 

TENNESSEE COMMERCE BANCORP,INC.CONSOLIDATED STATEMENTS OF INCOMENINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006(UNAUDITED)

 

(Dollarsin thousands, except share data)

 
| ** **                                           | ** ** | **Nine Months Ended September 30,** | ** ** | **Three Months Ended September 30,** | ** ** |
|------------------------------------------------------|------------|---------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                           | ** ** | **2007**                                                | ** ** | **2006**                                                 | ** ** | **2007** | ** ** | **2006** | ** ** |
| Interest income                                      |       |                                                    |       |                                                     |       |   |   |   |   |
| Loans, including fees                                |       | $                                                       | 41,252     |                                                     | $          | 26,943 |   | $ | 15,267 |   | $ | 10,284 |   |
| Securities                                           |       | 2,507                                                   |       | 1,529                                                    |       | 920 |   | 586 |   |
| Federal funds sold                                   |       | 435                                                     |       | 286                                                      |       | 184 |   | 130 |   |
| Total interest income                                |       | 44,194                                                  |       | 28,758                                                   |       | 16,371 |   | 11,000 |   |
|                                                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Interest expense                                     |       |                                                    |       |                                                     |       |   |   |   |   |
| Deposits                                             |       | 24,411                                                  |       | 14,421                                                   |       | 9,138 |   | 5,698 |   |
| Other                                                |       | 462                                                     |       | 513                                                      |       | 143 |   | 176 |   |
| Total interest expense                               |       | 24,873                                                  |       | 14,934                                                   |       | 9,281 |   | 5,874 |   |
|                                                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Net interest income                                  |       | 19,321                                                  |       | 13,824                                                   |       | 7,090 |   | 5,126 |   |
|                                                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Provision for loan losses                            |       | 4,300                                                   |       | 3,150                                                    |       | 1,300 |   | 1,150 |   |
|                                                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Net interest income after provision for  loan losses |       | 15,021                                                  |       | 10,674                                                   |       | 5,790 |   | 3,976 |   |
|                                                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Non-interest income                                  |       |                                                    |       |                                                     |       |   |   |   |   |
| Service charges on deposit accounts                  |       | 98                                                      |       | 80                                                       |       | 30 |   | 22 |   |
| Gain on sale of loans                                |       | 1,827                                                   |       | 1,179                                                    |       | 547 |   | 567 |   |
| Other                                                |       | 81                                                      |       | (135                                                     | )          | (3 | ) | 1 |   |
| Total non-interest income                            |       | 2,006                                                   |       | 1,124                                                    |       | 574 |   | 590 |   |
|                                                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Non-interest expense                                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Salaries and employee benefits                       |       | 5,363                                                   |       | 3,853                                                    |       | 2,125 |   | 1,348 |   |
| Occupancy and equipment                              |       | 799                                                     |       | 628                                                      |       | 287 |   | 238 |   |
| Data processing fees                                 |       | 729                                                     |       | 507                                                      |       | 224 |   | 177 |   |
| Professional fees                                    |       | 543                                                     |       | 514                                                      |       | 51 |   | 133 |   |
| Other                                                |       | 1,749                                                   |       | 1,134                                                    |       | 784 |   | 506 |   |
| Total non-interest expense                           |       | 9,183                                                   |       | 6,636                                                    |       | 3,471 |   | 2,402 |   |
|                                                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Income before income taxes                           |       | 7,844                                                   |       | 5,162                                                    |       | 2,893 |   | 2,164 |   |
|                                                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Income tax expense                                   |       | 3,050                                                   |       | 1,991                                                    |       | 1,116 |   | 834 |   |
|                                                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Net income                                           |       | $                                                       | 4,794      |                                                     | $          | 3,171 |   | $ | 1,777 |   | $ | 1,330 |   |
|                                                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Earnings per share (EPS):                            |       |                                                    |       |                                                     |       |   |   |   |   |
| Basic EPS                                            |       | $                                                       | 1.05       |                                                     | $          | 0.88 |   | $ | 0.38 |   | $ | 0.31 |   |
| Diluted EPS                                          |       | 0.99                                                    |       | 0.81                                                     |       | 0.36 |   | 0.29 |   |
|                                                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Weighted average shares outstanding:                 |       |                                                    |       |                                                     |       |   |   |   |   |
| Basic                                                |       | 4,578,930                                               |       | 3,611,077                                                |       | 4,700,509 |   | 4,339,913 |   |
| Diluted                                              |       | 4,857,681                                               |       | 3,928,473                                                |       | 4,979,260 |   | 4,662,978 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

4

----

 

TENNESSEE COMMERCE BANCORP,INC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYNINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006(UNAUDITED)

 

(Dollarsin thousands)

 
| ** **                                                                           | ** ** | **Common  Stock** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income  (Loss)** | ** ** | **Total  Shareholders’   Equity** | ** ** |
|--------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------------------|------------|------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------|------------|
| Balance at December 31, 2005                                                    |       | $                 | 1,619      |                             | $          | 21,401                 |       | $                                                     | 3,781      |                                        | $          | (371 | ) | $ | 26,430 |   |
| Comprehensive income                                                                 |       |              |       |                             |       |                   |       |                                                  |       |                                        |       |
| Net income                                                                           |       | —            |       | —                           |       | 3,171                  |       | —                                                |       | 3,171                                       |       |
| Other comprehensive income, net of income  taxes                                     |       |              |       |                             |       |                   |       |                                                  |       |                                        |       |
| Unrealized gains on securities available  for sale during the period                 |       | —            |       | —                           |       | —                 |       | 142                                                   |       | 142                                         |       |
|                                                                                 |       |              |       |                             |       |                   |       |                                                  |       |                                        |       |
| Total comprehensive income                                                           |       |              |       |                             |       |                   |       |                                                  |       | 3,313                                       |       |
|                                                                                 |       |              |       |                             |       |                   |       |                                                  |       |                                        |       |
| Issuance of 1,150,000 common shares                                                  |       | 575               |       | 18,481                           |       | —                 |       | —                                                |       | 19,056                                      |       |
| Exercise of stock options to purchase  32,000 common shares and related tax benefit  |       | 16                |       | 373                              |       | —                 |       | —                                                |       | 389                                         |       |
| Stock based compensation expense                                                     |       | —            |       | 83                               |       | —                 |       | —                                                |       | 83                                          |       |
|                                                                                 |       |              |       |                             |       |                   |       |                                                  |       |                                        |       |
| Balance at September 30, 2006                                                        |       | $                 | 2,210      |                             | $          | 40,338                 |       | $                                                     | 6,952      |                                        | $          | (229 | ) | $ | 49,271 |   |
|                                                                                 |       |              |       |                             |       |                   |       |                                                  |       |                                        |       |
| Balance at December 31, 2006                                                    |       | $                 | 2,226      |                             | $          | 40,755                 |       | $                                                     | 8,530      |                                        | $          | (287 | ) | $ | 51,224 |   |
| Comprehensive income                                                                 |       |              |       |                             |       |                   |       |                                                  |       |                                        |       |
| Net income                                                                           |       | —            |       | —                           |       | 4,794                  |       | —                                                |       | 4,794                                       |       |
| Other comprehensive income, net of income  taxes                                     |       |              |       |                             |       |                   |       |                                                  |       |                                        |       |
| Unrealized gains on securities available  for sale during the period                 |       | —            |       | —                           |       | —                 |       | 79                                                    |       | 79                                          |       |
|                                                                                 |       |              |       |                             |       |                   |       |                                                  |       |                                        |       |
| Total comprehensive income                                                           |       |              |       |                             |       |                   |       |                                                  |       | 4,873                                       |       |
|                                                                                 |       |              |       |                             |       |                   |       |                                                  |       |                                        |       |
| Exercise of stock options to purchase  255,522 common shares and related tax benefit |       | 128               |       | 3,844                            |       | —                 |       | —                                                |       | 3,972                                       |       |
| Stock based compensation expense                                                     |       | —            |       | 124                              |       | —                 |       | —                                                |       | 124                                         |       |
| Section 16 profit reimbursement                                                      |       | —            |       | 15                               |       | —                 |       | —                                                |       | 15                                          |       |
|                                                                                 |       |              |       |                             |       |                   |       |                                                  |       |                                        |       |
| Balance at September 30, 2007                                                   |       | $                 | 2,354      |                             | $          | 44,738                 |       | $                                                     | 13,324     |                                        | $          | (208 | ) | $ | 60,208 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

5

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TENNESSEE COMMERCE BANCORP,INC.CONSOLIDATED STATEMENTS OF CASH FLOWSNINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006(UNAUDITED)

 

(Dollarsin thousands)

 
| ** **                                                                        | ** ** | **Nine Months Ended September 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                        | ** ** | **2007**                                                | ** ** | **2006** | ** ** |
| **Operating activities**                                                          |       |                                                    |       |   |   |
| Net income                                                                        |       | $                                                       | 4,794      |   | $ | 3,171 |   |
| Adjustments to reconcile net income to net  cash from operating activities        |       |                                                    |       |   |   |
| Depreciation                                                                      |       | 250                                                     |       | 183 |   |
| Deferred loan fees                                                                |       | (563                                                    | )          | 40 |   |
| Provision for loan losses                                                         |       | 4,300                                                   |       | 3,150 |   |
| Federal Home Loan Bank stock dividends                                            |       | —                                                  |       | (23 | ) |
| Stock-based compensation expense                                                  |       | 124                                                     |       | 83 |   |
| Deferred Income Tax                                                               |       | (1,506                                                  | )          | (285 | ) |
| Net amortization of investment securities                                         |       | 11                                                      |       | 16 |   |
| Gain on sales of securities                                                       |       | (10                                                     | )          | — |   |
| Change in:                                                                        |       |                                                    |       |   |   |
| Accrued interest payable                                                          |       | 268                                                     |       | 343 |   |
| Accrued interest receivable                                                       |       | (2,256                                                  | )          | (1,250 | ) |
| Other assets and liabilities                                                      |       | (4,185                                                  | )          | (495 | ) |
| Net cash from operating activities                                                |       | 1,227                                                   |       | 4,933 |   |
|                                                                              |       |                                                    |       |   |   |
| **Investing activities**                                                          |       |                                                    |       |   |   |
| Purchases of securities available for sale                                        |       | (24,434                                                 | )          | (17,834 | ) |
| Proceeds from sales of securities available  for sale                             |       | 11,275                                                  |       | — |   |
| Proceeds from maturities, prepayments and  calls of securities available for sale |       | 1,488                                                   |       | 1,133 |   |
| Net change in loans                                                               |       | (195,092                                                | )          | (143,582 | ) |
| Purchases of Federal Home Loan Bank stock                                         |       | (305                                                    | )          | (217 | ) |
| Net purchases of premises and equipment                                           |       | (87                                                     | )          | (1,091 | ) |
| Net cash used by investing activities                                             |       | (207,155                                                | )          | (161,591 | ) |
|                                                                              |       |                                                    |       |   |   |
| **Financing activities**                                                          |       |                                                    |       |   |   |
| Net change in deposits                                                            |       | 205,723                                                 |       | 146,638 |   |
| Proceeds from issuance of common stock                                            |       | —                                                  |       | 19,056 |   |
| Proceeds from exercise of common stock  options                                   |       | 2,002                                                   |       | 285 |   |
| Excess tax benefit from option exercises                                          |       | 1,970                                                   |       | 104 |   |
| Section 16 profit reimbursement                                                   |       | 15                                                      |       | — |   |
| Net cash from financing activities                                                |       | 209,710                                                 |       | 166,083 |   |
|                                                                              |       |                                                    |       |   |   |
| **Net change in cash and cash equivalents**                                       |       | 3,782                                                   |       | 9,425 |   |
|                                                                              |       |                                                    |       |   |   |
| Cash and cash equivalents at beginning of  period                                 |       | 13,997                                                  |       | 19,412 |   |
|                                                                              |       |                                                    |       |   |   |
| **Cash and cash equivalents at end of period**                                    |       | $                                                       | 17,779     |   | $ | 28,837 |   |
|                                                                              |       |                                                    |       |   |   |
| **Supplemental cash flow information:**                                           |       |                                                    |       |   |   |
| Cash paid during period for interest                                              |       | $                                                       | 24,605     |   | $ | 14,591 |   |
| Cash paid during period for income taxes                                          |       | 4,175                                                   |       | 1,522 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

6

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TENNESSEE COMMERCE BANCORP, INC.

 

Notes to ConsolidatedFinancial Statements (unaudited)

 

Note 1 — Basis of Presentation

 

Tennessee CommerceBancorp, Inc. (the “Corporation”) is a holding company for TennesseeCommerce Bank (the “Bank”).  In March 2005, the Corporation formed awholly owned subsidiary, Tennessee Commerce Bank Statutory Trust I (“Trust I”).The Bank and the Trust I are the only subsidiaries of the Corporation. Theaccompanying consolidated financial statements include the accounts of the Corporationand the Bank. The Trust I is not consolidated in accordance with FinancialAccounting Standards Board (“FASB”) Interpretation No. 46(R), (revisedDecember 2003) “Consolidation of Variable Interest Entities” (“FIN 46R”).Material intercompany accounts and transactions have been eliminated.

 

The unaudited consolidatedfinancial statements as of September 30, 2007 and for the nine and three monthperiods ended September 30, 2007 and 2006 have been prepared in accordance withaccounting principles generally accepted in the United States of America and inaccordance with the instructions to Form 10-Q and Article 10 ofRegulation S-X as promulgated by the Securities and Exchange Commission (“SEC”),and in the opinion of management, include all adjustments, consisting of normalrecurring adjustments, to present fairly the information included therein. Theydo not include all the information and notes required by generally acceptedaccounting principles for complete financial statements. Operating results forthe nine and three month periods ended September 30, 2007 are not necessarilyindicative of the results that may be expected for the year endingDecember 31, 2007. For further information, refer to the consolidatedfinancial statements and notes thereto included in our Annual Report onForm 10-K for the year ended December 31, 2006.

 

Note 2 — Earnings per Share of Common Stock

 

The factors used in theearnings per share computation follow:

 

(Dollars in thousands, except per share data)

 
| ** **                                                                      | ** ** | **Nine Months Ended   September 30,** | ** ** | **Three Months Ended   September 30,** | ** ** |
|---------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                                                      | ** ** | **2007**                                                  | ** ** | **2006**                                                   | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                            |       |                                                      |       |                                                       |       |   |   |   |   |
| Basic                                                                           |       |                                                      |       |                                                       |       |   |   |   |   |
| Net income                                                                      |       | $                                                         | 4,794      |                                                       | $          | 3,171 |   | $ | 1,777 |   | $ | 1,330 |   |
|                                                                            |       |                                                      |       |                                                       |       |   |   |   |   |
| Weighted average common shares outstanding                                      |       | 4,578,930                                                 |       | 3,611,077                                                  |       | 4,700,509 |   | 4,339,913 |   |
|                                                                            |       |                                                      |       |                                                       |       |   |   |   |   |
| Basic earnings per common share                                                 |       | $                                                         | 1.05       |                                                       | $          | 0.88 |   | $ | 0.38 |   | $ | 0.31 |   |
|                                                                            |       |                                                      |       |                                                       |       |   |   |   |   |
| Diluted                                                                         |       |                                                      |       |                                                       |       |   |   |   |   |
| Net income                                                                      |       | $                                                         | 4,794      |                                                       | $          | 3,171 |   | $ | 1,777 |   | $ | 1,330 |   |
|                                                                            |       |                                                      |       |                                                       |       |   |   |   |   |
| Weighted average common shares outstanding  for basic earnings per common share |       | 4,578,930                                                 |       | 3,611,077                                                  |       | 4,700,509 |   | 4,339,913 |   |
| Add: Dilutive effects of assumed exercises  of stock options                    |       | 278,751                                                   |       | 317,396                                                    |       | 278,751 |   | 323,065 |   |
|                                                                            |       |                                                      |       |                                                       |       |   |   |   |   |
| Average shares and dilutive potential  common shares                            |       | 4,857,681                                                 |       | 3,928,473                                                  |       | 4,979,260 |   | 4,662,978 |   |
|                                                                            |       |                                                      |       |                                                       |       |   |   |   |   |
| Diluted earnings per common share                                               |       | $                                                         | 0.99       |                                                       | $          | 0.81 |   | $ | 0.36 |   | $ | 0.29 |   |

 

Options granted June 14, 2007 at a strike price of$25.00 were antidilutive and not included in the diluted earnings per commonshare calculation.

 

7

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Note 3 — Stock Compensation

 

On January 1, 2006, weadopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R),“Share — Based Payment” (“SFAS No. 123(R)”), which addresses the accounting forshare-based payment transactions in which a company receives employee servicesin exchange for equity instruments. SFAS No. 123(R) eliminates the abilityto account for share-based compensation transactions, as we formerly did, usingthe intrinsic value method as prescribed by Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued to Employees,” and generally requiresthat such transactions be accounted for using a fair-value-based method andrecognized as expense in the accompanying consolidated statement of income.

 

We adoptedSFAS No. 123(R) using the modified prospective method which requiresthe application of the accounting standard as of January 1, 2006. Theaccompanying consolidated financial statements as of and for the periods endingSeptember 30, 2007 reflects the impact of adopting SFAS No. 123(R).In accordance with the modified prospective method, the consolidated financialstatements for prior periods have not been restated to reflect, and do notinclude, the impact of SFAS No. 123(R).

 

Stock-based compensationexpense recognized during the period is based on the value of the portion ofstock-based payment awards that is ultimately expected to vest. Stock-basedcompensation expense recognized in the accompanying consolidated statements ofincome for the periods ending September 30, 2007 included any compensationexpense for stock-based payment awards vesting during the period based on thegrant date fair value estimated in accordance with SFAS No. 123(R). Asstock-based compensation expense recognized in the accompanying statement ofincome for the period ending September 30, 2007 is based on awards ultimatelyexpected to vest, it has been reduced for estimated forfeitures. SFAS No. 123(R)requires forfeitures to be estimated at the time of grant and revised, ifnecessary, in subsequent periods if actual forfeitures differ from thoseestimates.

 

We granted options topurchase 200,000 shares of our common stock on June 14, 2007 and all otheroptions outstanding were vested prior to January 1, 2007. There was $124,000 instock-based expense recognized for the nine months ended September 30, 2007.

 

8

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A summary of the activity inour stock option plan is as follows:

 
| ** **                                              | ** ** | **Number** | ** ** | **Weighted-  Average   Exercise   Price** | ** ** | **Weighted-  Average   Contractual  Remaining  Term  (in years)** | ** ** | **Aggregate  Intrinsic  Value (1)  (000’s)** | ** ** |
|---------------------------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Outstanding at December 31, 2006                        |       | 871,092    |       | $                                                   | 8.77       |                                                                        |       |                                                   |       |   |
| Granted                                                 |       | 200,000    |       | 25.00                                               |       |                                                                        |       |                                                   |       |
| Exercised                                               |       | (255,522   | )          | 7.85                                                |       |                                                                        |       |                                                   |       |
| Forfeited or expired                                    |       | —     |       | —                                              |       |                                                                        |       |                                                   |       |
| Outstanding at September 30, 2007                       |       | 815,570    |       | $                                                   | 13.05      |                                                                        | 6.03       |                                                   | $          | 10,105 |   |
| Outstanding and expected to vest at  September 30, 2007 |       | 815,570    |       | $                                                   | 13.05      |                                                                        | 6.03       |                                                   | $          | 10,105 |   |
| Options exercisable at September 30, 2007               |       | 615,570    |       | $                                                   | 9.16       |                                                                        | 4.82       |                                                   | $          | 9,929 |   |

 

----

(1)    The aggregate intrinsic value is calculatedas the difference between the exercise price of the underlying options and thequoted price of our stock of $23.75 per common share for the 815,570 optionsoutstanding and 615,570 options exercisable that were in-the-money at September30, 2007.

 

The estimated fair valuesare computed using the Black-Scholes option valuation model, using thefollowing weighted-average assumptions as of grant date shown below:

 
| ** **              | ** ** | **2007**  | ** ** | **2005**     | ** ** | **2004**     | ** ** | **2003**     | ** ** |
|-------------------------|------------|-----------|------------|--------------|------------|--------------|------------|--------------|------------|
|                    |       |      |       |         |       |         |       |         |       |
| Risk-free interest rate |       | 4.94      | %          | 3.96         | %          | 3.23         | %          | 3.82         | %          |
| Expected option life    |       | 3.5 years |       | 5 years |       | 7 years |       | 7 years |       |
| Dividend yield          |       | 0.0       | %          | 0.0          | %          | 0.0          | %          | 0.0          | %          |

 

The options granted in 2007had an estimated fair value of $5.75. The options granted during 2005 weregranted in July, August and November and had an estimated fair value of$3.96, $4.07 and $4.26, respectively. The weighted average fair value ofoptions granted during the year was $5.75 for 2007, $4.03 for 2005, $2.23 for2004 and $2.29 for 2003. No options were granted in 2006.

 

9

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Note 4 — Trust Preferred Securities

 

In March 2005, weformed a financing subsidiary, Tennessee Commerce Statutory Trust I, a Delawarestatutory trust, or Trust I. In March 2005, Trust I issued and sold 8,000of its Fixed/Floating rate capital securities, with a liquidation amount of$1,000 per capital security, to First Tennessee Bank National Association. Atthe same time, 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 three month Libor rate plus a margin thereafter. In accordance withFIN 46R, Trust I is not consolidated. We report as liabilities the subordinateddebentures issued by the Corporation and held by Trust I.

 

Note 5 – Stock Issuance

 

On July 3, 2006 and on July28, 2006, we issued 1,000,000 and 150,000 shares, respectively, of our commonstock. After the issuances, there were 4,390,674 shares of common stockoutstanding.

 

 Note 6 – New Accounting Standards

 

In July 2006, the FASBissued 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 48also provides guidance on derecognition, classification, interest andpenalties, accounting in interim periods, disclosure and transition.  FIN48 is effective for fiscal years beginning after December 15, 2006.  Ouradoption of FIN 48 effective January 2007 did not have a material effect on ourconsolidated financial statements.

 

In February 2007, the FASBissued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities”, (“SFAS 159”), which gives entities the option tomeasure eligible financial assets, and financial liabilities at fair value onan instrument by instrument basis, that are otherwise not permitted to beaccounted for at fair value under other accounting standards. The election touse the fair value option is available when an entity first recognizes afinancial asset or financial liability. Subsequent changes in fair value mustbe recorded in earnings. This statement is effective as of the beginning of acompany’s first fiscal year after November 15, 2007. We are in the processof analyzing the impact of SFAS 159.

 

10

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

 

**Forward-Looking Statements**

 

Certain statements containedin this report may not be based on historical facts and are “forward-lookingstatements” within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, as amended. Theseforward-looking statements may be identified by reference to a future period orby the use of forward – looking terminology, such as “expect”, “anticipate”, “believe”,“estimate”, “foresee”, “may”, “might”, “will”, “intend”, “could”, “would”, “plan”,“forecast” or future or conditional verb tenses and variations or negatives ofsuch terms.  These forward-looking statements include, without limitation,those relating to our operating results, vesting of stock options, businessbank strategy, management’s review of the loan portfolio, loans classified asdoubtful or substandard, loan commitments, interest rate risk, economic valueof equity model, net interest margin, net interest income, loan saletransactions, tax rates, non-accrual loans, liquidity, and our future growthand profitability. We caution you not to place undue reliance on theforward-looking statements contained in this report because actual resultscould differ materially from those indicated in such forward-looking statementsas a result of a variety of factors. These factors include, but are not limitedto, changes in economic conditions, competition for loans, mortgages and otherfinancial services and products, changes in interest rates, concentrationswithin our loan portfolio, our ability to maintain credit quality, theeffectiveness of our risk monitoring systems, changes in consumer preferences,the ability of our borrowers to repay loans, changes in our operating strategy,our ability to meet regulatory capital adequacy requirements, our ability toattract, train and retain qualified personnel, the geographic concentration ofour assets, our ability to operate and integrate new technology, our ability toprovide market competitive products and services, our ability to diversifyrevenue, our ability to fund growth with lower cost liabilities, laws andregulations affecting financial institutions in general and other factorsdetailed from time to time in our press releases and filings with theSecurities and Exchange Commission. We undertake no obligation to updatethese forward-looking statements to reflect the occurrence of changes orunanticipated events, circumstances or results that occur after the date ofthis report.

 

**Corporation Overview**

 

TennesseeCommerce Bancorp, Inc., headquartered in Franklin, Tennessee, is the bankholding company for Tennessee Commerce Bank.  Organized inJanuary 2000, Tennessee Commerce Bank has a focused strategy that servesthe banking needs of small to medium-sized businesses, entrepreneurs andprofessionals in the Nashville metropolitan statistical area, or the NashvilleMSA, as well as the funding needs of certain national and regional equipmentvendors and financial services companies.  We call this strategy our “businessbank” strategy. We primarily conduct business from a single location in the CoolSprings commercial area of Franklin, Tennessee, fifteen miles south ofNashville.  Franklin is in Williamson County, one of the most rapidlygrowing counties in the nation. According to the U.S. Census Bureau, WilliamsonCounty ranked 59th out of the top 100 fastest growing counties in thenation from July 2004 to July 2005. We also operate a loan productionoffice in Birmingham, Alabama, which we opened in February 2006 and whichis staffed with two senior lending officers.

 

11

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Weoffer a full range of competitive retail and commercial banking services tolocal customers in the Nashville MSA.  Our deposit services include abroad offering of checking accounts, savings accounts, money market investmentaccounts, certificates of deposits and retirement accounts.  Lendingservices include consumer installment loans, various types of mortgage loans,personal lines of credit, home equity loans, credit cards, real estateconstruction loans, commercial loans to small and medium-sized businesses andprofessionals, and letters of credit. We issue VISA credit cards and are amerchant depository for cardholder drafts under VISA credit cards.  Wealso offer check cards and debit cards.  We offer our local customers freecourier services, access to third-party automated teller machines, or ATMs, andstate-of-the-art electronic banking. We have trust powers but do not have atrust department.

 

**Our Business Strategy**

 

Weexecute our business bank strategy by combining the personal service and appealof a community banking institution with the sophistication of a largerbank.  We believe this strategy distinguishes us from our competitors inefforts to attract loans and deposits of local small to medium-sized businessesand national and regional equipment vendors and financial servicescompanies.  Further, the rapid growth within the Nashville MSA, along withseveral bank mergers and acquisitions, has left many business owners withoutsignificant banking relationships. We seek to take advantage of thisopportunity.

 

Wedo not compete based on the traditional definition of “convenience” andcurrently have no plans to develop a comprehensive branch bank network. For us, convenience is created by technology and by a free courier service forlocal customers which transports deposits directly from the business locationto the bank.  We conduct business primarily from a single banking officewith no teller line, drive-through window or extended banking hours.  Wecompete by providing responsive and personalized service to meet customerneeds.  We provide free electronic banking and cash management tools andon-site training for business customers.  We compete for consumer businessby providing superior products, attractive deposit rates, free internet bankingservices and access to a third party regional ATM network. We primarily targetservice, manufacturing and professional customers and avoid retail businesseswith high transaction volume.

 

Thebusiness bank strategy is highlighted by differences between the financialstatements of our bank and more traditional financial institutions. Thebusiness bank model creates a high degree of leverage.  By avoiding theinvestment and maintenance costs of a typical branch network, we are able tomaintain earning assets at a higher level than peer institutions. Management targets a minimum earning asset ratio of 97% compared to the averageof 85% to 90% for all FDIC-insured banks and at September 30, 2007 we had anearning asset ratio of 96.66%.

 

Thebusiness bank model is also highly efficient.  We target the non-retailsector of the commercial market, which is characterized by lower levels oftransactions and processing costs.  The commercial customer mix and thestrategic outsourcing of non-customer functions, such as data processing,information technology and internal audit, allow us to operate with a smaller,more highly-trained staff.  Management targets an average asset peremployee ratio of $7.5 million, compared to the average ratio of approximately$3.8 million assets per employee for Middle Tennessee banks at the end of thesecond quarter of 2007. At September 30, 2007, assets per employee were $13.8million.

 

12

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Inaddition to our Nashville MSA focus, we have developed expertise in indirectlending that allows us to access a national market. The transactions are fixedrate monthly installment loans originated through a third party equipmentvendor or financial services company. Our national market lending is dividedinto two programs based on loan size. In the first program, through anestablished network of vendors and financial service companies, we haveopportunities to finance business asset secured loan transactions for nationalmiddle-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 forour portfolio.

 

**Our Market Area**

 

The Bank’s primary marketarea is Davidson County and Williamson County in Tennessee.  In DavidsonCounty, as of December 31, 2006, there were 25 banks and no savings and loaninstitutions, with at least 194 offices actively engaged in banking activities,including 10 major state-wide financial institutions.  Total deposits heldby banks in Davidson County as of December 31, 2006, were approximately $15.9billion.  In Williamson County, as of December 31, 2006, there were 21banks and two savings and loan institutions, with at least 79 offices activelyengaged in banking activities, including nine major state-wide financialinstitutions.  Total deposits held by banks and savings and loanassociations in Williamson County as of December 31, 2006, were approximately$4.1 billion.  In addition, there are numerous credit unions, financecompanies, and other financial services providers.

 

Demographic informationpublished by SNL Financial shows a total estimated population of 159,022 forWilliamson County in 2006, which was a 25.57% increase from 126,638 in 2000.The estimated number of households in the county in 2006 was 56,994, up from44,725 in 2000, averaging 2.79 persons per household. In 2006, the medianhousehold income was $88,410, while per capita income was $44,023.  At theend of 2006, the unemployment rate was 2.6%.

 

Demographic informationpublished by SNL Financial shows an estimated population of 596,829 forDavidson County in 2006, which was a 4.73% increase over the population of569,891 in 2000. The estimated number of households in the county in 2006 was250,628, averaging 2.38 persons per household. In 2006, the median householdincome was $50,420, while per capita income was $29,695.  At the end of2006, the unemployment rate was 3.6%.

 

13

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**Overview ofOperating Results for the Three and Nine Months Ended September 30, 2007 andSeptember 30, 2006 and Financial Condition at September 30, 2007 andDecember 31, 2006.**

 

(Dollars in thousands, except per share data, in theremainder of this Item 2.)

 

The results of operationsfor the quarter ended September 30, 2007 compared to the quarter endedSeptember 30, 2006 reflected a 33.61% increase in net income and a 24.14%increase in diluted earnings per share. The increase in earnings resultedprimarily from a 38.31% increase in net interest income due to higher average loanbalances. The increased net interest income was partially offset by increasesin non-interest expense. For the nine months ended September 30, 2007, netincome was $4,794, an increase of $1,623 or 51.18% compared to net income of$3,171 for the same period in 2006. Diluted earnings per share increased $0.18per share or 22.22% for the nine months ended September 30, 2007 compared tothe same period in 2006. The nine months ended September 30, 2007 reflected acontinuation of the Bank’s trend of rapid asset growth, increasing by $216,677or 34.75% from $623,518 at December 31, 2006 to $840,195 at September 30,2007. Net loans increased by 35.53% or $191,355 from December 31, 2006 toSeptember 30, 2007, while total deposits increased by 36.70% or $205,723 duringthat same period.

 

**Comparison of Operating Results for the Three MonthsEnded September 30, 2007 and September 30, 2006**

 

**Net Income** - Net income for the quarter ended September30, 2007 was $1,777, an increase of $447 or 33.61%, compared to net income of$1,330 for the quarter ended September 30, 2006.  The increase isprimarily attributable to a 38.31% increase in net interest income from $5,126for the quarter ended September 30, 2006 to $7,090 for the same period in 2007.The increase of $1,964 in net interest income was the result of our overallgrowth, including a 50.63% increase in net loan balances at September 30, 2007compared to the same date in 2006. The increase in net interest income waspartially offset by increased non-interest expense. Non-interest expenseincreased by 44.50% to $3,471 for the three month period ended September 30,2007 compared to $2,402 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   September 30,** | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------------|------------|------------|------------|
| ** **                                           | ** ** | **2007**                                                   | ** ** | **2006**   | ** ** | **% Change** | ** ** |
|                                                 |       |                                                       |       |       |       |   |   |
| Interest income                                      |       | $                                                          | 16,371     |       | $          | 11,000 |   | 48.83 | % |
| Interest expense                                     |       | 9,281                                                      |       | 5,874      |       | 58.00 |   |
| Net interest income                                  |       | 7,090                                                      |       | 5,126      |       | 38.31 |   |
| Provision for loan losses                            |       | 1,300                                                      |       | 1,150      |       | 13.04 |   |
| Net interest income after provision for  loan losses |       | 5,790                                                      |       | 3,976      |       | 45.62 |   |
| Non-interest income                                  |       | 574                                                        |       | 590        |       | (2.71 | ) |
| Non-interest expense                                 |       | 3,471                                                      |       | 2,402      |       | 44.50 |   |
| Net income before taxes                              |       | 2,893                                                      |       | 2,164      |       | 33.69 |   |
| Income tax expense                                   |       | 1,116                                                      |       | 834        |       | 33.81 |   |
| Net income                                           |       | $                                                          | 1,777      |       | $          | 1,330 |   | 33.61 | % |

 

14

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**Net Interest Income** - Net interest income for the quarter endedSeptember 30, 2007 was $7,090 compared to $5,126 for the same period in 2006, again of $1,964 or 38.31%.  The increase of $1,964 in net interest incomewas the result of our overall growth, including a 50.63% increase in net loanbalances at September 30, 2007 compared to the same date in 2006.

 

**Provision for Loan Losses** - The provision for loan losses for thethree months ended September 30, 2007 was $1,300, an increase of$150, or 13.04%, above the provision of $1,150 expensed in the same period in2006.  This increase was primarily due to the increase in loan volume. Theprovision is discussed as it relates to the allowance for loan losses in thefollowing section titled “Comparison of Financial Condition at September 30,2007 and December 31, 2006.” At September 30, 2007, the loan loss reserveof $9,250 was 1.25% of gross loans of $739,155.

 

**Non-interest Income** - Non-interest income decreased by 2.71% or$16, from $590 in the quarter ended September 30, 2006 to $574 for thesame period in 2007. The decrease was primarily due to lower gains on loansales.  The gain on loan sales was $547 and $567 for the three monthperiods ended September 30, 2007 and 2006, respectively.

 

**Non-interest Expense** - Non-interest expense for the three monthsended September 30, 2007 was $3,471, an increase of $1,069 or 44.50%, overthe $2,402 expensed in the same period in 2006.  Approximately 72.66% ofthe increase was due to increases in personnel. At September 30, 2007, theBank had 61 full time employees compared with 49 employees at September 30,2006. For the three months ending September 30, 2007 our efficiency ratioincreased to 45.29% from 42.02% for the same period in 2006.

 

**Comparison of Operating Results forthe Nine Months Ended September 30, 2007 and September 30, 2006**

 

**Net Income** - Net income for the nine months endedSeptember 30, 2007 was $4,794, an increase of $1,623 or 51.18% compared to netincome of $3,171 for the nine months ended September 30, 2006.  Theincrease is attributable to a 39.76% increase in net interest income from$13,824 for the nine months ended September 30, 2006 to $19,321 for the sameperiod in 2007. The increase of $5,497 in net interest income was the result ofour overall growth, including a 53.12% increase in average net loan balances atSeptember 30, 2007 compared to the same date in 2006. This positive effect waspartially offset by a 36.51% increase in the provision for loan losses, from$3,150 during the nine months ended September 30, 2006 to $4,300 for the sameperiod in 2007. Also, non-interest expense increased by 38.38% to $9,183 forthe nine month period ended September 30, 2007 compared to $6,636 for the sameperiod in 2006. The increase in the provision for loan losses was primarily theresult of funding the allowance for loan losses to match our significant loan growth.The increase in non-interest expense was due to the increase in personnel andgeneral operating expenses due to our growth.

 

15

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(Dollarsin thousands)

 
| ** **                                           | ** ** | **Nine Months Ended   September 30,** | ** ** | ** ** | ** ** |
|------------------------------------------------------|------------|-----------------------------------------------------------|------------|------------|------------|
| ** **                                           | ** ** | **2007**                                                  | ** ** | **2006**   | ** ** | **% Change** | ** ** |
|                                                 |       |                                                      |       |       |       |   |   |
| Interest income                                      |       | $                                                         | 44,194     |       | $          | 28,758 |   | 53.68 | % |
| Interest expense                                     |       | 24,873                                                    |       | 14,934     |       | 66.55 |   |
| Net interest income                                  |       | 19,321                                                    |       | 13,824     |       | 39.76 |   |
| Provision for loan losses                            |       | 4,300                                                     |       | 3,150      |       | 36.51 |   |
| Net interest income after provision for  loan losses |       | 15,021                                                    |       | 10,674     |       | 40.73 |   |
| Non-interest income                                  |       | 2,006                                                     |       | 1,124      |       | 78.47 |   |
| Non-interest expense                                 |       | 9,183                                                     |       | 6,636      |       | 38.38 |   |
| Net income before taxes                              |       | 7,844                                                     |       | 5,162      |       | 51.96 |   |
| Income tax expense                                   |       | 3,050                                                     |       | 1,991      |       | 53.19 |   |
| Net income                                           |       | $                                                         | 4,794      |       | $          | 3,171 |   | 51.18 | % |

 

**Net Interest Income** - Net interest income for the nine monthsended September 30, 2007 was $19,321 compared to $13,824 for the same period in2006, a gain of $5,497 or 39.76%.  The increase in net interest income waslargely attributable to strong loan growth.  The average net loan balancefor the nine months ended September 30 increased by 53.12% or $215,068 from$404,856 for that period in 2006 to $619,924 for the same period in 2007. Loangrowth was matched by an increase in average interest bearing deposits from$404,338 for the nine months ended September 30, 2006 to $626,592 for the sameperiod in 2007, an increase of $222,254 or 54.97%.

 

**Net Interest Margin******- The net interest margin decreased from4.05% for the nine months ended September 30, 2006 to 3.73% for the same periodin 2007 due to an increase in the cost of funds which offset an increase in theyield on earning assets.  Interest income increased by $15,436 or 53.68%,from $28,758 during the nine months ended September 30, 2006 to $44,194 duringthe same period in 2007. The increase was primarily due to increased loanvolume.  Average earning assets increased from $455,567 in the nine monthsended September 30, 2006 to $692,219 in the same period in 2007, an increase of$236,652 or 51.95%.  The increase in earning assets was primarily due toloan growth. Average loan balances increased by $215,068 or 53.12%.  Theaverage yield on earning assets increased from 8.42% in the nine months endedSeptember 30, 2006 to 8.53% in the same period in 2007. The increase in thecost of funds, as a percentage of average balances was primarily due toincreases in short term interest rates paid on deposits that support our loangrowth. Between September 30, 2006 and September 30, 2007, the Federal ReserveOpen Market Committee, or FOMC, lowered the federal funds rate by 50 basispoints on September 18, 2007 for the first time since June 25, 2003.

 

**Interest Expense** – Interest expense increased from $14,934 inthe nine months ended September 30, 2006, to $24,873 in the nine months endedSeptember 30, 2007. The $9,939, or 66.55%, increase in expense was due toincreases in the volume of deposits as well as rate increases. Average interestearning liabilities increased by $221,227 or 53.35%.  The cost of fundsincreased from 4.82% in the nine months ended September 30, 2006 to 5.23%during the same nine months in 2007, an increase of 41 basis points.

 

16

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*Average Balance Sheets, Net Interest Income, and Changesin Interest Income and Interest 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 nine month periods ended September 30, 2007 and 2006.The table is presented on a tax equivalent basis, if applicable.

 
| ** **                           | ** ** | **Nine Months Ended September 30,   2007** | ** ** | **Nine Months Ended September 30,   2006** | ** ** |
|--------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Average**                                                         | ** ** | ** **                                                          | ** ** | **Average** | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **(Dollars in thousands)** | ** ** | **Balance**                                                         | ** ** | **Interest**                                                        | ** ** | **Rate** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** |
| **ASSETS**                           |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
|                                 |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Interest earning assets              |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Securities (taxable) (1)             |       | $                                                                   | 61,298     |                                                                | $          | 2,507 |   | 5.41 | % | $ | 41,363 |   | $ | 1,529 |   | 4.83 | % |
| Loans (2) (3)                   |       | 619,924                                                             |       | 41,252                                                              |       | 8.90 | % | 404,856 |   | 26,943 |   | 8.90 | % |
| Federal funds sold                   |       | 10,997                                                              |       | 435                                                                 |       | 5.29 | % | 9,348 |   | 286 |   | 4.09 | % |
| Total interest earning assets        |       | 692,219                                                             |       | 44,194                                                              |       | 8.53 | % | 455,567 |   | 28,758 |   | 8.42 | % |
|                                 |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Non-interest earning assets          |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Cash and due from banks              |       | 5,275                                                               |       |                                                                |       |   |   | 3,787 |   |   |   |   |   |
| Net fixed assets and equipment       |       | 1,567                                                               |       |                                                                |       |   |   | 974 |   |   |   |   |   |
| Accrued interest and other assets    |       | 15,597                                                              |       |                                                                |       |   |   | 8,965 |   |   |   |   |   |
|                                 |       |                                                                |       |                                                                |       |   |   |   |   |   |   |   |   |
| Total assets                         |       | $                                                                   | 714,658    |                                                                |       |   |   |   | $ | 469,293 |   |   |   |   |   |
|                                      |            |                                                                     |            |                                                                     |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

17

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| **LIABILITIES AND SHAREHOLDERS’ EQUITY**   |   |    |    |   |   |   |   |    |   |    |    |   |   |
|-------------------------------------------------|--------|---------|---------|--------|--------|--------|--------|---------|--------|---------|---------|--------|--------|
|                                            |   |    |    |   |   |   |   |    |   |    |    |   |   |
| Interest bearing liabilities                    |   |    |    |   |   |   |   |    |   |    |    |   |   |
| Deposits (other than demand)                    |   | $       | 626,592 |   | $      | 24,411 |   | 5.21    | %      | $       | 404,338 |   | $      | 14,421 |   | 4.77 | % |
| Federal funds purchased                         |   | 1,012   |    | 44     |   | 5.81   | %      | 1,324   |   | 55      |    | 5.55   | %      |
| Subordinated debt                               |   | 8,277   |    | 418    |   | 6.75   | %      | 8,992   |   | 458     |    | 6.81   | %      |
| Total interest bearing liabilities              |   | 635,881 |    | 24,873 |   | 5.23   | %      | 414,654 |   | 14,934  |    | 4.82   | %      |
|                                            |   |    |    |   |   |   |   |    |   |    |    |   |   |
| Non-interest bearing liabilities                |   |    |    |   |   |   |   |    |   |    |    |   |   |
| Non-interest bearing demand deposits            |   | 20,514  |    |   |   |   |   | 18,499  |   |    |    |   |   |
| Other liabilities                               |   | 2,944   |    |   |   |   |   | 2,616   |   |    |    |   |   |
| Shareholders’ equity                       |   | 55,319  |    |   |   |   |   | 33,524  |   |    |    |   |   |
|                                            |   |    |    |   |   |   |   |    |   |    |    |   |   |
| Total liabilities and shareholders’ equity |   | $       | 714,658 |   |   |   |   |    | $      | 469,293 |    |   |   |   |   |
|                                            |   |    |    |   |   |   |   |    |   |    |    |   |   |
| Net Interest Spread                             |   | 3.30    | %       |   |   |   |   | 3.60    | %      |    |    |   |   |
|                                            |   |    |    |   |   |   |   |    |   |    |    |   |   |
| Net Interest Margin                             |   | 3.73    | %       |   |   |   |   | 4.05    | %      |    |    |   |   |
|                                                 |        |         |         |        |        |        |        |         |        |         |         |        |        |  |  |  |  |

 

----

| (1) |   | Unrealized loss of $705  and $928 is excluded from yield calculation for the nine months ended  September 30, 2007 and 2006, respectively.                                                         |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Non-accrual loans are  included in average loan balances and loan fees of $2,768 and $1,917 are  included in interest income for the nine months ended September 30, 2007 and  2006, respectively. |
| (3) |   | Loans are presented net of  allowance for loan loss.                                                                                                                                               |

 

18

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The following table outlinesthe components of net interest income for the nine month periods endedSeptember 30, 2007 and 2006 and identifies the impact of changes in volume andthe changes in rate:

 
| ** **                           | ** ** | **September 30, 2007 change from   September 30, 2006 due to:** | ** ** |
|--------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|
| **(Dollars in thousands)** | ** ** | **Volume**                                                                                                   | ** ** | **Rate** | ** ** | **Total** | ** ** |
|                                 |       |                                                                                                         |       |   |   |   |   |
| Interest income                      |       |                                                                                                         |       |   |   |   |   |
| Loans                                |       | $14,311                                                                                                      |       | $(2 | ) | $14,309 |   |
| Securities — taxable (1)        |       | 789                                                                                                          |       | 189 |   | 978 |   |
| Federal funds sold                   |       | 56                                                                                                           |       | 93 |   | 149 |   |
| Total interest income                |       | 15,156                                                                                                       |       | 280 |   | 15,436 |   |
|                                 |       |                                                                                                         |       |   |   |   |   |
| Interest expense                     |       |                                                                                                         |       |   |   |   |   |
| Deposits (other than demand)         |       | 8,553                                                                                                        |       | 1,437 |   | 9,990 |   |
| Federal funds purchased              |       | (13                                                                                                          | )          | 2 |   | (11 | ) |
| Subordinated debt                    |       | (36                                                                                                          | )          | (4 | ) | (40 | ) |
| Total interest expense               |       | 8,504                                                                                                        |       | 1,435 |   | 9,939 |   |
|                                 |       |                                                                                                         |       |   |   |   |   |
| Net interest income                  |       | $6,652                                                                                                       |       | $(1,155 | ) | $5,497 |   |

 

----

(1)          Unrealizedloss of $705 and $928 is excluded from yield calculation for the nine monthsended September 30, 2007 and 2006, respectively.

 

**Provision for Loan Losses** - The provision for loan losses for the ninemonths ended September 30, 2007 was $4,300, an increase of $1,150, or 36.51%,above the provision of $3,150 expensed in the same period in 2006.  Thisincrease was primarily due to significant loan growth. The provision isdiscussed as it relates to the allowance for loan losses in the section belowtitled “Comparison of Financial Condition at September 30, 2007 and December31, 2006.” At September 30, 2007, the loan loss reserve of $9,250 was 1.25% ofgross loans of $739,155.

 

**Non-interest Income** - We earned $69 in mortgage origination feesduring the nine months ended September 30, 2007 compared to $61 earned duringthe same period in 2006, an increase of $8 or 13.11%.  We recognized $10on the sale of securities in the nine months ended September 30, 2007 compared withno gain for the same period in 2006.

 

We earned $1,827 on loansale transactions in the nine months ended September 30, 2007, a 54.96%increase compared to $1,179 during the same period in 2006. This increase wasprimarily due to demand from purchasers. Management will continue to considerloan sale transactions if the opportunity for a reasonable return is available.

 

19

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**Non-interest Expense** - Non-interest expense for the nine monthsended September 30, 2007, was $9,183, an increase of $2,547 or 38.38%, over the$6,636 expensed in the same period in 2006.  Approximately 59.29% of theincrease was due to the additional employee expenses. At September 30, 2007, wehad 61 full time employees. Assets per employee were $11.7 million atSeptember 30, 2006 and $13.8 million at September 30, 2007. Management targets$7.5 million per full time employee as a measure of staffing efficiency.

 

Our efficiency ratio for thenine months ending September 30, 2007 and 2006 was 43.06% and 44.39%,respectively, an improvement of 133 basis points.

 

EfficiencyRatio

 
| ** **                  | ** ** | **Nine Months Ended   September 30,** | ** ** |
|-----------------------------|------------|-----------------------------------------------------------|------------|
| **(Dollars in thousands )** | ** ** | **2007**                                                  | ** ** | **2006** | ** ** |
| Non-interest expense        |       | $                                                         | 9,183      |   | $ | 6,636 |   |
|                        |       |                                                      |       |   |   |
| Net interest income         |       | 19,321                                                    |       | 13,824 |   |
| Non-interest income         |       | 2,006                                                     |       | 1,124 |   |
| Total Revenues              |       | $                                                         | 21,327     |   | $ | 14,948 |   |
|                        |       |                                                      |       |   |   |
| Efficiency Ratio            |       | 43.06                                                     | %          | 44.39 | % |

 

**Income Taxes** - Our effective tax rate for the nine monthsended September 30, 2007 was 38.88% compared to 38.57% for the nine months endedSeptember 30, 2006. Management anticipates that tax rates in future periodswill approximate the rates paid in 2006.

 

**Comparison of Financial Conditionat September 30, 2007 and December 31, 2006**

 

**Assets****-**Total assets at September 30, 2007 were$840,195, an increase of $216,677, or 34.75%, over total assets of $623,518 atDecember 31, 2006. Loan growth was the primary reason for theincrease.  At September 30, 2007, net loans equaled $729,905, up $191,355,or 35.53% over the December 31, 2006 total net loans of $538,550. The cashand cash equivalents balance increased by $3,782 between December 31, 2006and September 30, 2007, primarily as a result of higher “due from” balances.

 

Our business bank model ofoperation results in a higher level of earning assets than our peerbanks.  Earning assets are defined as assets which earn interestincome.  Earning assets include short-term investments, the investmentportfolio, and net loans.  We maintain a higher level of earning assetsbecause fewer assets are allocated to facilities, cash, and “due from” bankaccounts used for transaction processing.  Earning assets at September 30,2007 were $810,458, or 96.46% of total assets of $840,195.  Earning assetsat December 31, 2006 were $610,322, or 97.88% of total assets of $623,518.

 

20

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**Loans** - We had total net loans of $729,905 atSeptember 30, 2007. The following table sets forth the composition of our loanportfolio at September 30, 2007 and December 31, 2006:

 
| **(Dollars in thousands)**   | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Real estate                            |       |                         |       |                        |       |
| Construction                           |       | $                            | 113,090    |                        | $          | 74,482 |   |
| 1 to 4 family residential              |       | 32,577                       |       | 22,873                      |       |
| Other                                  |       | 122,201                      |       | 83,985                      |       |
| Commercial, financial and agricultural |       | 459,038                      |       | 353,996                     |       |
| Consumer                               |       | 4,196                        |       | 3,246                       |       |
| Other                                  |       | 8,053                        |       | 6,936                       |       |
|                                   |       |                         |       |                        |       |
| Total loans                            |       | 739,155                      |       | 545,518                     |       |
| Less: allowance for loan losses        |       | (9,250                       | )          | (6,968                      | )          |
|                                   |       |                         |       |                        |       |
| Net loans                              |       | $                            | 729,905    |                        | $          | 538,550 |   |

 

The following table sets forth the percentagecomposition of our loan portfolio by type at September 30, 2007 andDecember 31, 2006:

 
| ** **                             | ** ** | **September 30,  2007** | ** ** | **December 31,  2006** | ** ** |
|----------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Real estate:                           |       |                         |       |                        |       |
| Construction                           |       | 15.30                        | %          | 13.65                       | %          |
| 1 to 4 family residential              |       | 4.41                         |       | 4.19                        |       |
| Other                                  |       | 16.53                        |       | 15.40                       |       |
| Commercial, financial and agricultural |       | 62.10                        |       | 64.89                       |       |
| Consumer                               |       | 0.57                         |       | 0.60                        |       |
| Other                                  |       | 1.09                         |       | 1.27                        |       |
|                                   |       |                         |       |                        |       |
| Total                                  |       | 100.00                       | %          | 100.00                      | %          |

 

21

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The following table setsforth the composition of our commercial loan portfolio by source at September30, 2007 and December 31, 2006:

 
| ** **                           | ** ** | **September 30,   2007** | ** ** | **December 31,   2006** | ** ** |
|--------------------------------------|------------|------------------------------------|------------|-----------------------------------|------------|
| **(Dollars in thousands)** | ** ** | **Amount**                         | ** ** | **%**                             | ** ** | **Amount** | ** ** | **%** | ** ** |
|                                 |       |                               |       |                              |       |   |   |   |   |
| Direct funding                       |       | $                                  | 194,861    |                              | 42.45      | % | $ | 151,692 |   | 42.85 | % |
| Indirect funding:                    |       |                               |       |                              |       |   |   |   |   |
| Large                                |       | 124,224                            |       | 27.06                             |       | 88,569 |   | 25.02 |   |
| Small                                |       | 139,953                            |       | 30.49                             |       | 113,735 |   | 32.13 |   |
| Total                                |       | $                                  | 459,038    |                              | 100.00     | % | $ | 353,996 |   | 100.00 | % |

 

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

 

The following table presentsinformation regarding non-accrual, past due and restructured loans at September30, 2007 and December 31, 2006:

 
| **(Dollars in thousands)**                                                                    | ** ** | **September 30,  2007** | ** ** | **December 31,   2006** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------------|------------|
| Non-accrual loans:                                                                                      |       |                         |       |                              |       |
| Number                                                                                                  |       | 97                           |       | 60                                |       |
| Amount                                                                                                  |       | $                            | 4,964      |                              | $          | 2,689 |   |
|                                                                                                    |       |                         |       |                              |       |
| Accruing loans which are contractually past  due 90 days or more as to principal and interest payments: |       |                         |       |                              |       |
| Number                                                                                                  |       | 51                           |       | 18                                |       |
| Amount                                                                                                  |       | $                            | 2,416      |                              | $          | 940 |   |
|                                                                                                    |       |                         |       |                              |       |
| Loans defined as “troubled debt  restructurings”:                                             |       |                         |       |                              |       |
| Number                                                                                                  |       | 1                            |       | 3                                 |       |
| Amount                                                                                                  |       | $                            | 150        |                              | $          | 1,144 |   |

 

As of September 30, 2007 andDecember 31, 2006, there were no loans classified for regulatory purposesas doubtful or substandard that are not disclosed in the above table, which(i) represent or result from trends or uncertainties which managementreasonably expects will materially impact future operating results, liquidityor capital resources, or (ii) represent material credits about whichmanagement is aware of any information that causes management to have seriousdoubts as to the ability of such borrowers to comply with the loan repaymentterms.

 

22

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**Allowance for Loan Losses** - The maintenance of an adequate allowancefor loan losses, or ALL, is one of the fundamental concepts of risk managementfor every financial institution. Management is responsible for ensuring thatcontrols are in place to ensure the adequacy of the loan loss reserve inaccordance with generally accepted accounting principles, our stated policiesand procedures, and regulatory guidance.

 

It is management’s intent tomaintain an ALL which is adequate to absorb current and estimated losses whichare inherent in a loan portfolio.  The historical loss ratio (netcharge-offs as a percentage of average loans) was 0.33% for the nine monthsended September 30, 2007 and 0.33% for the nine months ended September 30,2006. The ALL as a percentage of the outstanding loans at the end of the periodwas 1.25% at September 30, 2007 and 1.26% at September 30, 2006.

 

An analysis of our lossexperience is furnished in the following table for the nine months endedSeptember 30, 2007 and the same period ended September 30, 2006:

 
| **(Dollars in thousands)**              | ** ** | **September 30,  2007** | ** ** | **September 30,  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            |       | 2,268                        |       | 1,580                        |       |
| Consumer                                          |       | 11                           |       | 10                           |       |
| Total Charge-offs                                 |       | 2,279                        |       | 1,590                        |       |
|                                              |       |                         |       |                         |       |
| Recoveries:                                       |       |                         |       |                         |       |
| Real estate:                                      |       |                         |       |                         |       |
| Construction                                      |       | —                       |       | —                       |       |
| 1 to 4 family residential                         |       | —                       |       | —                       |       |
| Other                                             |       | —                       |       | —                       |       |
| Commercial, financial and agricultural            |       | 261                          |       | 219                          |       |
| Consumer                                          |       | —                       |       | 21                           |       |
| Total Recoveries                                  |       | 261                          |       | 240                          |       |
|                                              |       |                         |       |                         |       |
| Net Charge-offs                                   |       | 2,018                        |       | 1,350                        |       |
|                                              |       |                         |       |                         |       |
| Provision for loans charged to expense            |       | 4,300                        |       | 3,150                        |       |
| Allowance for loan losses at end of period        |       | $                            | 9,250      |                         | $          | 6,199 |   |

 

23

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| ** **                                                                                        | ** ** | **September 30,  2007** | ** ** | **September 30,  2006** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| Net charge-offs as a percentage of average  total loans outstanding during the period             |       | 0.33                         | %          | 0.33                         | %          |
|                                                                                              |       |                         |       |                         |       |
| Ending allowance for loan losses as a  percentage of total loans outstanding at end of the period |       | 1.25                         | %          | 1.26                         | %          |

 

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

 

**Securities** - The securities portfolio at September 30,2007 was $68,742 compared to $56,943 at December 31, 2006.  We viewthe securities portfolio as a source of income and liquidity.  Thesecurities portfolio was 8.18% of total assets at September 30, 2007 and 9.13%of total assets at December 31, 2006.

 

**Liabilities****-** We depend on a growing deposit base to fundloan and other asset growth. We compete for local deposits by offeringattractive products with premium rates.  We also obtain funding in thewholesale deposit market which is accessed by means of an electronic bulletinboard.  This electronic market links banks and acquirers of funds tocredit unions, school districts, labor unions, and other organizations withexcess liquidity. The process is highly efficient and the average rate isgenerally less than rates paid in the local market. Wholesale deposits arecategorized as “Purchased Time Deposits” on the detail of deposits shown in thetable below.

 

**Deposits** – Total deposits at September 30, 2007 were$766,290, up $205,723 or 36.70% over the December 31, 2006 totaldeposits of $560,567. Total average deposits during the nine months endingSeptember 30, 2007, were $647,106, an increase of $224,269, or 53.04% over thetotal average deposits of $422,837 during the nine months ending September 30,2006. Average non-interest bearing deposits increased by $2,015, or 10.89%,from $18,499 in the nine months ending September 30, 2006, to $20,514 in thenine months ending September 30, 2007.

 

24

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The following table setsforth average deposit balances for the nine months ended September 30, 2007 and2006 and the average rates paid on those balances:

 

Deposits

 
| ** **                           | ** ** | **Nine Months Ended September 30,** | ** ** |
|--------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                           | ** ** | **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 |       | $                                                       | 20,514     |   | — | % | $ | 18,499 |   | — | % |
| Interest-bearing demand deposits     |       | 6,499                                                   |       | 3.69 |   | 5,192 |   | 3.60 |   |
| Money market accounts                |       | 116,090                                                 |       | 5.09 |   | 62,904 |   | 5.18 |   |
| Savings accounts                     |       | 7,481                                                   |       | 2.68 |   | 13,795 |   | 2.66 |   |
| IRA accounts                         |       | 15,616                                                  |       | 5.21 |   | 4,788 |   | 4.82 |   |
| Purchased time deposits              |       | 235,896                                                 |       | 5.27 |   | 179,413 |   | 4.65 |   |
| Time deposits                        |       | 245,010                                                 |       | 5.32 |   | 138,246 |   | 4.98 |   |
| Total deposits                       |       | $                                                       | 647,106    |   |   |   | $ | 422,837 |   |   |   |

 

----

(1)             Rateis annualized

 

**Short Term Debt** – In September2007, we borrowed $2,000 on a $10,000 line of credit with First Tennessee Bank,National Association. This line of credit expires on October 1, 2008.

 

**Subordinated Debt** - In March 2005, we formed a financingsubsidiary, Tennessee Commerce Statutory Trust I, a Delaware statutory trust,or 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 of Fixed/Floating rate junior subordinateddeferrable interest debentures due 2035. The debentures pay a 6.73% fixed ratepayable quarterly for the first five years and a floating rate based on a 3month Libor rate plus a margin thereafter.

 

In accordance with FASBInterpretation No. 46 (revised December 2003) *Consolidationof Variable Interest Entities* (FIN46R), Trust I is not consolidated.We report as liabilities the subordinated debentures issued by us and held byTrust I.

 

**Off-Balance Sheet Arrangements**

 

We are a party to financialinstruments with off-balance sheet risk in the normal course of business tomeet the financing needs of our customers. At September 30, 2007, we hadunfunded loan commitments outstanding of $119,000  and standby letters of credit and financialguarantees of $11,100. Those instruments involve, to varying degrees, elementsof credit risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of ourinvolvement in those particular financial instruments. We use the same credit policiesin making commitments and conditional obligations as we do for on-balance sheetinstruments.

 

Because these commitmentsgenerally have fixed expiration dates and many will expire without being drawnupon, the total commitment level does not necessarily represent future cashrequirements. If needed, we can liquidate Federal funds sold or securitiesavailable for sale or borrow and purchase federal funds from other financialinstitutions where we have available federal fund lines totaling $27,000.

 

25

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# **Liquidity/ Capital Resources**

# ** **

**Liquidity** - Of primary importance to depositors,creditors and regulators is the ability to have readily available fundssufficient to repay fully maturing liabilities.  We are subject to generalFDIC guidelines, which do not require a minimum level of liquidity. Liquidityrequirements can also be met through short-term borrowings or the dispositionof short-term assets which are generally matched to correspond to the maturityof liabilities. Management believes its liquidity ratios meet the general FDICguidelines and we have assets and borrowing capacity to provide adequateliquidity. Management does not know of any trends or demands that arereasonably likely to result in liquidity increasing or decreasing in anymaterial manner.

 

**Capital Resources****-**Our objective is to maintain a level ofcapitalization that is sufficient to take advantage of profitable growthopportunities while meeting regulatory requirements.****To continue to grow, we must increase capital by generatingearnings, issuing equities, borrowing funds, or a combination of thoseactivities. In 2004, we issued equity securities increasing capital by $8.5million.  In March 2005, our subsidiary Trust I issued $8 million in TrustPreferred Securities that meet the capital guidelines to be classified as TierI capital as explained below. On July 3, 2006, and July 28, 2006, we issued1,000,000 shares and 150,000 shares respectively of our common stock in orderto raise $19.1 million in capital in 2006.

 

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

 

The capital guidelinesclassify capital into two tiers, referred to as Tier I and Tier II.Under risk-based capital requirements, total capital consists of Tier Icapital which is generally common stockholders’ equity less goodwill and TierII capital which is primarily a portion of the allowance for loan losses andcertain qualifying debt instruments. In determining risk-based capitalrequirements, assets are assigned risk-weights of 0% to 100%, dependingprimarily on the regulatory assigned levels of credit risk associated with suchassets. Off-balance sheet items are considered in the calculation ofrisk-adjusted assets through conversion factors established by the regulators.The framework for calculating risk-based capital requires banks and bankholding companies to meet the regulatory minimums of 4% Tier I and 8%total risk-based capital. In 1990, regulators added a leveraged computation tothe capital requirements, comparing Tier I capital to total average assetsless goodwill.

 

The Federal DepositInsurance Corporation Improvement Act of 1991 (“FDICIA”) established fivecapital categories for banks and bank holding companies. The bank regulatorsadopted regulations defining these five capital categories inSeptember 1992. Under these new regulations each bank is classified intoone of the five categories based on its level of risk-based capital as measuredby Tier I capital, total risk-based capital, and Tier I leverageratios and its supervisory ratings.

 

26

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At September 30, 2007 andDecember 31, 2006, the Bank’s and our risk-based capital ratios and theminimums for capital adequacy and to be considered well-capitalized under theFederal Reserve Board’s prompt corrective action guidelines were as follows:

 
| ** **                                               | ** ** | ** **             | ** ** | ** **            | ** ** | ** **           | ** ** | **Minimum to**    | ** ** |
|----------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|----------------------|------------|------------------------|------------|
| ** **                                               | ** ** | ** **             | ** ** | ** **            | ** ** | **Minimum**          | ** ** | **be considered** | ** ** |
| ** **                                               | ** ** | **September 30,** | ** ** | **December 31,** | ** ** | **for capital** | ** ** | **well-**              | ** ** |
| ** **                                               | ** ** | **2007**               | ** ** | **2006**              | ** ** | **adequacy**         | ** ** | **capitalized**        | ** ** |
|                                                     |       |                   |       |                  |       |                 |       |                   |       |
| Tier 1 leverage ratio                                    |       |                   |       |                  |       |                 |       |                   |       |
| Tennessee Commerce Bank                                  |       | 8.76                   | %          | 8.78                  | %          | 4.00                 | %          | 5.00                   | %          |
| Tennessee Commerce Bancorp, Inc.                    |       | 8.67                   | %          | 9.94                  | %          | 4.00                 | %          | n/a                    |       |
|                                                     |       |                   |       |                  |       |                 |       |                   |       |
| Tier 1 “core” capital to risk-weighted  assets |       |                   |       |                  |       |                 |       |                   |       |
| Tennessee Commerce Bank                                  |       | 8.97                   | %          | 9.23                  | %          | 4.00                 | %          | 6.00                   | %          |
| Tennessee Commerce Bancorp, Inc.                    |       | 8.88                   | %          | 10.45                 | %          | 4.00                 | %          | n/a                    |       |
|                                                     |       |                   |       |                  |       |                 |       |                   |       |
| Total capital to risk-weighted assets                    |       |                   |       |                  |       |                 |       |                   |       |
| Tennessee Commerce Bank                                  |       | 10.17                  | %          | 10.45                 | %          | 8.00                 | %          | 10.00                  | %          |
| Tennessee Commerce Bancorp, Inc.                    |       | 10.09                  | %          | 11.68                 | %          | 8.00                 | %          | n/a                    |       |

 

Based solely on our analysisof federal banking regulatory categories, on September 30, 2007 and December31, 2006 we and the Bank were within the “well capitalized” categories underthe regulations.

 

**Impact of Inflation and ChangingPrices** - Thefinancial statements and related financial data presented herein have beenprepared in accordance with U.S. generally accepted accounting principles whichrequire the measurement of financial position and operating results in terms ofhistorical dollars without considering the changes in the relative purchasingpower of money over time and due to inflation. The impact of inflation onoperations of the Bank is reflected in increased operating costs. Unlike mostindustrial companies, almost all of the assets and liabilities of the Bank aremonetary in nature. As a result, interest rates have a more significant impacton the Bank’s performance than the effects of general levels of inflation.Interest rates do not necessarily move in the same direction or in the samemagnitude as the price of goods and services.

 

27

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**ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

 

Like all financialinstitutions, we are subject to market risk from changes in interest rates.Interest rate risk is inherent in the balance sheet due to the mismatch betweenthe maturities of rate sensitive assets and rate sensitive liabilities. Ifrates are rising, and the level of rate sensitive liabilities exceeds the levelof rate sensitive assets, the net interest margin will be negatively impacted.Conversely, if rates are falling, and the level of rate sensitive liabilitiesis greater than the level of rate sensitive assets, the impact on the netinterest margin will be favorable. Managing interest rate risk is furthercomplicated by the fact that all rates do not change at the same pace, in otherwords, short term rates may be rising while longer term rates remain stable. Inaddition, different types of rate sensitive assets and rate sensitiveliabilities react differently to changes in rates.

 

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

 

The asset liabilitycommittee uses a computer model to analyze the maturities of rate sensitiveassets and liabilities. The model measures the “gap” which is defined as thedifference between the dollar amount of rate sensitive assets repricing duringa period and the volume of rate sensitive liabilities repricing during the sameperiod. Gap is also expressed as the ratio of rate sensitive assets divided byrate sensitive liabilities. If the ratio is greater than “one”, the dollarvalue of assets exceeds the dollar value of liabilities, and the balance sheetis “asset sensitive”. Conversely, if the value of liabilities exceeds the valueof assets, the ratio is less than one and the balance sheet is “liabilitysensitive”. Our internal policy requires management to maintain the gap withina range of 0.75 to 1.25.

 

The model measures scheduledmaturities in periods of three months, four to twelve months, one to five yearsand over five years. The chart below illustrates our rate sensitive position atSeptember 30, 2007. Management uses the one year gap as the appropriate timeperiod for setting strategy.

 

28

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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                                               |       | $            | 11,811     |       | $          | —     |       | $         | —     |             | $          | —     |       | $ | — |   | $ | 11,811 |   |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Securities                                                       |       |         |       |       |       |       |       |      |       |             |       |       |       |
| U.S. government agencies                                         |       | —       |       | 27,662     |       | —     |       | 9,371     |       | 25,878           |       | 62,911     |       |
| Mortgage-backed securities                                       |       | —       |       | 1,028      |       | 2,372      |       | 1,609     |       | 822              |       | 5,831      |       |
| Total securities                                                 |       | —       |       | 28,690     |       | 2,372      |       | 10,980    |       | 26,700           |       | 68,742     |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total loans                                                      |       | 227,440      |       | 73,344     |       | 195,721    |       | 227,879   |       | 14,771           |       | 739,155    |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total Interest Earning Assets                                    |       | 239,251      |       | 102,034    |       | 198,093    |       | 238,859   |       | 41,471           |       | 819,708    |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Other Assets                                                     |       | —       |       | —     |       | —     |       | —    |       | 20,487           |       | 20,487     |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total Assets                                                     |       | $            | 239,251    |       | $          | 102,034    |       | $         | 198,093    |             | $          | 238,859    |       | $ | 61,958 |   | $ | 840,195 |   |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Interest Bearing Liabilities                                     |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Deposits                                                         |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Interest checking                                                |       | $            | 6,497      |       | $          | —     |       | $         | —     |             | $          | 1,237      |       | $ | — |   | $ | 7,734 |   |
| Money market and savings                                         |       | 78,772       |       | —     |       | —     |       | 33,759    |       | —           |       | 112,531    |       |
| Time deposits                                                    |       | —       |       | 104,934    |       | 398,310    |       | 114,683   |       | —           |       | 617,927    |       |
| Total deposits                                                   |       | 85,269       |       | 104,934    |       | 398,310    |       | 149,679   |       | —           |       | 738,192    |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Short Term Debt                                                  |       | —       |       | —     |       | 2,000      |       | —    |       | —           |       | 2,000      |       |
| Subordinated Debt                                                |       | —       |       | —     |       | —     |       | —    |       | 8,248            |       | 8,248      |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total Interest Bearing Liabilities                               |       | 85,269       |       | 104,934    |       | 400,310    |       | 149,679   |       | 8,248            |       | 748,440    |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Other Liabilities                                                |       | —       |       | —     |       | —     |       | —    |       | 31,547           |       | 31,547     |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Shareholders’ Equity                                        |       | —       |       | —     |       | —     |       | —    |       | 60,208           |       | 60,208     |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total Liabilities and Shareholders’ Equity                  |       | $            | 85,269     |       | $          | 104,934    |       | $         | 400,310    |             | $          | 149,679    |       | $ | 100,003 |   | $ | 840,195 |   |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Rate Sensitive Gap by period                                     |       | $            | 153,982    |       | $          | (2,900     | )          | $         | (202,217   | )                | $          | 89,180     |       | $ | 33,223 |   |   |   |
| Cumulative Gap                                                   |       |         |       | $          | 151,082    |       | $          | (51,135   | )          | $                | 38,045     |       | $          | 71,268 |   |   |   |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Cumulative Gap as a percentage of Total  Assets                  |       |         |       | 17.98      | %          | (6.09      | )%         | 4.53      | %          | 8.48             | %          |       |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Rate sensitive assets / Rate sensitive  liabilities (cumulative) |       | 2.81         |       | 1.79       |       | 0.91       |       | 1.05      |       | 1.10             |       |       |       |

 

29

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From September 30, 2006 toSeptember 30, 2007, the Federal Reserve Open Market Committee has decreasedinterest rates by 50 basis points. Management has positioned the balance sheetto be essentially neutral for asset and liability sensitivity. At September 30,2007, our one year GAP was 0.91.

 

The interest rate risk modelthat defines the GAP position also performs a “rate shock” test of the balancesheet using an earnings simulation model and an economic value of equity model.The rate shock test measures the impact on the net interest margin and theeconomic value of equity of an immediate shift in interest rates in eitherdirection.

 

Our earnings simulationmodel measures the impact of changes in interest rates on net interest income.To limit interest rate risk, we have a guideline for our earnings at risk whichset a limit on the variance of net interest income to less than a5% percent decline for a  100 basis point change up or down in ratesfrom management’s flat interest rate forecast over the next twelve months. AtSeptember 30, 2007, we were in compliance with our current guidelines.

 

Our economic value of equitymodel measures the extent that estimated economic values of our assets,liabilities and off-balance sheet items will change as a result of interestrate changes. To help limit interest rate risk, we have a guideline statingthat for an instantaneous 100 basis point increase or decrease in interestrates, the economic value of equity will not decrease by more than 10 percentfrom the base case. At September 30, 2007, we were in compliance with ourcurrent guidelines.

 

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

 

30

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**ITEM 4. CONTROLS AND PROCEDURES.**

 

Evaluation of Disclosure Controls and Procedures

 

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

 

**PART II:OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS.**

 

None.

 

**ITEM 1A. RISK FACTORS.**

 

There were no materialchanges to our risk factors included in Part I, Item 1A of our AnnualReport on  Form 10-K for the year ended December 31, 2006, as filedwith the Securities and Exchange Commission on April 2, 2007.

 

31

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**ITEM 2. UNREGISTERED SALES OFEQUITY SECURITIES AND USE OF PROCEEDS.**

 

(a)   None.

 

(b)   None.

 

(c)   None.

 

Ourability to declare and pay dividends on our common stock is limited by law andwe may be unable to pay future dividends. We derive our income solely fromdividends on the shares of common stock of the bank. The bank’s ability todeclare and pay dividends to us is limited by its obligations to maintainsufficient capital and by other general restrictions on its dividends that areapplicable to banks that are regulated by the FDIC and the Tennessee Departmentof Financial Institutions. In addition, the Federal Reserve Board may imposerestrictions on our ability to pay dividends on our common stock. As a result,we cannot assure our shareholders that we will declare or pay dividends onshares of our common stock in the future.

 

**ITEM 3. DEFAULTS UPON SENIORSECURITIES.**

 

(a)          None.

 

(b)         None.

 

**ITEM 4. SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS.**

 

(a)          None.

 

(b)         Not applicable.

 

(c)          None.

 

32

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(d)         None.

 

**ITEM 5. OTHER INFORMATION.**

 

(a)          None.

 

(b)         None.

 

33

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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. (1)                                                                          |
|                 |       |                                                                                                                                                                          |
| 2.2                  |       | Plan of Share Exchange of Tennessee Commerce Bank  and Tennessee Commerce Bancorp, Inc. (1)                                                                              |
|                 |       |                                                                                                                                                                          |
| 3.1                  |       | Charter of Tennessee Commerce Bancorp, Inc.  (1)                                                                                                                         |
|                 |       |                                                                                                                                                                          |
| 3.2                  |       | Bylaws of Tennessee Commerce Bancorp, Inc.  (1)                                                                                                                          |
|                 |       |                                                                                                                                                                          |
| 10.1                 |       | Tennessee Commerce Bancorp, Inc. 2007 Equity Plan  (2)                                                                                                                        |
|                 |       |                                                                                                                                                                          |
| 31.1                 |       | Certification of Chief Executive Officer pursuant  to Rule 13a-14 or 15d-14 of the Exchange Act, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 * |
|                 |       |                                                                                                                                                                          |
| 31.2                 |       | Certification of Chief Financial Officer pursuant  to Rule 13a-14 or 15d-14 of the Exchange Act, as adopted pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002 * |
|                 |       |                                                                                                                                                                          |
| 32.1                 |       | Certification of Chief Executive Officer pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 *                    |
|                 |       |                                                                                                                                                                          |
| 32.2                 |       | Certification of Chief Financial Officer pursuant  to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 *                    |

 

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| (1)    |   | Previously filed as an Exhibit to Tennessee  Commerce Bancorp, Inc.’s Form 10 as filed with the Securities and  Exchange Commission on April 29, 2005 and incorporated by reference  herein.    |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                     |
| (2)    |   | Previously filed as an Exhibit to Tennessee  Commerce Bancorp, Inc.’s Form 10-Q as filed with the Securities and  Exchange Commission on August 14, 2007 and incorporated by reference  herein. |
|   |   |                                                                                                                                                                                                                     |
| *      |   | Filed herewith.                                                                                                                                                                                                          |

 

34

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SIGNATURES

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                    | Tennessee  Commerce   Bancorp, Inc. |
|-------------------------|------------------------------------------|
|                    | (Registrant)                             |
|                    |                                     |
|                    |                                     |
| November  14, 2007 |                                     | /s/  Arthur F. Helf |
| (Date)                  |                                     | Arthur  F. Helf |
|                    |                                     | Chairman  and Chief Executive Officer |
|                    |                                     |   |
|                    |                                     |   |
| November  14, 2007      |                                     | /s/  George W. Fort |
| (Date)                  |                                     | George  W. Fort |
|                    | Chief  Financial Officer                 |

 

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