**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 March 31, 2008**

 

**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 as specified in itscharter)

 

| **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 areacode)

 

**NotApplicable**

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

 

Indicateby check mark whether registrant (1) has filed reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes  x  No  o

 

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

 

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

 

Yes  o  No  x

 

Asof May 06, 2008 there were 4,731,696 shares of common stock, $0.50 parvalue per share, issued and outstanding.

 

 

----

 

**TennesseeCommerce Bancorp, Inc.**

 

Table of Contents

 
| Part I  | Financial  Information                                                                                                                |   |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------|--------|
|         |                                                                                                                                  |   |
| Item 1.      | Financial Statements                                                                                                                  |   |
|         |                                                                                                                                  |   |
|         | Consolidated Balance Sheets  at March 31, 2008 (unaudited) and December 31, 2007                                            | 3      |
|         |                                                                                                                                  |   |
|         | Consolidated Statements of  Income (unaudited) for the Three Months Ended March 31, 2008 and 2007                                | 4      |
|         |                                                                                                                                  |   |
|         | Consolidated Statements of  Changes in Shareholders’ Equity (unaudited) for the Three Months Ended  March 31, 2008 and 2007 | 5      |
|         |                                                                                                                                  |   |
|         | Consolidated Statements of  Cash Flows (unaudited) for the Three Months Ended March 31, 2008 and  2007                           | 6      |
|         |                                                                                                                                  |   |
|         | Notes to  Consolidated Financial Statements (unaudited)                                                                               | 7      |
|         |                                                                                                                                  |   |
| Item 2.      | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                           | 13     |
|         |                                                                                                                                  |   |
| Item 3.      | Quantitative  and Qualitative Disclosures About Market Risk                                                                           | 25     |
|         |                                                                                                                                  |   |
| Item 4.      | Controls and  Procedures                                                                                                              | 28     |
|         |                                                                                                                                  |   |
| Part II | Other Information                                                                                                                     | 29     |
|         |                                                                                                                                  |   |
| Item 1A.     | Risk Factors                                                                                                                          | 29     |
|         |                                                                                                                                  |   |
| Item 6.      | Exhibits                                                                                                                              | 29     |
|         |                                                                                                                                  |   |
| Signatures   |                                                                                                                                  | 30     |

 

2

----

 

**PART I:FINANCIAL INFORMATION**

 

**ITEM 1. FINANCIAL STATEMENTS.**

 

TENNESSEE COMMERCE BANCORP,INC.CONSOLIDATED BALANCE SHEETSMARCH 31, 2008 (UNAUDITED) AND DECEMBER 31, 2007

 
| **(Dollars in thousands, except  share data)**                                                                                                                                                                                           | ** ** | **March 31,  2008** | ** ** | **December 31,  2007 (1)** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                               |       |                     |       |                                 |       |
| Cash and due from financial institutions                                                                                                                                                                                                 |       | $                        | 5,977      |                                 | $          | 5,236 |   |
| Federal funds sold                                                                                                                                                                                                                       |       | 27                       |       | 9,573                                |       |
| Cash and cash equivalents                                                                                                                                                                                                                |       | 6,004                    |       | 14,809                               |       |
| Securities available for sale                                                                                                                                                                                                            |       | 72,048                   |       | 73,753                               |       |
| Loans                                                                                                                                                                                                                                    |       | 864,948                  |       | 794,322                              |       |
| Allowance for loan losses                                                                                                                                                                                                                |       | (11,034                  | )          | (10,321                              | )          |
| Net loans                                                                                                                                                                                                                                |       | 853,914                  |       | 784,001                              |       |
|                                                                                                                                                                                                                                     |       |                     |       |                                 |       |
| Premises and equipment, net                                                                                                                                                                                                              |       | 1,434                    |       | 1,413                                |       |
| Accrued interest receivable                                                                                                                                                                                                              |       | 6,360                    |       | 5,901                                |       |
| Restricted equity securities                                                                                                                                                                                                             |       | 1,349                    |       | 938                                  |       |
| Income tax receivable                                                                                                                                                                                                                    |       | 1,028                    |       | 1,886                                |       |
| Other assets                                                                                                                                                                                                                             |       | 22,298                   |       | 17,452                               |       |
|                                                                                                                                                                                                                                     |       |                     |       |                                 |       |
| Total assets                                                                                                                                                                                                                             |       | $                        | 964,435    |                                 | $          | 900,153 |   |
|                                                                                                                                                                                                                                     |       |                     |       |                                 |       |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                                            |       |                     |       |                                 |       |
| Liabilities                                                                                                                                                                                                                              |       |                     |       |                                 |       |
| Deposits                                                                                                                                                                                                                                 |       |                     |       |                                 |       |
| Non-interest bearing                                                                                                                                                                                                                     |       | $                        | 20,845     |                                 | $          | 27,427 |   |
| Interest-bearing                                                                                                                                                                                                                         |       | 840,704                  |       | 787,626                              |       |
| Total deposits                                                                                                                                                                                                                           |       | 861,549                  |       | 815,053                              |       |
|                                                                                                                                                                                                                                     |       |                     |       |                                 |       |
| Federal funds purchased                                                                                                                                                                                                                  |       | 16,175                   |       | 2,000                                |       |
| Accrued interest payable                                                                                                                                                                                                                 |       | 2,673                    |       | 2,292                                |       |
| Short-term borrowings                                                                                                                                                                                                                    |       | 9,500                    |       | 7,000                                |       |
| Accrued Bonuses                                                                                                                                                                                                                          |       | 629                      |       | 1,700                                |       |
| Long-term subordinated debt                                                                                                                                                                                                              |       | 8,248                    |       | 8,248                                |       |
| Deferred tax liabilities                                                                                                                                                                                                                 |       | 139                      |       | 139                                  |       |
| Other liabilities                                                                                                                                                                                                                        |       | 593                      |       | 600                                  |       |
| Total liabilities                                                                                                                                                                                                                        |       | 899,506                  |       | 837,032                              |       |
| Shareholders’ equity                                                                                                                                                                                                                |       |                     |       |                                 |       |
| Preferred stock, no par value. 1,000,000  shares authorized; none issued                                                                                                                                                                 |       | —                   |       | —                               |       |
| Common stock, $0.50 par value. 10,000,000  shares authorized at March 31, 2008 and December 31, 2007;  4,731,696 and 4,724,196 shares issued and outstanding at March 31, 2008  and December 31, 2007, respectively. |       | 2,366                    |       | 2,362                                |       |
| Additional paid-in capital                                                                                                                                                                                                               |       | 45,110                   |       | 45,024                               |       |
| Retained earnings                                                                                                                                                                                                                        |       | 16,801                   |       | 15,426                               |       |
| Accumulated other comprehensive loss                                                                                                                                                                                                     |       | 652                      |       | 309                                  |       |
| Total shareholders’ equity                                                                                                                                                                                                          |       | 64,929                   |       | 63,121                               |       |
|                                                                                                                                                                                                                                     |       |                     |       |                                 |       |
| Total liabilities and shareholders’ equity                                                                                                                                                                                          |       | $                        | 964,435    |                                 | $          | 900,153 |   |

 

----

(1) Thebalance sheet at December 31, 2007 has been derived from the auditedconsolidated financial statements at that date but does not include all of theinformation and notes required by generally accepted accounting principles forcomplete financial statements.

 

Seeaccompanying notes to consolidated financial statements.

 

3

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TENNESSEE COMMERCE BANCORP,INC.CONSOLIDATED STATEMENTS OF INCOMETHREE MONTHS ENDED MARCH 31, 2008 AND 2007(UNAUDITED)

 
| ** **                                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(Dollars in thousands, except  share data)**       | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Interest income                                      |       |                                             |       |   |   |
| Loans, including fees                                |       | $                                                | 16,382     |   | $ | 12,099 |   |
| Securities                                           |       | 1,033                                            |       | 764 |   |
| Federal funds sold                                   |       | 71                                               |       | 108 |   |
| Total interest income                                |       | 17,486                                           |       | 12,971 |   |
|                                                 |       |                                             |       |   |   |
| Interest expense                                     |       |                                             |       |   |   |
| Deposits                                             |       | 9,744                                            |       | 7,226 |   |
| Other                                                |       | 280                                              |       | 160 |   |
| Total interest expense                               |       | 10,024                                           |       | 7,386 |   |
|                                                 |       |                                             |       |   |   |
| Net interest income                                  |       | 7,462                                            |       | 5,585 |   |
|                                                 |       |                                             |       |   |   |
| Provision for loan losses                            |       | 1,600                                            |       | 1,500 |   |
|                                                 |       |                                             |       |   |   |
| Net interest income after provision for loan  losses |       | 5,862                                            |       | 4,085 |   |
|                                                 |       |                                             |       |   |   |
| Non-interest income                                  |       |                                             |       |   |   |
| Service charges on deposit accounts                  |       | 24                                               |       | 37 |   |
| Securities gains (losses)                            |       | 30                                               |       | 10 |   |
| Gain on sale of loans                                |       | 566                                              |       | 817 |   |
| Other                                                |       | (93                                              | )          | (42 | ) |
| Total non-interest income                            |       | 527                                              |       | 822 |   |
|                                                 |       |                                             |       |   |   |
| Non-interest expense                                 |       |                                             |       |   |   |
| Salaries and employee benefits                       |       | 2,284                                            |       | 1,472 |   |
| Occupancy and equipment                              |       | 360                                              |       | 268 |   |
| Data processing fees                                 |       | 285                                              |       | 226 |   |
| Professional fees                                    |       | 375                                              |       | 238 |   |
| Other                                                |       | 840                                              |       | 411 |   |
| Total non-interest expense                           |       | 4,144                                            |       | 2,615 |   |
|                                                 |       |                                             |       |   |   |
| Income before income taxes                           |       | 2,245                                            |       | 2,292 |   |
|                                                 |       |                                             |       |   |   |
| Income tax expense                                   |       | 870                                              |       | 886 |   |
| Net income                                           |       | $                                                | 1,375      |   | $ | 1,406 |   |
|                                                 |       |                                             |       |   |   |
| Earnings per share (EPS):                            |       |                                             |       |   |   |
| Basic EPS                                            |       | $                                                | 0.29       |   | $ | 0.31 |   |
| Diluted EPS                                          |       | 0.28                                             |       | 0.29 |   |
|                                                 |       |                                             |       |   |   |
| Weighted average shares outstanding:                 |       |                                             |       |   |   |
| Basic                                                |       | 4,729,718                                        |       | 4,480,289 |   |
| Diluted                                              |       | 4,890,711                                        |       | 4,827,045 |   |
|                                                      |            |                                                  |            |  |  |  |  |  |

 

Seeaccompanying notes to consolidated financial statements.

 

4

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TENNESSEE COMMERCE BANCORP,INC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYTHREE MONTHS ENDED MARCH 31, 2008 AND 2007(UNAUDITED)

 
| **(Dollars in thousands)**                                                          | ** ** | **Common  Stock** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income  (Loss)** | ** ** | **Total  Shareholders’  Equity** | ** ** |
|-------------------------------------------------------------------------------------|------------|-------------------|------------|----------------------------------|------------|------------------------|------------|-------------------------------------------------------|------------|---------------------------------------|------------|
| Balance at December 31, 2006                                                   |       | $                 | 2,226      |                             | $          | 40,755                 |       | $                                                     | 8,530      |                                  | $          | (287 | ) | $ | 51,224 |   |
| Comprehensive income                                                                |       |              |       |                             |       |                   |       |                                                  |       |                                  |       |
| Net income                                                                          |       | —            |       | —                           |       | 1,406                  |       | —                                                |       | 1,406                                 |       |
| Other comprehensive income, net of income  taxes                                    |       |              |       |                             |       |                   |       |                                                  |       |                                  |       |
| Unrealized gains on securities available  for sale during the period                |       | —            |       | —                           |       | —                 |       | 77                                                    |       | 77                                    |       |
|                                                                                |       |              |       |                             |       |                   |       |                                                  |       |                                  |       |
| Total comprehensive income                                                          |       |              |       |                             |       |                   |       |                                                  |       | 1,483                                 |       |
|                                                                                |       |              |       |                             |       |                   |       |                                                  |       |                                  |       |
| Exercise of stock options to purchase  43,350 common shares and related tax benefit |       | 21                |       | 766                              |       | —                 |       | —                                                |       | 787                                   |       |
|                                                                                |       |              |       |                             |       |                   |       |                                                  |       |                                  |       |
| Balance at March  31, 2007                                                     |       | $                 | 2,247      |                             | $          | 41,521                 |       | $                                                     | 9,936      |                                  | $          | (210 | ) | $ | 53,494 |   |
|                                                                                |       |              |       |                             |       |                   |       |                                                  |       |                                  |       |
| Balance at December 31, 2007                                                   |       | $                 | 2,362      |                             | $          | 45,024                 |       | $                                                     | 15,426     |                                  | $          | 309 |   | $ | 63,121 |   |
| Comprehensive income                                                                |       |              |       |                             |       |                   |       |                                                  |       |                                  |       |
| Net income                                                                          |       | —            |       | —                           |       | 1,375                  |       | —                                                |       | 1,375                                 |       |
| Other comprehensive income, net of income  taxes                                    |       |              |       |                             |       |                   |       |                                                  |       |                                  |       |
| Unrealized gains on securities available  for sale during the period                |       | —            |       | —                           |       | —                 |       | 343                                                   |       | 343                                   |       |
|                                                                                |       |              |       |                             |       |                   |       |                                                  |       |                                  |       |
| Total comprehensive income                                                          |       |              |       |                             |       |                   |       |                                                  |       | 1,718                                 |       |
|                                                                                |       |              |       |                             |       |                   |       |                                                  |       |                                  |       |
| Exercise of stock options to purchase 7,500  common shares and related tax benefit  |       | 4                 |       | 86                               |       | —                 |       | —                                                |       | 90                                    |       |
| Balance at March  31, 2008                                                |       | $                 | 2,366      |                             | $          | 45,110                 |       | $                                                     | 16,801     |                                  | $          | 652 |   | $ | 64,929 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

5

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TENNESSEE COMMERCE BANCORP,INC.CONSOLIDATED STATEMENTS OF CASH FLOWSTHREE MONTHS ENDED MARCH 31, 2008 AND 2007(UNAUDITED)

 
| ** **                                                                        | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(Dollars in thousands)**                                                        | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
|                                                                              |       |                                             |       |   |   |
| **Cash flows from operating activities**                                          |       |                                             |       |   |   |
| Net income                                                                        |       | $                                                | 1,375      |   | $ | 1,406 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities |       |                                             |       |   |   |
| Depreciation                                                                      |       | 86                                               |       | 84 |   |
| Deferred loan fees                                                                |       | (135                                             | )          | (102 | ) |
| Provision for loan losses                                                         |       | 1,600                                            |       | 1,500 |   |
| Deferred income tax                                                               |       | (210                                             | )          | (1 | ) |
| Net amortization of investment securities                                         |       | (36                                              | )          | 2 |   |
| Gain on sales of securities                                                       |       | (30                                              | )          | (10 | ) |
| Change in:                                                                        |       |                                             |       |   |   |
| Accrued interest receivable                                                       |       | (459                                             | )          | (297 | ) |
| Accrued interest payable                                                          |       | 381                                              |       | 21 |   |
| Other assets                                                                      |       | (3,988                                           | )          | (1,544 | ) |
| Other liabilities                                                                 |       | 1,422                                            |       | 66 |   |
| Net cash provided by operating activities                                         |       | 6                                                |       | 1,125 |   |
|                                                                              |       |                                             |       |   |   |
| **Cash flows from investing activities**                                          |       |                                             |       |   |   |
| Purchases of securities available for sale                                        |       | (23,947                                          | )          | (11,005 | ) |
| Proceeds from sales of securities available  for sale                             |       | 12,292                                           |       | 8,319 |   |
| Proceeds from maturities, prepayments and  calls of securities available for sale |       | 13,979                                           |       | 819 |   |
| Net change in loans                                                               |       | (71,378                                          | )          | (46,335 | ) |
| Purchases of FHLB Stock                                                           |       | (411                                             | )          | — |   |
| Net purchases of premises and equipment                                           |       | (107                                             | )          | (34 | ) |
| Net cash used by investing activities                                             |       | (69,572                                          | )          | (48,236 | ) |
|                                                                              |       |                                             |       |   |   |
| **Cash flows from financing activities**                                          |       |                                             |       |   |   |
| Net change in deposits                                                            |       | 46,496                                           |       | 43,274 |   |
| Net change in federal funds purchased and  repurchase agreements                  |       | 14,175                                           |       | 25 |   |
| Proceeds from exercise of common stock  options                                   |       | 38                                               |       | 787 |   |
| Excess tax benefit from option exercises                                          |       | 52                                               |       | — |   |
| Net cash provided by financing activities                                         |       | 60,761                                           |       | 44,086 |   |
|                                                                              |       |                                             |       |   |   |
| **Net change in cash and cash equivalents**                                       |       | (8,805                                           | )          | (3,025 | ) |
|                                                                              |       |                                             |       |   |   |
| Cash and cash equivalents at beginning of  period                                 |       | 14,809                                           |       | 13,997 |   |
|                                                                              |       |                                             |       |   |   |
| **Cash and cash equivalents at end of period**                                    |       | $                                                | 6,004      |   | $ | 10,972 |   |
|                                                                              |       |                                             |       |   |   |
| **Supplemental cash flow information:**                                           |       |                                             |       |   |   |
| Cash paid during period for interest                                              |       | $                                                | 9,643      |   | $ | 7,365 |   |
| Cash paid during period for income taxes                                          |       | 183                                              |       | 1,039 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

6

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TENNESSEECOMMERCE BANCORP, INC.

 

Notes to Consolidated Financial Statements(unaudited)

 

Note1 — Basis of Presentation

 

Tennessee Commerce Bancorp, Inc. (the “Corporation”) is the bankholding company for Tennessee Commerce Bank (the “Bank”).  In March 2005,the Corporation formed a wholly owned subsidiary, Tennessee Commerce BankStatutory Trust I (“Trust I”). As of March 31, 2008, the Bank and theTrust I are the only subsidiaries of the Corporation. The accompanyingconsolidated financial statements include the accounts of the Corporation andthe 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.” Material intercompanyaccounts and transactions have been eliminated.

 

The unaudited consolidated financial statements as of March 31,2008 and for the three-month periods ended March 31, 2008 and 2007 havebeen prepared in accordance with accounting principles generally accepted inthe United States of America and in accordance with the instructions to Form 10-Qand Article 10 of Regulation S-X as promulgated by the Securities andExchange Commission (“SEC”), and in the opinion of management, include alladjustments, consisting of normal recurring adjustments, to present fairly theinformation included therein. They do not include all the information and notesrequired by generally accepted accounting principles for complete financialstatements. Operating results for the three-month period ended March 31,2008 are not necessarily indicative of the results that may be expected for theyear ending December 31, 2008. For further information, refer to theconsolidated financial statements and notes thereto included in the Corporation’sAnnual Report on Form 10-K for the year ended December 31, 2007.

 

Note2 — Earnings per Share of Common Stock

 

The factors used in the earnings per sharecomputation follow:

 
| ** **                                                                      | ** ** | **Three Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| **(Dollars in thousands, except per  share data)**                              | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| Basic                                                                           |       |                                             |       |   |   |
| Net income                                                                      |       | $                                                | 1,375      |   | $ | 1,406 |   |
|                                                                            |       |                                             |       |   |   |
| Weighted average common shares outstanding                                      |       | 4,729,718                                        |       | 4,480,289 |   |
|                                                                            |       |                                             |       |   |   |
| Basic earnings per common share                                                 |       | $                                                | 0.29       |   | $ | 0.31 |   |
|                                                                            |       |                                             |       |   |   |
| Diluted                                                                         |       |                                             |       |   |   |
| Net income                                                                      |       | $                                                | 1,375      |   | $ | 1,406 |   |
|                                                                            |       |                                             |       |   |   |
| Weighted average common shares outstanding  for basic earnings per common share |       | 4,729,718                                        |       | 4,480,289 |   |
| Add: Dilutive effects of assumed exercises  of stock options                    |       | 160,993                                          |       | 346,756 |   |
|                                                                            |       |                                             |       |   |   |
| Average shares and dilutive potential  common shares                            |       | 4,890,711                                        |       | 4,827,045 |   |
|                                                                            |       |                                             |       |   |   |
| Diluted earnings per common share                                               |       | $                                                | 0.28       |   | $ | 0.29 |   |

 

7

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Note3 — Stock Compensation

 

On January 1, 2006, the Corporation adopted Statement of FinancialAccounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” (“SFASNo. 123(R)”), which addresses the accounting for share-based paymenttransactions in which a company receives employee services in exchange forequity instruments. SFAS No. 123(R) eliminates the ability to accountfor share-based compensation transactions, as the Corporation formerly did,using the intrinsic value method as prescribed by Accounting Principles BoardOpinion No. 25, “Accounting for Stock Issued to Employees,” and generallyrequires that such transactions be accounted for using a fair-value-basedmethod and recognized as expense in the accompanying consolidated statement ofincome.

 

The Corporation adopted SFAS No. 123(R) using the modified prospectivemethod which requires the application of the accounting standard as of January 1,2006. The accompanying consolidated financial statements as of and for theperiods ending March 31, 2008 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 compensation expense recognized during the period is basedon the value of the portion of stock-based payment awards that is ultimatelyexpected to vest. Stock-based compensation expense recognized in theaccompanying consolidated statements of income for the periods ending March 31,2008 included any compensation expense for stock-based payment awards vestingduring the period based on the grant date fair value estimated in accordancewith SFAS No. 123(R). As stock-based compensation expense recognized inthe accompanying statement of income for the period ending March 31, 2008is based on awards ultimately expected to vest, it has been reduced forestimated forfeitures. SFAS No. 123(R) requires forfeitures tobe estimated at the time of grant and revised, if necessary, in subsequentperiods if actual forfeitures differ from those estimates.

 

For the three months ended March 31, 2008, the Corporation grantedoptions to purchase 150,000 shares of Corporation common stock and 10,955restricted shares of Corporation common stock and there were 160,000 non-vestedoptions outstanding prior to that period. There was no stock-based expenserecognized for the three months ended March 31, 2008.

 

8

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A summary of the activity in the Corporation’s stock-based compensationplan is as follows:

 
| ** **                                                                  | ** ** | **Number** | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Contractual  Remaining  Term  (in years)** | ** ** | **Aggregate  Intrinsic  Value (1)  (000’s)** | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|-----------------------------------------|------------|-----------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Stock-based awards outstanding at  December 31, 2007                   |       | 798,570    |       | $                                       | 13.14      |                                                                  |       |                                                   |       |   |
| Options granted                                                             |       | 150,000    |       | 22.15                                   |       |                                                                  |       |                                                   |       |
| Shares of restricted stock granted                                          |       | 10,955     |       | —                                  |       |                                                                  |       |                                                   |       |
| Options exercised                                                           |       | (7,500     | )          | 5.00                                    |       |                                                                  |       |                                                   |       |
| Options forfeited or expired                                                |       | —     |       | —                                  |       |                                                                  |       |                                                   |       |
| Stock-based awards outstanding at  March  31, 2008                     |       | 952,025    |       | $                                       | 14.64      |                                                                  | 5.69       |                                                   | $          | 1,920 |   |
| Stock-based awards outstanding and expected  to vest at March 31, 2008 |       | 952,025    |       | $                                       | 14.64      |                                                                  | 5.69       |                                                   | $          | 1,920 |   |
| Options exercisable at March 31, 2008                                  |       | 631,070    |       | $                                       | 10.23      |                                                                  | 4.55       |                                                   | $          | 4,070 |   |

 

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(1)    The aggregate intrinsic value is calculated as the difference betweenthe exercise price of each option and the closing price per share ofCorporation common stock of $16.68 for the 952,025 options outstanding and631,070 options exercisable at March 31, 2008.

 

The estimated fair values are computed using the Black-Scholes optionvaluation model, using the following weighted-average assumptions as of grantdate shown below:

 
| ** **              | ** ** | **2008**  | ** ** | **2007**  | ** ** | **2005**     | ** ** | **2004**     | ** ** | **2003**     | ** ** |
|-------------------------|------------|-----------|------------|-----------|------------|--------------|------------|--------------|------------|--------------|------------|
|                    |       |      |       |      |       |         |       |         |       |         |       |
| Risk-free interest rate |       | 3.27      | %          | 4.94      | %          | 3.96         | %          | 3.23         | %          | 3.82         | %          |
| Expected option life    |       | 3.5 years |       | 3.5 years |       | 5 years |       | 7 years |       | 7 years |       |
| Dividend yield          |       | 0.0       | %          | 0.0       | %          | 0.0          | %          | 0.0          | %          | 0.0          | %          |

 

The Corporation granted options to purchase 150,000 shares ofCorporation common stock and 10,955 restricted shares of Corporation commonstock in the first quarter of 2008. The options granted in 2008 had anestimated fair value of $4.45. The options granted in 2007 had an estimatedfair value of $5.75. The options granted during 2005 were granted in July, August andNovember and had an estimated fair value of $3.96, $4.07 and $4.26,respectively. The weighted average fair value of options granted during theyear was $4.45 for 2008, $5.75 for 2007, $4.03 for 2005, $2.23 for 2004 and$2.29 for 2003. No options were granted in 2006.

 

9

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Note4 — Trust Preferred Securities

 

InMarch 2005, the Trust I issued and sold 8,000 of its fixed/floating ratecapital securities, with a liquidation amount of $1,000 per capital security,to First Tennessee Bank National Association. The securities pay a fixed rateof 6.73% payable quarterly for the first five years and a floating rate basedon a three-month LIBOR rate plus 1.98% thereafter. At the same time, theCorporation issued to the Trust $8,248,000 of fixed/floating rate juniorsubordinated deferrable interest debentures due 2035. The Corporationguarantees the payment of distributions and payments for redemptions orliquidation of the capital securities. The Trust Preferred Securities qualifyas “Tier I Capital” under current regulatory definitions subject to certainlimitations.

 

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

 

Note5 – Stock Issuance

 

On July 3, 2006 and July 28, 2006, we issued 1,000,000 and150,000 shares, respectively, of Corporation common stock. After the issuances,there were 4,390,674 shares of common stock outstanding.

 

Note6 – New Accounting Standards

 

In September 2006, the FASB released Statement of FinancialAccounting Standards No. 157 (“SFAS No. 157”), “Fair ValueMeasurements.” This statement defines fair value, establishes a framework formeasuring fair value and expands disclosures about fair value measurements.SFAS No. 157 clarifies the exchange price notion in the fair valuedefinition to mean the price that would be received to sell the asset or paidto transfer the liability (an exit price), not the price that would be paid toacquire the asset or received to assume the liability (an entry price). Thisstatement also clarifies that market participant assumptions should includeassumptions about risk, should include assumptions about the effect of arestriction on the sale or use of an asset and should reflect itsnonperformance risk (the risk that the obligation will not be fulfilled).Nonperformance risk should include the reporting entity’s credit risk. SFAS No. 157is effective for financial statements issued for fiscal years beginning after November 15,2007. The Corporation and the Bank both adopted SFAS No. 157 on January 1,2008 and management does not expect the adoption of this statement will have amaterial impact on our consolidated financial statements.

 

In March 2006, the FASB issued Statement No. 156, “Accountingfor Servicing of Financial Assets-an amendment of FASB Statement No. 140.” This statement provides the following: (i) revised guidance on when aservicing asset and servicing liability should be recognized; (ii) requiresall separately recognized servicing assets and servicing liabilities to beinitially measured at fair value, if practicable; (iii) permits an entityto elect to measure servicing assets and servicing liabilities at fair valueeach reporting date and report changes in fair value in earnings in the periodin which the changes occur; (iv) upon initial adoption, permits a one-timereclassification of available-for-sale securities to trading securities forsecurities which are identified as off-setting the entity’s exposure to changesin the fair value of servicing assets or liabilities that a servicer elects tosubsequently measure at fair value; and (v) requires separate presentationof servicing assets and servicing liabilities subsequently measured at fairvalue in the statement of financial position and additional footnotedisclosures.  This standard is effective as of the beginning of an entity’sfirst fiscal year that begins after September 15, 2006 with the effects ofinitial adoption being reported as a cumulative-effect adjustment to retainedearnings.  Management does not expect the adoption of this statement willhave a material impact on our consolidated financial statements.

 

10

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Note7 — Fair Value Measurement

 

The Bank has an establishedprocess for determining fair values, in accordance with SFAS No. 157. Fairvalue is based upon quoted market prices, where available. If listed prices orquotes are not available, fair value is based upon internally developed modelsor processes that use primarily market-based or independently-sourced marketdata, including interest rate yield curves, option volatilities and third partyinformation. Valuation adjustments may be made to ensure that financialinstruments are recorded at fair value. These adjustments include amounts toreflect counterparty credit quality (for financial assets reflected at fairvalue), the Bank’s creditworthiness (for financial liabilities reflected atfair value), liquidity and other unobservable parameters that are appliedconsistently over time as follows:

 
| · | Credit valuation  adjustments are necessary when the market price (or parameter) is not  indicative of the credit quality of the counterparty.                                                                                                                                                                                                                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                 |
| · | Debit valuation  adjustments are necessary to reflect the credit quality of the Bank in the  valuation of liabilities measured at fair value.                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                 |
| · | Liquidity valuation  adjustments are necessary when the Bank may not be able to observe a recent  market price for a financial instrument that trades in inactive (or less  active) markets or to reflect the cost of exiting larger- than-normal  market-size risk positions.                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                 |
| · | Unobservable parameter  valuation adjustments are necessary when positions are valued using  internally developed models that use as their basis unobservable parameters –  that is, parameters that must be estimated and are, therefore, subject to  management judgment to substantiate the model valuation. These financial  instruments are normally traded less actively. |

 

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

 

**ValuationHierarchy**

 

SFAS No.157 establishes athree-level valuation hierarchy for disclosure of fair value measurements. Thevaluation hierarchy is based upon the transparency of inputs to the valuationof an asset or liability as of the measurement date. The three levels aredefined as follows:

 
| · | Level 1 – inputs to the  valuation methodology are quoted prices (unadjusted) for identical  assets or liabilities in active markets.                                                                                                                                           |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                      |
| · | Level 2 – inputs to the  valuation methodology include quoted prices for similar assets and  liabilities in active markets, and inputs that are observable for the asset  or liability, either directly or indirectly, for substantially the full term  of the financial instrument. |
|   |                                                                                                                                                                                                                                                                                      |
| · | Level 3 – inputs to the  valuation methodology are unobservable and significant to the fair value  measurement.                                                                                                                                                                      |

 

A financial instrument’scategorization within the valuation hierarchy is based upon the lowest level ofinput that is significant to the fair value measurement.  Following is a description of the valuationmethodologies used for instruments measured at fair value, as well as thegeneral classification of such instruments pursuant to the valuation hierarchy.

 

11

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**Assets**

 

*Securities-*Available-for-salesecurities are recorded at fair value on a recurring basis.  Where quoted prices are available in anactive market, securities are classified within level 1 of the valuationhierarchy.  Level 1 securities includehighly liquid government bonds, federal funds sold and certain otherproducts.  Fair value measurement isbased upon quoted prices, if available. If quoted prices are not available, securities would generally beclassified within level 2, and fair value would be determined by matrixpricing, which is a mathematical technique widely used in the industry to valuedebt securities without relying exclusively on quoted prices for the specificsecurities but rather by relying on the securities’ relationship to otherbenchmark quoted securities. In certain cases where there is limited activityor less transparency around inputs to the valuation, securities are classifiedwithin level 3 of the valuation hierarchy. For the three months ended March 31,2008, the entire Bank’s available-for-sale securities were valued using matrixpricing and were classified within level 2 of the valuation hierarchy.  At March 31, 2008, the Bank had nosecurities classified within level 3.

** **

**Liabilities**

* *

*Liabilities* –At March 31, 2008 the Bank had noliabilities measured at fair value on a recurring basis classified within thevaluation hierarchy.

 

The following table presentsthe financial instruments carried at fair value as of March 31, 2008, bycaption on the consolidated balance sheets and by SFAS No. 157 valuationhierarchy (as described above) (dollars in thousands):

 

**Assets and liabilities measured at fair value on a recurringbasis as of March 31, 2008**

 
| ** **                          | ** ** | **Total  carrying  value in the  consolidated  balance  sheet** | ** ** | **Quoted  market  prices in an  active  market** | ** ** | **Internal  models with  significant  observable  market  parameters** | ** ** | **Internal  models with  significant  unobservable  market  parameters** | ** ** |
|-------------------------------------|------------|---------------------------------------------------------------------------|------------|------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                          | ** ** | ** **                                                                | ** ** | **(Level 1)**                                         | ** ** | **(Level 2)**                                                          | ** ** | **(Level 3)**                                                            | ** ** |
| Federal funds sold                  |       | 27                                                                        |       | 27                                                         |       | —                                                                      |       | —                                                                        |       |
| Securities available for sale       |       | 72,048                                                                    |       | —                                                     |       | 72,048                                                                      |       | —                                                                        |       |
| **Total assets at fair value**      |       | $                                                                         | 72,075     |                                                       | $          | 27                                                                          |       | $                                                                             | 72,048     |   | $ | — |   |
|                                |       |                                                                      |       |                                                       |       |                                                                        |       |                                                                          |       |
| Liabilities                         |       | —                                                                    |       | —                                                     |       | —                                                                      |       | —                                                                        |       |
| **Total liabilities at fair value** |       | $                                                                         | —     |                                                       | $          | —                                                                      |       | $                                                                             | —     |   | $ | — |   |

 

12

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** **

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

 

**Forward-Looking Statements**

 

Certain statements contained in this report may not be based onhistorical facts and are “forward-looking statements” within the meaning of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. These forward-looking statementsmay be identified by reference to a future period or by the use offorward-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 of suchterms. These forward-looking statements include, without limitation, thoserelating to our operating results, vesting of stock-based awards, recentlyadopted accounting standards, fair value measurements, allowance for loanlosses, business bank strategy, management’s review of the loan portfolio, loanclassifications, loan commitments, interest rate risk, economic value of equitymodel, loan sale transactions, tax rates, non-accrual loans, liquidity, and ourfuture growth and profitability. We caution you not to place undue reliance onthe forward-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, the availability of and costsassociated with maintaining and/or obtaining adequate and timely sources ofliquidity, changes in our operating strategy, our ability to meet regulatorycapital adequacy requirements, our ability to collect amounts due under loanagreements and to attract deposits, our ability to attract, train and retainqualified personnel, the geographic concentration of our assets, our ability tooperate and integrate new technology, our ability to provide market competitiveproducts and services, our ability to diversify revenue, our ability to fundgrowth with lower cost liabilities, laws and regulations affecting financialinstitutions in general and other factors detailed from time to time in ourpress releases and filings with the Securities and Exchange Commission. Weundertake no obligation to update these forward-looking statements to reflectthe occurrence of changes or unanticipated events, circumstances or results thatoccur after the date of this report.

 

 

**Overview**

(Dollarsin thousands, except per share data, throughout this Item 2)

 

The results of operations for the quarter ended March 31, 2008compared to the quarter ended March 31, 2007 reflected a 2.20% decrease innet income and a 3.45% decrease in diluted earnings per share. The decrease inearnings resulted partially from additional expenses due to compliance with theSarbanes-Oxley Act of 2002. Increased net interest income was partially offsetby increases in non-interest expense. For the three months ended March 31,2008, net income was $1,375, a decrease of $31 or 2.20% compared to net incomeof $1,406 for the same period in 2007. Diluted earnings per share decreased$0.01 per share or 3.45% for the three months ended March 31, 2008compared to the same period in 2007. The three months ended March 31, 2008reflected a continuation of our bank’s trend of rapid asset growth, increasingby $64,282 or 7.14% from $900,153 at December 31, 2007 to $964,435 at March 31,2008. Net loans increased by 8.92% or $69,913 from December 31, 2007 to March 31,2008, while total deposits increased by 5.70% or $46,496 during that sameperiod.

 

13

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**Corporation Overview**

 

Tennessee Commerce Bancorp, Inc.,headquartered in Franklin, Tennessee, is the bank holding company for TennesseeCommerce Bank (the “Bank”).  Organized in January 2000, TennesseeCommerce Bank has a focused strategy that serves the banking needs of small tomedium-sized businesses, entrepreneurs and professionals in the Nashvillemetropolitan statistical area, or the Nashville MSA, as well as the fundingneeds of certain national and regional equipment vendors and financial servicescompanies.  We call this strategy our “business bank” strategy. Weprimarily conduct business from a single location in the Cool Springscommercial area of Franklin, Tennessee, fifteen miles south ofNashville. We also operate a loan production office in Birmingham,Alabama, which we opened in February 2006 and which is staffed with twosenior lending officers.

 

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

 

**Our Business Strategy**

 

We execute our business bankstrategy by combining the personal service and appeal of a community bankinginstitution with the sophistication of a larger bank.  We believe thisstrategy distinguishes us from our competitors in efforts to attract loans anddeposits of local small to medium-sized businesses and national and regionalequipment vendors and financial services companies.  Further, the rapidgrowth within the Nashville MSA, along with several bank mergers andacquisitions, has left many business owners without significant bankingrelationships. We seek to take advantage of this opportunity.

 

We do not compete based onthe traditional definition of “convenience” and currently have no plans todevelop a comprehensive branch bank network.  For us, convenience iscreated by technology and by a free courier service for local customers whichtransports deposits directly from the business location to the bank.  Weconduct business primarily from a single banking office with no teller line,drive-through window or extended banking hours.  We compete by providingresponsive and personalized service to meet customer needs.  We providefree electronic banking and cash management tools and on-site training forbusiness customers.  We compete for consumer business by providingsuperior products, attractive deposit rates, free internet banking services andaccess to a third-party regional ATM network.

 

The business bank strategyis highlighted by differences between the financial statements of our bank andmore traditional financial institutions. The business bank model creates a highdegree of leverage.  By avoiding the investment and maintenance costs of atypical branch network, we are able to maintain earning assets at a higherlevel than peer institutions.  Management targets a minimum earning assetratio of 97% compared to the average of 85% to 90% for all FDIC-insured banksat the end of the fourth quarter of 2007. At March 31, 2008, we had anearning asset ratio of 96.01%.

 

The business bank model isalso highly efficient.  We primarily target the non-retail (service,manufacturing and professional) sector of the commercial market, which ischaracterized by lower levels of transactions and processing costs.  Thecommercial customer mix and the strategic outsourcing of non-customerfunctions, such as data processing, information technology and internal audit,allow us to operate with a small, highly-trained staff.  Managementtargets a minimum asset per employee ratio of $10 million, compared to theaverage ratio of approximately $3.33 million assets per employee for MiddleTennessee banks at the end of the fourth quarter of 2007. At March 31,2008, our assets per employee were $15.07 million.

 

14

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In addition to our NashvilleMSA focus, we have developed expertise in indirect lending that allows us toaccess a national market. Our indirect lending transactions are fixed-ratemonthly installment loans originated through a third-party equipment vendor orfinancial services company. Our national market lending is divided into twoprograms based on loan size. In the first program, through an establishednetwork of vendors and financial service companies, we have opportunities tofinance business asset secured loan transactions nationally for middle-marketand investment grade companies. In the second program, a different network ofvendors and financial service companies located in Tennessee, Alabama, Georgia,California and Michigan partner with us in financing smaller transactions(generally $150 or less per transaction). Both national market programs providegeographic and collateral diversity for our portfolio.

 

**Our Market Area**

 

The Bank’s primary market area is the Nashville MSA in Tennessee. In Davidson County, as of June 30, 2007, there were 25 banks and nosavings and loan institutions, with at least 205 offices actively engaged inbanking activities, including eight major state-wide financial institutions,according to SNL Financial.  Total deposits held by banks in DavidsonCounty as of June 30, 2007, were approximately $16.7 billion, according toSNL Financial.  In Williamson County, as of June 30, 2007, there were22 banks and two savings and loan institutions, with at least 83 officesactively engaged in banking activities, including eight major state-widefinancial institutions, according to SNL Financial.  Total deposits heldby banks and savings and loan associations in Williamson County as of June 30,2007 were approximately $4.6 billion, according to SNL Financial.  Inaddition, there are numerous credit unions, finance companies, and otherfinancial services providers in the Nashville MSA.

 

Demographic information published by SNL Financial shows a totalestimated population of 164,410 for Williamson County in 2007, which was a29.83% increase from 126,638 in 2000. The estimated number of households in thecounty in 2007 was 58,965, up from 44,725 in 2000, averaging 2.79 persons perhousehold. In 2007, the median household income was $88,854, while per capita incomewas $44,942.  At the end of 2007, the unemployment rate was 3.6%.

 

Demographic information published by SNL Financial shows an estimatedpopulation of 599,512 for Davidson County in 2007, which was a 5.2% increaseover the population of 569,891 in 2000. The estimated number of households inthe county in 2007 was 253,891, averaging 2.36 persons per household. In 2007,the median household income was $51,811, while per capita income was$30,129.  At the end of 2007, the unemployment rate was 4.1%.

 

 **Comparison of Operating Results for the Three MonthsEnded March 31, 2008 and March 31, 2007**

 

**Net Income** - Net income for the three months ended March 31,2008 was $1,375, a decrease of $31 or 2.20% compared to net income of $1,406for the three months ended March 31, 2007.  The decrease isattributable to a 58.47% increase in non-interest expense from $2,615 for thethree months ended March 31, 2007 to $4,144 for the same period in 2008.We experienced an increase of $1,529 in operating expense which was the resultof our overall growth, including a $141 increase in FDIC assessment at March 31,2008 compared to the same date in 2007, as well as an increase in personnel andgeneral operating expenses because of our growth.

 
| ** **                                    | ** ** | **Three Months Ended  March 31,** | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|------------|------------|------------|
| **(Dollars in thousands)**                    | ** ** | **2008**                                         | ** ** | **2007**   | ** ** | **% Change** | ** ** |
|                                          |       |                                             |       |       |       |   |   |
| Interest income                               |       | $                                                | 17,486     |       | $          | 12,971 |   | 34.81 | % |
| Interest expense                              |       | 10,024                                           |       | 7,386      |       | 35.72 |   |
| Net interest income                           |       | 7,462                                            |       | 5,585      |       | 33.61 |   |
| Provision for loan losses                     |       | 1,600                                            |       | 1,500      |       | 6.67 |   |
| Net interest after provision for loan  losses |       | 5,862                                            |       | 4,085      |       | 43.50 |   |
| Non-interest income                           |       | 527                                              |       | 822        |       | (35.89 | ) |
| Non-interest expense                          |       | 4,144                                            |       | 2,615      |       | 58.47 |   |
| Net income before taxes                       |       | 2,245                                            |       | 2,292      |       | (2.05 | ) |
| Income tax expense                            |       | 870                                              |       | 886        |       | (1.81 | ) |
| Net income                                    |       | $                                                | 1,375      |       | $          | 1,406 |   | (2.20 | )% |

 

15

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**Provision for Loan Losses** - The provision for loan losses for thethree months ended March 31, 2008 was $1,600, an increase of $100, or6.67%, above the provision of $1,500 expensed in the same period in 2007. This increase was primarily a result of the increase in loan volume. At March 31,2008, the loan loss reserve of $11,034 was 1.28% of gross loans of $864,948.

 

**Non-interest Income** - Non-interest income decreased by 35.89% or$295, from $822 in the quarter ended March 31, 2007 to $527 for the sameperiod in 2008. The decrease was primarily a result of lower gains on loansales.  The gain on loan sales was $566 and $817 for the three-monthperiods ended March 31, 2008 and 2007, respectively.

 

We earned $12 in mortgage origination fees during the three monthsended March 31, 2008 compared to $24 earned during the same period in2007, a decrease of $12 or 50.00%.  We recognized $30 on the sale ofsecurities in the three months ended March 31, 2008 compared with $10 forthe same period in 2007.

 

We earned $566 on loan sale transactions in the three months ended March 31,2008, a 30.72% decrease compared to $817 during the same period in 2007. Thisdecrease was primarily due to timing differences. Management will continue toconsider loan sale transactions if the opportunity for a reasonable return isavailable.

 

**Non-interest Expense** - Non-interest expense for the three monthsended March 31, 2008 was $4,144, an increase of $1,529 or 58.47%, over the$2,615 expensed in the same period in 2007.  Approximately 53.11% of theincrease was a result of increases in personnel. At March 31, 2008, theBank had 64 full time employees compared with 53 employees at March 31,2007.

 

**Net Interest Income** - Net interest income for the three monthsended March 31, 2008 was $7,462 compared to $5,585 for the same period in2007, a gain of $1,877 or 33.61%.  The increase in net interest income waslargely attributable to strong loan growth.  The average net loan balancefor the three months ended March 31 increased by 47.38% or $265,390 from$560,168 for that period in 2007 to $825,558 for the same period in 2008. Loangrowth was accompanied by an increase in average interest bearing deposits from$560,863 for the three months ended March 31, 2007 to $827,232 for thesame period in 2008, an increase of $266,369 or 47.49%.

 

The following table outlines the components of net interest income forthe three-month periods ended March 31, 2008 and 2007 and identifies theimpact of changes in volume and rate:

 
| ** **                           | ** ** | **March 31, 2008 change from  March 31, 2007 due to:** | ** ** |
|--------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|
| **(Dollars in thousands)** | ** ** | **Volume**                                                                                     | ** ** | **Rate** | ** ** | **Total** | ** ** |
|                                 |       |                                                                                           |       |   |   |   |   |
| Interest income                      |       |                                                                                           |       |   |   |   |   |
| Loans                                |       | $                                                                                              | 5,334      |   | $ | (1,051 | ) | $ | 4,283 |   |
| Securities (taxable) (1)             |       | 244                                                                                            |       | 25 |   | 269 |   |
| Federal funds sold                   |       | 8                                                                                              |       | (45 | ) | (37 | ) |
| Total interest income                |       | 5,586                                                                                          |       | (1,071 | ) | 4,515 |   |
|                                 |       |                                                                                           |       |   |   |   |   |
| Interest expense                     |       |                                                                                           |       |   |   |   |   |
| Deposits (other than demand)         |       | 3,183                                                                                          |       | (665 | ) | 2,518 |   |
| Federal funds purchased              |       | 23                                                                                             |       | (14 | ) | 9 |   |
| Subordinated debt                    |       | 116                                                                                            |       | (5 | ) | 111 |   |
| Total interest expense               |       | 3,322                                                                                          |       | (684 | ) | 2,638 |   |
|                                 |       |                                                                                           |       |   |   |   |   |
| Net interest income                  |       | $                                                                                              | 2,264      |   | $ | (387 | ) | $ | 1,877 |   |

 

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(1)          Unrealized gain (loss) of $715 and $(652) is excluded from yieldcalculation for the three months ended March 31, 2008 and 2007,respectively.

 

16

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**Net Interest Margin******- The net interest margin decreased from3.62% for the three months ended March 31, 2007 to 3.30% for the sameperiod in 2008 because of a lower average yield from the loan portfolio thatwas not fully offset by a decrease in our cost for deposits.  Interestincome increased by $4,515 or 34.81%, from $12,971 during the three monthsended March 31, 2007 to $17,486 during the same period in 2008. Theincrease was primarily a result of increased loan volume.  Average earningassets increased from $625,714 in the three months ended March 31, 2007 to$909,652 in the same period in 2008, an increase of $283,938 or 45.38%. The increase in earning assets was primarily a result of loan growth. Averageloan balances increased by $265,390 or 47.38% for the quarter ending March 31,2008, from the same quarter in 2007.  The average yield on earning assetsdecreased from 8.40% in the three months ended March 31, 2007 to 7.74% inthe same period in 2008. The decrease in the cost of funds, as a percentage ofaverage balances was primarily a result of decreases in short-term interestrates paid on deposits that support our loan growth. Between March 31,2007 and March 31, 2008, the Federal Reserve Open Market Committee, orFOMC, lowered the federal funds rate by 279 basis points.

 

**Interest Expense** – Interest expense increased from $7,386 inthe three months ended March 31, 2007 to $10,024 in the three months endedMarch 31, 2008. The $2,638, or 35.72%, increase in expense was a resultof  increases in the volume of depositsas well as rate increases. Average interest earning liabilities increased by$276,018 or 48.38%.  The cost of funds decreased from 5.25% in the threemonths ended March 31, 2007 to 4.76% during the same three months in 2008,a decrease of 49 basis points.

 

**Income Taxes** - Our effective tax rate for the threemonths ended March 31, 2008 was 38.75% compared to 38.66% for the threemonths ended March 31, 2007. Management anticipates that tax rates infuture periods will approximate the rates paid in 2007.

 

**Efficiency Ratio** - Our efficiency ratio for the three monthsending March 31, 2008 and 2007 was 51.87% and 40.81%, respectively, anincrease of 1,106 basis points. The following table reflects the calculation ofthe efficiency ratio:

 
| ** **                           | ** ** | **Threee Months Ended  March 31,** | ** ** |
|--------------------------------------|------------|---------------------------------------------------|------------|
| **(Dollars in thousands)** | ** ** | **2008**                                          | ** ** | **2007** | ** ** |
| Non-interest expense                 |       | $                                                 | 4,144      |   | $ | 2,615 |   |
|                                 |       |                                              |       |   |   |
| Net interest income                  |       | 7,462                                             |       | 5,585 |   |
| Non-interest income                  |       | 527                                               |       | 822 |   |
| Total Revenues                       |       | $                                                 | 7,989      |   | $ | 6,407 |   |
|                                 |       |                                              |       |   |   |
| Efficiency Ratio                     |       | 51.87                                             | %          | 40.81 | % |

 

17

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*Average Balance Sheets, Net Interest Income, and Changes inInterest Income and Interest Expense*

 

Thetable below shows the average daily balances of each principal category of ourassets, liabilities and shareholders’ equity, and an analysis of net interestincome, and the change in interest income and interest expense segregated intoamounts attributable to changes in volume and changes in rates for thethree-month periods ended March 31, 2008 and 2007. The table is presentedon a tax equivalent basis, as applicable.

 
| ** **                                       | ** ** | **Three Months Ended March 31,  2008** | ** ** | **Three Months Ended March 31,  2007** | ** ** |
|--------------------------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                                       | ** ** | **Average**                                                | ** ** | ** **                                                 | ** ** | **Average** | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **(Dollars in thousands)**             | ** ** | **Balance**                                                | ** ** | **Interest**                                               | ** ** | **Rate** | ** ** | **Balance** | ** ** | **Interest** | ** ** | **Rate** | ** ** |
| **ASSETS**                                       |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Interest earning assets                          |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Securities (taxable) (1)                         |       | $                                                          | 76,070     |                                                       | $          | 1,033 |   | 5.51 | % | $ | 58,140 |   | $ | 764 |   | 5.27 | % |
| Loans (2) (3)                               |       | 825,558                                                    |       | 16,382                                                     |       | 7.98 | % | 560,168 |   | 12,099 |   | 8.76 | % |
| Federal funds sold                               |       | 8,024                                                      |       | 71                                                         |       | 3.56 | % | 7,406 |   | 108 |   | 5.91 | % |
| Total interest earning assets                    |       | 909,652                                                    |       | 17,486                                                     |       | 7.74 | % | 625,714 |   | 12,971 |   | 8.40 | % |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Non-interest earning assets                      |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Cash and due from banks                          |       | 4,412                                                      |       |                                                       |       |   |   | 5,030 |   |   |   |   |   |
| Net fixed assets and equipment                   |       | 1,454                                                      |       |                                                       |       |   |   | 1,618 |   |   |   |   |   |
| Accrued interest and other assets                |       | 24,056                                                     |       |                                                       |       |   |   | 12,912 |   |   |   |   |   |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Total assets                                     |       | $                                                          | 939,574    |                                                       |       |   |   |   | $ | 645,274 |   |   |   |   |   |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| **LIABILITIES AND SHAREHOLDERS’ EQUITY**    |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Interest  bearing liabilities                    |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Deposits  (other than demand)                    |       | $                                                          | 827,232    |                                                       | $          | 9,744 |   | 4.74 | % | $ | 560,863 |   | $ | 7,226 |   | 5.23 | % |
| Federal  funds purchased                         |       | 3,939                                                      |       | 30                                                         |       | 3.06 | % | 1,455 |   | 21 |   | 5.85 | % |
| Subordinated  debt                               |       | 15,413                                                     |       | 250                                                        |       | 6.52 | % | 8,248 |   | 139 |   | 6.83 | % |
| Total  interest bearing liabilities              |       | 846,584                                                    |       | 10,024                                                     |       | 4.76 | % | 570,566 |   | 7,386 |   | 5.25 | % |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Non-interest  bearing liabilities                |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Non-interest  bearing demand deposits            |       | 25,755                                                     |       |                                                       |       |   |   | 19,108 |   |   |   |   |   |
| Other  liabilities                               |       | 3,269                                                      |       |                                                       |       |   |   | 3,453 |   |   |   |   |   |
| Shareholders’  equity                       |       | 63,966                                                     |       |                                                       |       |   |   | 52,147 |   |   |   |   |   |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Total  liabilities and shareholders’ equity |       | $                                                          | 939,574    |                                                       |       |   |   |   | $ | 645,274 |   |   |   |   |   |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Net  Interest Spread                             |       | 2.98                                                       | %          |                                                       |       |   |   | 3.15 | % |   |   |   |   |
|                                             |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |
| Net  Interest Margin                             |       | 3.30                                                       | %          |                                                       |       |   |   | 3.62 | % |   |   |   |   |

 

----

| (1) | Unrealized  gain (loss) of $715 and $(652) is excluded from yield calculation for the  three months ended March 31, 2008 and 2007, respectively.                                            |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Non-accrual  loans are included in average loan balances and loan fees of $816 and $643  are included in interest income for the three months ended March 31,  2008 and 2007, respectively. |
| (3) | Loans  are presented net of allowance for loan loss.                                                                                                                                             |

 

18

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** **

**Comparison of Financial Condition at March 31, 2008 and December 31,2007**

 

**Assets****-**Totalassets at March 31, 2008 were $964,435, an increase of $64,282, or 7.14%,over total assets of $900,153 at December 31, 2007. Loan growth was theprimary reason for the increase.  At March 31, 2008, net loansequaled $853,914, up $69,913, or 8.92%, over the December 31, 2007 totalnet loans of $784,001. The cash and cash equivalents balance decreased by$8,805 between December 31, 2007 and March 31, 2008, as funds wereused to fund loans made in the first quarter of 2008.

 

Our business bank model of operation generally results in a higherlevel of earning assets than our peer banks.  Earning assets are definedas assets that earn interest income and include short-term investments, theinvestment portfolio and net loans.  We generally maintain a higher levelof earning assets than our peer banks because fewer assets are allocated tofacilities, cash and “due from” bank accounts used for transactionprocessing.  Earning assets at March 31, 2008 were $925,989, or96.01% of total assets of $964,435.  Earning assets at December 31,2007 were $867,327, or 96.35% of total assets of $900,153.

 

**Loans** - We had total net loans of $853,914 at March 31, 2008. Thefollowing table sets forth the composition of our loan portfolio at March 31,2008 and December 31, 2007:

 
| **(Dollars in thousands)**   | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Real estate                            |       |                     |       |                        |       |
| Construction                           |       | $                        | 135,151    |                        | $          | 112,405 |   |
| 1 to 4 family residential              |       | 32,842                   |       | 33,560                      |       |
| Other                                  |       | 154,750                  |       | 143,973                     |       |
| Commercial, financial and agricultural |       | 515,339                  |       | 477,666                     |       |
| Consumer                               |       | 3,844                    |       | 3,966                       |       |
| Other                                  |       | 23,022                   |       | 22,752                      |       |
|                                   |       |                     |       |                        |       |
| Total loans                            |       | 864,948                  |       | 794,322                     |       |
| Less: allowance for loan losses        |       | (11,034                  | )          | (10,321                     | )          |
|                                   |       |                     |       |                        |       |
| Net loans                              |       | $                        | 853,914    |                        | $          | 784,001 |   |

 

Thefollowing table sets forth the percentage composition of our loan portfolio bytype at March 31, 2008 and December 31, 2007:

 
| ** **                             | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Real estate:                           |       |                     |       |                        |       |
| Construction                           |       | 15.63                    | %          | 14.15                       | %          |
| 1 to 4 family residential              |       | 3.80                     |       | 4.22                        |       |
| Other                                  |       | 17.89                    |       | 18.13                       |       |
| Commercial, financial and agricultural |       | 59.58                    |       | 60.14                       |       |
| Consumer                               |       | 0.44                     |       | 0.50                        |       |
| Other                                  |       | 2.66                     |       | 2.86                        |       |
|                                   |       |                     |       |                        |       |
| Total                                  |       | 100.00                   | %          | 100.00                      | %          |

 

19

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The following table sets forth the composition of our commercial loanportfolio by source at March 31, 2008 and December 31, 2007:

 
| ** **                           | ** ** | **March 31,  2008** | ** ** | **December 31,   2007** | ** ** |
|--------------------------------------|------------|--------------------------|------------|-----------------------------------|------------|
| **(Dollars in thousands)** | ** ** | **Amount**               | ** ** | **%**                             | ** ** | **Amount** | ** ** | **%** | ** ** |
|                                 |       |                     |       |                              |       |   |   |   |   |
| Direct funding                       |       | $                        | 198,547    |                              | 38.53      | % | $ | 193,943 |   | 40.60 | % |
| Indirect funding:                    |       |                     |       |                              |       |   |   |   |   |
| Large                                |       | 147,179                  |       | 28.56                             |       | 130,583 |   | 27.34 |   |
| Small                                |       | 169,613                  |       | 32.91                             |       | 153,140 |   | 32.06 |   |
| Total                                |       | $                        | 515,339    |                              | 100.00     | % | $ | 477,666 |   | 100.00 | % |

 

Management periodically reviews our loan portfolio, particularlynon-accrual and renegotiated loans.  The review may result in adetermination that a loan should be placed on a non-accrual status for incomerecognition. When a loan is classified as non-accrual, any unpaid interest isreversed against current income.  Interest is included in incomethereafter only to the extent received in cash.  The loan remains in anon-accrual classification until such time as the loan is brought current, whenit may be returned to accrual classification.

 

 

The following table presents information regarding non-accrual, pastdue and restructured loans at March 31, 2008 and December 31, 2007:

 
| **(Dollars in thousands)**                                                                    | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Non-accrual loans:                                                                                      |       |                     |       |                        |       |
| Number                                                                                                  |       | 117                      |       | 130                         |       |
| Amount                                                                                                  |       | $                        | 5,835      |                        | $          | 6,465 |   |
|                                                                                                    |       |                     |       |                        |       |
| Accruing loans which are contractually past  due 90 days or more as to principal and interest payments: |       |                     |       |                        |       |
| Number                                                                                                  |       | 43                       |       | 44                          |       |
| Amount                                                                                                  |       | $                        | 2,065      |                        | $          | 1,992 |   |
|                                                                                                    |       |                     |       |                        |       |
| Loans defined as “troubled debt  restructurings”:                                             |       |                     |       |                        |       |
| Number                                                                                                  |       | 1                        |       | 1                           |       |
| Amount                                                                                                  |       | $                        | 143        |                        | $          | 148 |   |

 

As of March 31, 2008 and December 31, 2007, there were noloans classified for regulatory purposes as doubtful or substandard that arenot disclosed in the above table, which (i) represent or result fromtrends or uncertainties which management reasonably expects will materiallyimpact future operating results, liquidity or capital resources, or (ii) representmaterial credits about which management is aware of any information that causesmanagement to have serious doubts as to the ability of such borrowers to complywith the loan repayment terms.

 

20

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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 to maintain an ALL that is adequate to absorbcurrent and estimated losses which are inherent in a loan portfolio.  Thehistorical loss ratio (net charge-offs as a percentage of average loans) was0.11% for the three months ended March 31, 2008 and 0.13% for the threemonths ended March 31, 2007. The ALL as a percentage of the outstandingloans at the end of the period was 1.28% at March 31, 2008 and 1.31% at March 31,2007.

 

An analysis of our allowance for loan loss and net charge-offs isfurnished in the following table for the three months ended March 31, 2008and the same period ended March 31, 2007:

 
| **(Dollars in thousands)**              | ** ** | **March 31,  2008** | ** ** | **March 31,  2007** | ** ** |
|---------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Allowance for loan losses at beginning of  period |       | $                        | 10,321     |                     | $          | 6,968 |   |
| Charge-offs:                                      |       |                     |       |                     |       |
| Real estate:                                      |       |                     |       |                     |       |
| Construction                                      |       | 150                      |       | —                   |       |
| 1 to 4 family residential                         |       | —                   |       | —                   |       |
| Other                                             |       | —                   |       | —                   |       |
| Commercial, financial and agricultural            |       | 742                      |       | 842                      |       |
| Consumer                                          |       | 17                       |       | —                   |       |
| Total Charge-offs                                 |       | 909                      |       | 842                      |       |
|                                              |       |                     |       |                     |       |
| Recoveries:                                       |       |                     |       |                     |       |
| Real estate:                                      |       |                     |       |                     |       |
| Construction                                      |       | —                   |       | —                   |       |
| 1 to 4 family residential                         |       | —                   |       | —                   |       |
| Other                                             |       | —                   |       | —                   |       |
| Commercial, financial and agricultural            |       | 22                       |       | 132                      |       |
| Consumer                                          |       | —                   |       | —                   |       |
| Total Recoveries                                  |       | 22                       |       | 132                      |       |
|                                              |       |                     |       |                     |       |
| Net Charge-offs                                   |       | 887                      |       | 710                      |       |
|                                              |       |                     |       |                     |       |
| Provision for loans charged to expense            |       | 1,600                    |       | 1,500                    |       |
| Allowance for loan losses at end of period        |       | $                        | 11,034     |                     | $          | 7,758 |   |

 
| ** **                                                                                        | ** ** | **March 31,  2008** | ** ** | **March 31,  2007** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------------------|------------|--------------------------|------------|
| Net charge-offs as a percentage of average  total loans outstanding during the period             |       | 0.11                     | %          | 0.13                     | %          |
|                                                                                              |       |                     |       |                     |       |
| Ending allowance for loan losses as a  percentage of total loans outstanding at end of the period |       | 1.28                     | %          | 1.31                     | %          |

 

21

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The allowance for loan losses is established by charges to operationsbased on management’s evaluation of the loan portfolio, past due loanexperience, collateral values, current economic conditions and other factorsconsidered necessary to maintain the allowance at an adequate level.

 

**Securities** - The securities portfolio at March 31,2008 was $72,048 compared to $73,753 at December 31, 2007.  We viewthe securities portfolio as a source of income and liquidity.  Thesecurities portfolio was 7.47% of total assets at March 31, 2008 and 8.19%of total assets at December 31, 2007.

 

**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 is generallyless than rates paid in the local market. Wholesale deposits are categorized as“Purchased time deposits” on the detail of deposits shown in the table below.

 

**Deposits** – Total deposits at March 31, 2008 were $861,549, up $46,496 or5.70% over the December 31, 2007 total deposits of $815,053. Totalaverage deposits during the three months ending March 31, 2008, were$852,987, an increase of $273,016, or 47.07% over the total average deposits of$579,971 during the three months ending March 31, 2007. Averagenon-interest bearing deposits increased by $6,647, or 34.79%, from $19,108 inthe three months ending March 31, 2007, to $25,755 in the three monthsending March 31, 2008.

 

The following table sets forth average deposit balances for the threemonths ended March 31, 2008 and 2007 and the average rates paid on thosebalances:

 
| ** **                           | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| **(Dollars in thousands)** | ** ** | **Average  Balance**                                 | ** ** | **Average  Rate  Paid (1)** | ** ** | **Average  Balance** | ** ** | **Average  Rate  Paid (1)** | ** ** |
| Types of Deposits:                   |       |                                                 |       |   |   |   |   |   |   |
| Non-interest-bearing demand deposits |       | $                                                    | 25,755     |   | — | % | $ | 19,108 |   | — | % |
| Interest-bearing demand deposits     |       | 6,991                                                |       | 1.33 |   | 6,155 |   | 3.95 |   |
| Money market accounts                |       | 86,381                                               |       | 2.57 |   | 109,146 |   | 5.28 |   |
| Savings accounts                     |       | 6,012                                                |       | 2.69 |   | 8,186 |   | 2.71 |   |
| IRA accounts                         |       | 22,856                                               |       | 5.13 |   | 11,285 |   | 5.15 |   |
| Purchased time deposits              |       | 362,832                                              |       | 5.09 |   | 220,514 |   | 5.25 |   |
| Time deposits                        |       | 342,160                                              |       | 4.99 |   | 205,577 |   | 5.31 |   |
| Total deposits                       |       | $                                                    | 852,987    |   |   |   | $ | 579,971 |   |   |   |

 

----

(1)             Rate is annualized

 

**Short-Term Debt** – In March 2008, we borrowed $2,500 ona $10,000 line of credit with First Tennessee Bank, National Association. Thisline 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 the Trust I. In March 2005, the Trust I issued and sold 8,000 of theTrust I’s fixed/floating rate capital securities, with a liquidation amount of$1 per capital security, to First Tennessee Bank, National Association. At thesame time, we issued to Trust I $8,248 of fixed/floating rate juniorsubordinated deferrable interest debentures due 2035. The debentures pay a6.73% fixed rate payable quarterly for the first five years and a floating ratebased on a three-month LIBOR rate plus a margin thereafter.

 

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

 

22

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** **

**Off-Balance Sheet Arrangements**

 

We are a party to financial instruments with off-balance sheet risk inthe normal course of business to meet the financing needs of our customers. At March 31,2008, we had unfunded loan commitments outstanding of $136,137 and standbyletters of credit and financial guarantees of $10,012. Those instrumentsinvolve, to varying degrees, elements of credit risk in excess of the amountrecognized in the balance sheet.  The contract or notional amounts ofthose instruments reflect the extent of our involvement in those particularfinancial instruments. We use the same credit policies in making commitmentsand conditional obligations as we do for on-balance sheet instruments.

 

Because these commitments generally have fixed expiration dates andmany will expire without being drawn upon, the total commitment level does notnecessarily represent future cash requirements. If needed, we can liquidatefederal funds sold or securities available for sale or borrow and purchasefederal funds from other financial institutions, where we have availablefederal fund lines at March 31, 2008 totaling $33,700.

 

# **Liquidity/ CapitalResources**

# ** **

**Liquidity** - Of primary importance to depositors, creditors and regulators is theability to have readily available funds sufficient to repay fully maturingliabilities.  We are subject to general FDIC guidelines, which do notrequire a minimum level of liquidity. Liquidity requirements can be met throughshort-term borrowings or the disposition of short-term assets which aregenerally matched to correspond to the maturity of liabilities. Managementbelieves our liquidity ratios meet the general FDIC guidelines and we haveassets and borrowing capacity to provide adequate liquidity. Management doesnot know of any trends or demands that are reasonably likely to result in ourliquidity increasing or decreasing in any material 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$8,500.  In March 2005, the Trust I issued $8,000 in fixed/floatingrate capital securities that meet the capital guidelines to be classified asTier I capital, as explained below. On July 3, 2006 and July 28,2006, we issued 1,000,000 shares and 150,000 shares, respectively, of ourcommon stock in order to raise $19,100 in capital.

 

The Federal Reserve Board has adopted capital guidelines governing theactivities of bank holding companies.  These guidelines require themaintenance of an amount of capital based on risk-adjusted assets so thatcategories of assets with potentially higher credit risk will require morecapital backing than assets with lower risk.  In addition, banks and bankholding companies are required to maintain capital to support, on arisk-adjusted basis, certain off-balance sheet activities such as loancommitments.

 

The capital guidelines classify capital into two tiers, referred to asTier I and Tier II. Under risk-based capital requirements, totalcapital consists of Tier I capital which is generally common shareholders’equity less goodwill and Tier II capital which is primarily a portion of theallowance for loan losses and certain preferred stock and qualifying debtinstruments. In determining risk-based capital requirements, assets areassigned risk-weights of 0% to 100%, depending primarily on the regulatoryassigned levels of credit risk associated with such assets. Off-balance sheetitems are considered in the calculation of risk-adjusted assets throughconversion factors established by the regulators. The framework for calculatingrisk-based capital requires banks and bank holding companies to meet theregulatory minimums of 4% Tier I and 8% total risk-based capital. In 1990,regulators added a leverage computation to the capital requirements, comparingTier I capital to total average assets less goodwill.

 

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

 

23

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At March 31, 2008 and December 31, 2007, the Bank’s and ourrisk-based capital ratios and the minimums for capital adequacy and to beconsidered well-capitalized under the Federal Reserve Board’s prompt correctiveaction guidelines were as follows:

 
| ** **                                               | ** ** | ** **         | ** ** | ** **            | ** ** | ** **           | ** ** | **Minimum to**    | ** ** |
|----------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|----------------------|------------|------------------------|------------|
| ** **                                               | ** ** | ** **         | ** ** | ** **            | ** ** | **Minimum**          | ** ** | **be considered** | ** ** |
| ** **                                               | ** ** | **March 31,** | ** ** | **December 31,** | ** ** | **for capital** | ** ** | **well-**              | ** ** |
| ** **                                               | ** ** | **2008**           | ** ** | **2007**              | ** ** | **adequacy**         | ** ** | **capitalized**        | ** ** |
|                                                     |       |               |       |                  |       |                 |       |                   |       |
| Tier 1 leverage ratio                                    |       |               |       |                  |       |                 |       |                   |       |
| Tennessee Commerce Bank                                  |       | 8.56               | %          | 8.75                  | %          | 4.00                 | %          | 5.00                   | %          |
| Tennessee Commerce Bancorp, Inc.                    |       | 7.69               | %          | 8.09                  | %          | 4.00                 | %          | n/a                    |       |
|                                                     |       |               |       |                  |       |                 |       |                   |       |
| Tier 1 “core” capital to risk-weighted  assets |       |               |       |                  |       |                 |       |                   |       |
| Tennessee Commerce Bank                                  |       | 8.94               | %          | 9.26                  | %          | 4.00                 | %          | 6.00                   | %          |
| Tennessee Commerce Bancorp, Inc.                    |       | 8.03               | %          | 8.55                  | %          | 4.00                 | %          | n/a                    |       |
|                                                     |       |               |       |                  |       |                 |       |                   |       |
| Total capital to risk-weighted assets                    |       |               |       |                  |       |                 |       |                   |       |
| Tennessee Commerce Bank                                  |       | 10.17              | %          | 10.51                 | %          | 8.00                 | %          | 10.00                  | %          |
| Tennessee Commerce Bancorp, Inc.                    |       | 9.26               | %          | 9.80                  | %          | 8.00                 | %          | n/a                    |       |

 

Based solely on our analysis of federal banking regulatory categories,on March 31, 2008 and December 31, 2007, the Corporation and the Bankwere within the “well capitalized” categories under the regulations.

 

**Impact of Inflation and Changing Prices** - The financial statements and relatedfinancial data presented herein have been prepared in accordance with U.S.generally accepted accounting principles which require the measurement offinancial position and operating results in terms of historical dollars withoutconsidering the changes in the relative purchasing power of money over time andresulting from inflation. The impact of inflation on operations of the Bank isreflected in increased operating costs. Unlike most industrial companies,almost all of the assets and liabilities of the Bank are monetary in nature. Asa result, interest rates have a more significant impact on the Bank’sperformance than the effects of general levels of inflation. Interest rates donot necessarily move in the same direction or in the same magnitude as theprice of goods and services.

 

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** **

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

 

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

 

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

 

The asset liability committee uses a computer model to analyze thematurities of rate sensitive assets and liabilities. The model measures the “gap”which is defined as the difference between the dollar amount of rate sensitiveassets repricing during a period and the volume of rate sensitive liabilitiesrepricing during the same period. Gap is also expressed as the ratio of ratesensitive assets divided by rate sensitive liabilities. If the ratio is greaterthan one, the dollar value of assets exceeds the dollar value of liabilities,and the balance sheet is “asset sensitive.” Conversely, if the value ofliabilities exceeds the value of assets, the ratio is less than one and thebalance sheet is “liability sensitive.” Our internal policy requires managementto maintain the gap within a range of 0.75 to 1.25.

 

The model measures scheduled maturities in periods of three months,four to twelve months, one to five years and over five years. The chart belowillustrates our rate sensitive position at March 31, 2008. Management usesthe one-year gap as the appropriate time period for setting strategy.

 

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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                                               |       | $            | 27         |       | $          | —     |       | $         | —     |             | $          | —     |       | $ | — |   | $ | 27 |   |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Securities                                                       |       |         |       |       |       |       |       |      |       |             |       |       |       |
| U.S. government agencies                                         |       | —       |       | 37,397     |       | —     |       | 1,534     |       | 32,770           |       | 71,701     |       |
| Mortgage-backed securities                                       |       | —       |       | 28         |       | 86         |       | 154       |       | 79               |       | 347        |       |
| Total securities                                                 |       | —       |       | 37,425     |       | 86         |       | 1,688     |       | 32,849           |       | 72,048     |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total loans                                                      |       | 230,249      |       | 93,073     |       | 228,582    |       | 290,275   |       | 22,769           |       | 864,948    |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total interest earning assets                                    |       | 230,276      |       | 130,498    |       | 228,668    |       | 291,963   |       | 55,618           |       | 937,023    |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Other assets                                                     |       | —       |       | —     |       | —     |       | —    |       | 27,412           |       | 27,412     |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total assets                                                     |       | $            | 230,276    |       | $          | 130,498    |       | $         | 228,668    |             | $          | 291,963    |       | $ | 83,030 |   | $ | 964,435 |   |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Interest Bearing Liabilities                                     |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Deposits                                                         |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Interest checking                                                |       | $            | 4,802      |       | $          | —     |       | $         | —     |             | $          | 1,126      |       | $ | — |   | $ | 5,928 |   |
| Money market and savings                                         |       | 59,307       |       | —     |       | —     |       | 18,728    |       | —           |       | 78,035     |       |
| Time deposits                                                    |       | —       |       | 167,127    |       | 439,257    |       | 150,357   |       | —           |       | 756,741    |       |
| Total deposits                                                   |       | 64,109       |       | 167,127    |       | 439,257    |       | 170,211   |       | —           |       | 840,704    |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Federal funds purchased                                          |       | 16,175       |       | —     |       | —     |       | —    |       | —           |       | 16,175     |       |
| Short-term debt                                                  |       | —       |       | —     |       | 9,500      |       | —    |       | —           |       | 9,500      |       |
| Subordinated debt                                                |       | —       |       | —     |       | —     |       | —    |       | 8,248            |       | 8,248      |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total interest bearing liabilities                               |       | 80,284       |       | 167,127    |       | 448,757    |       | 170,211   |       | 8,248            |       | 874,627    |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Other liabilities                                                |       | —       |       | —     |       | —     |       | —    |       | 24,879           |       | 24,879     |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Shareholders’ equity                                        |       | —       |       | —     |       | —     |       | —    |       | 64,929           |       | 64,929     |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Total liabilities and shareholders’ equity                  |       | $            | 80,284     |       | $          | 167,127    |       | $         | 448,757    |             | $          | 170,211    |       | $ | 98,056 |   | $ | 964,435 |   |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Rate sensitive gap by period                                     |       | $            | 149,992    |       | $          | (36,629    | )          | $         | (220,089   | )                | $          | 121,752    |       | $ | 47,370 |   |   |   |
| Cumulative Gap                                                   |       |         |       | $          | 113,363    |       | $          | (106,726  | )          | $                | 15,026     |       | $          | 62,396 |   |   |   |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Cumulative gap as a percentage of total  assets                  |       |         |       | 11,75      | %          | (11.07     | )%         | 1.56      | %          | 6.47             | %          |       |       |
|                                                             |       |         |       |       |       |       |       |      |       |             |       |       |       |
| Rate sensitive assets / rate sensitive  liabilities (cumulative) |       | 2.87         |       | 1.46       |       | 0.85       |       | 1.02      |       | 1.07             |       |       |       |

 

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From March 31, 2007 to March 31, 2008, the FOMC has decreasedinterest rates by 300 basis points. Management has positioned the balance sheetto be essentially neutral for asset and liability sensitivity. At March 31,2008, our one-year gap was 0.85.

 

The interest rate risk model that defines the gap position alsoperforms a “rate shock” test of the balance sheet using an earnings simulationmodel and an economic value of equity model. The rate shock test measures theimpact on the net interest margin and the economic value of equity of animmediate shift in interest rates in either direction.

 

Our earnings simulation model measures the impact of changes ininterest rates on net interest income. To limit interest rate risk, we have aguideline for our earnings at risk which sets a limit on the variance of netinterest income to less than a 5% percent decline for a 100-basis pointchange up or down in rates from management’s flat interest rate forecast overthe next twelve months. At March 31, 2008, we were in compliance with thisguideline.

 

Our economic value of equity model measures the extent that estimatedeconomic values of our assets, liabilities and off-balance sheet items willchange as a result of interest rate changes. To help limit interest rate risk,we have a guideline stating that for an instantaneous 100-basis point increaseor decrease in interest rates, the economic value of equity will not decreaseby more than 10% from the base case. At March 31, 2008, we were in compliancewith this guideline.

 

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

 

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**ITEM 4. CONTROLS AND PROCEDURES.**

 

Evaluationof Disclosure Controls and Procedures

 

We maintain disclosure controls 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 acting Chief Financial Officer, as appropriate, toallow timely decisions regarding required disclosure. We carried out anevaluation, under the supervision and with the participation of our management,including our Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures as of the end of the period covered by this report. Based on theevaluation of these disclosure controls and procedures, the Chief ExecutiveOfficer and acting Chief Financial Officer concluded that our disclosurecontrols and procedures are effective to allow timely decisions regardingdisclosure in the reports that we file or submit to the Securities and ExchangeCommission under the Exchange Act.

 

InternalControl Over Financial Reporting

 

Duringthe course of preparing our consolidated financial statements for the yearended December 31, 2007, management identified the following materialweaknesses in internal control over financial reporting as of December 31,2007:

 

·                  Employee Accounts – Certain transactionsrelated to employee accounts were not appropriately processed, reviewed andapproved in accordance with company policy; and

 

·                  Asset/Liability Management Committee – Whilewe have an Asset/Liability Management Committee (the “ALCO”) that providesinformation to the our Board of Directors, no meetings of the ALCO were heldduring 2007.

 

Duringthe first quarter ended March 31, 2008, we took the following remedialactions:

 

·                  Employees have been informed that, inaccordance with company policy, all personal transactions are to be handled inthe same manner as customer transactions.  Management has initiated atraining program for all employees to ensure understanding of the necessity foradherence to policies governing personal transactions.

 

·                  Management has established controls to ensurethat all employees sign acknowledgement forms regarding company policies,including the Employee Financial Services Policy (relating to employees’personal transactions) and other key company policies.

 

·                  In February 2008, the Chair of the AuditCommittee of our Board of Directors was appointed Chair of the ALCO. Alsoin February 2008, the ALCO met, determined that the ALCO-relatedinformation provided to the Board of Directors during 2007 was accurate andcomplete, and ratified such information as previously provided to the Board ofDirectors. The ALCO has been directed to meet at least quarterly during 2008and provide reports of those meetings to the Board of Directors.

 

Otherthan as discussed above, there have not been any changes in our internalcontrol over financial reporting during the quarter ended March 31, 2008that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

 

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**PART II:OTHER INFORMATION**

 

**ITEM 1A. RISK FACTORS.**

 

There were no material changes to our risk factors included in Part I,Item 1A of our Annual Report on  Form 10-K for the year ended December 31,2007, as filed with the Securities and Exchange Commission on April 18,2008.

 

 

**ITEM 6. EXHIBITS.**

 
| **Exhibit No.** | ** ** | **Description** |
|----------------------|------------|-----------------|
|                 |       |            |
| 3.1                  |       |            | Charter  of Tennessee Commerce Bancorp, Inc., as amended(1) |
| 3.2                  |       |            | Articles  of Amendment to the Charter of Tennessee Commerce Bancorp, Inc.(2) |
| 3.3                  |       |            | Bylaws  of Tennessee Commerce Bancorp, Inc.(1) |
| 3.4                  |       |            | Amendment  to Bylaws of Tennessee Commerce Bancorp, Inc.(3) |
| 4.1                  |       |            | Shareholders’  Agreement(1) |
| 4.2                  |       |            | Form of  Stock Certificate(4) |
| 31.1                 |       |            | Certification  of Chief Executive Officer of Tennessee Commerce Bancorp, Inc. pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2                 |       |            | Certification  of Chief Financial Officer of Tennessee Commerce Bancorp, Inc. pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1                 |       |            | Certification  of Chief Executive Officer of Tennessee Commerce Bancorp, Inc. pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2                 |       |            | Certification  of Chief Financial Officer of Tennessee Commerce Bancorp, Inc. pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002 |

 

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| (1)    | Previously  filed as an exhibit to Tennessee Commerce Bancorp, Inc.’s Registration  Statement on Form 10, as filed with the Securities and Exchange  Commission on April 29, 2005, and incorporated herein by reference.                                         |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                 |
| (2)    | Previously  filed as an exhibit to Tennessee Commerce Bancorp, Inc.’s Annual Report  on Form 10-K, as filed with the Securities and Exchange Commission on  April 18, 2008, and incorporated herein by reference.                                                |
|   |                                                                                                                                                                                                                                                                                 |
| (3)    | Previously  filed as an exhibit to Tennessee Commerce Bancorp, Inc.’s Current Report  on Form 8-K, as filed with the Securities and Exchange Commission on  February 5, 2008, and incorporated herein by reference.                                              |
|   |                                                                                                                                                                                                                                                                                 |
| (4)    | Previously  filed as an exhibit to Tennessee Commerce Bancorp, Inc.’s Registration  Statement on Form S-8, as filed with the Securities and Exchange  Commission on December 31, 2007 (Registration No. 333-148415), and  incorporated herein by reference. |

 

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SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|               | Tennessee  Commerce  Bancorp, Inc. |
|--------------------|-----------------------------------------|
|               | (Registrant)                            |
|               |                                    |
|               |                                    |
| May 12,  2008 |                                    | /s/  H. Lamar Cox |
| (Date)             | H.  Lamar Cox                           |
|               | Acting  Chief Financial Officer         |
|                    |                                         |  |

 

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