Tennessee Commerce Bancorp has missed a regulatory deadline for improving its capital ratios and is now warning investors that it is likely to fail if it is unable to raise fresh capital or find a buyer.

The $1.2 billion-asset company also said in a Securities and Exchange Commission filing that it may have understated its provision for loan losses for the quarter that ended June 30 and that it is conducting a "forensic review" of its small-ticket specialized equipment leasing portfolio that could force it to restate earnings for 2009 and 2010.

Tennessee Commerce's bank unit was deemed to be "critically undercapitalized" in late October after it booked a $92.6 million loan-loss provision in the third quarter that led to a loss of $120 million for nine months that ended Sept. 30. The company has hired an investment bank to help it pursue capital-raising options, but it said in Friday's SEC filing that it had not met regulators' Dec. 31 deadline for achieving target capital ratios.

"We continue to work with our financial advisor to assist us in exploring and evaluating every possible strategic alternative that could increase the regulatory capital ratios of the bank to the levels prescribed by [regulators]," Tennessee Commerce said in the SEC filing. "Nevertheless, the corporation may not be able to find a viable alternative, and if no such alternative is found, it is likely that the [Federal Deposit Insurance Corp.] will be appointed as a conservator or receiver of the bank."

Its capital levels are also likely to be further depleted by additional loan-loss provisions it has allocated for deterioration in its leasing portfolio. The company said in the SEC filing that it has set aside an additional $7.5 million for potential losses in its leasing portfolio and that it has established an additional $6.7 million reserve fund relating to its commercial and commercial real estate portfolios.

Due to these recent events, the company's auditor has told management that it will no longer attest to its 2010 financial statement in which it reported a $1.9 million profit and that it is likely to withdraw its opinion on the 2009 results as well.

Tennessee Commerce's shares have lost nearly all of their value in recent months. In early trading Monday the shares were down 14% from Friday's closing, to $15 cents.

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