# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

# FORM 10-Q

(Mark One)

| | QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
| | ---------------------------------------------------------------------------------

| | For the Quarterly Period Ended March 31, 2008
| | ---------------------------------------------

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

| | For the Transition Period from ___________ to _____________
| | -----------------------------------------------------------

Commission file number
333-127409

BANKGREENVILLE FINANCIAL CORPORATION(Exact name of small business issuer as specified in its charter)

|South Carolina               |  | 20-2645711         
|---------------------------- |  | -------------------
|(State or other jurisdiction |  | (I.R.S. Employer   
|of incorporation)            |  | Identification No.)

499 Woodruff RoadGreenville, South Carolina 29607
(Address of principal executive offices)

(864) 335-2200(Issuers telephone number)

Not Applicable(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company.  See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

| |  | 
| |  | 
| |  | 
| |  | 

Indicate by check mark whether the registrant is shell company
as defined in Rule 12b-2 of the Exchange Act.  Yes          No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest
practicable date:

1,180,000 shares of common stock, no par value per share, were issued and outstanding as of May 13, 2008.

---

# BANKGREENVILLE
FINANCIAL CORPORATION

# INDEX

Part I  Financial
Information

Item 1.   Financial Statements (unaudited) Item 2.   Managements Discussion and Analysis or Plan of OperationItem 3.   Quantitative and Qualitative Disclosures About Market RiskItem 4.   Controls and Procedures

Part II  Other
Information

Item 1.   Legal Proceedings Item 2.   Unregistered Sales of Equity Securities and Use of ProceedsItem 3.   Default Upon Senior SecuritiesItem 4.   Submission of Matters to a Vote of Security HoldersItem 5.  Other InformationItem 6.   Exhibits

SIGNATURES

EXHIBIT INDEX

Exhibit 31.1   Rule
13a-14(a) Certification of the Principal Executive Officer

Exhibit 31.2   Rule 13a-14(a)
Certification of the Principal Financial Officer

Exhibit 32   Section
1350 Certifications

2

---

# BANKGREENVILLE
FINANCIAL CORPORATION

# PART I  FINANCIAL
INFORMATION

# Item 1.   Financial
Statements

# Consolidated Balance
Sheets

|                                                       | March 31, | December 31,
|------------------------------------------------------ | --------- | ------------
|
|
|Assets                                                 |           |             
|Cash and due from banks                                |           |             
|Investment securities available for sale               |           |             
|Federal Home Loan Bank Stock                           |           |             
|Loans, net                                             |           |             
|Property and equipment, net                            |           |             
|Accrued interest receivable                            |           |             
|Other assets                                           |           |             
|                                                       |           |             
|Total assets                                           |           |             
|                                                       |           |             
|Liabilities and Shareholders Equity                   |           |             
|Liabilities                                            |           |             
|Deposits                                               |           |             
|Non-interest bearing                                   |           |             
|Interest bearing                                       |           |             
|                                                       |           |             
|Total deposits                                         |           |             
|Federal funds purchased                                |           |             
|Federal Home Loan Bank advances                        |           |             
|Accrued interest payable                               |           |             
|Accounts payable and accrued liabilities               |           |             
|                                                       |           |             
|Total liabilities                                      |           |             
|                                                       |           |             
|Shareholders Equity                                   |           |             
|Preferred stock, no par value; 10,000,000 shares       |           |             
|authorized; none issued and outstanding                |           |             
|Common stock, no par value; 10,000,000 shares          |           |             
|authorized; 1,180,000 shares issued and outstanding at |           |             
|March 31, 2008 and December 31, 2007                   |           |             
|Accumulated other comprehensive income                 |           |             
|Retained deficit                                       |           |             
|                                                       |           |             
|Total shareholders equity                             |           |             
|                                                       |           |             
|Total liabilities and shareholders equity             |           |             
|                                                       |           |             

The accompanying notes are an integral part of these financial statements.

3

---

# BANKGREENVILLE
FINANCIAL CORPORATION

# Consolidated Statements
of OperationsFor the Three Months Ended (Unaudited)

|                                                             | March 31,
|------------------------------------------------------------ | ---------
|
|Interest income                                              |          
|Loans and fees                                               |          
|Investment securities and Federal Home Loan Bank stock       |          
|Federal funds sold                                           |          
|                                                             |          
|Total interest income                                        |          
|                                                             |          
|Interest expense                                             |          
|Deposits                                                     |          
|Borrowings                                                   |          
|                                                             |          
|Total interest expense                                       |          
|                                                             |          
|Net interest income                                          |          
|                                                             |          
|Provision for loan losses                                    |          
|                                                             |          
|Net interest income after provision for loan losses          |          
|                                                             |          
|Non-interest income                                          |          
|Gains on investment securities sales and calls               |          
|Mortgage brokerage fees                                      |          
|Other                                                        |          
|                                                             |          
|Total non-interest income                                    |          
|                                                             |          
|Non-interest expense                                         |          
|Compensation and employee benefits                           |          
|Occupancy and equipment                                      |          
|Data processing and related costs                            |          
|Marketing, advertising and shareholder communications        |          
|Legal and audit                                              |          
|Other professional fees                                      |          
|Supplies, postage and telephone                              |          
|Insurance                                                    |          
|Credit related expenses                                      |          
|Courier and armored carrier service                          |          
|Regulatory fees and FDIC insurance                           |          
|Other                                                        |          
|                                                             |          
|Total non-interest expense                                   |          
|                                                             |          
|Income (loss) before income tax benefit                      |          
|Income tax provision (benefit)                               |          
|                                                             |          
|Net income (loss)                                            |          
|                                                             |          
|Basic and diluted income (loss) per common share             |          
|                                                             |          
|Weighted average common shares outstanding-basic and diluted |          
|                                                             |          

The accompanying notes are an integral part of these financial statements.

4

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# BANKGREENVILLE
FINANCIAL CORPORATION

# Consolidated Statements
of Changes In Shareholders Equity and Comprehensive Income (Loss) (Unaudited)

|                                |  |  | Accumulated |           | 
|------------------------------- |  |  | ----------- | --------- | 
|
|
|
|                                |  |  |             |           | 
|Balance, December 31, 2006      |  |  |             | 1,180,000 | 
|                                |  |  |             |           | 
|Stock compensation expense      |  |  |             | -         | 
|                                |  |  |             |           | 
|Comprehensive loss:             |  |  |             |           | 
|                                |  |  |             |           | 
|Net loss                        |  |  |             | -         | 
|                                |  |  |             |           | 
|Unrealized losses on investment |  |  |             |           | 
|securities available for sale,  |  |  |             |           | 
|no tax effect                   |  |  |             | -         | 
|                                |  |  |             |           | 
|Total comprehensive loss        |  |  |             | -         | 
|                                |  |  |             |           | 
|Balance, March 31, 2007         |  |  |             | 1,180,000 | 
|                                |  |  |             |           | 
|                                |  |  |             |           | 
|Balance, December 31, 2007      |  |  |             | 1,180,000 | 
|                                |  |  |             |           | 
|Stock compensation expense      |  |  |             | -         | 
|                                |  |  |             |           | 
|Comprehensive income:           |  |  |             |           | 
|                                |  |  |             |           | 
|Net income                      |  |  |             | -         | 
|                                |  |  |             |           | 
|Unrealized losses on investment |  |  |             |           | 
|securities available for sale,  |  |  |             |           | 
|no tax effect                   |  |  |             | -         | 
|                                |  |  |             |           | 
|Total comprehensive income      |  |  |             | -         | 
|                                |  |  |             |           | 
|Balance, March  31, 2008        |  |  |             | 1,180,000 | 
|                                |  |  |             |           | 

The accompanying notes are an
integral part of these financial statements.

5

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# BANKGREENVILLE
FINANCIAL CORPORATION

# Consolidated Statements
of Cash FlowsFor the Three Months Ended (Unaudited)

|                                                                   | March 31, | March 31,
|------------------------------------------------------------------ | --------- | ---------
|
|Operating activities                                               |           |          
|Net income (loss)                                                  |           |          
|Provision for loan losses                                          |           |          
|Stock compensation expense                                         |           |          
|Depreciation                                                       |           |          
|Net amortization (accretion) of discounts on investment securities |           |          
|Gains on sales and calls of investment securities                  |           |          
|Increase in interest receivable                                    |           |          
|(Increase) decrease in other assets                                |           |          
|Increase in accrued interest payable                               |           |          
|Decrease in accounts payable and accrued liabilities               |           |          
|                                                                   |           |          
|Net cash used by operating activities                              |           |          
|                                                                   |           |          
|Investing activities                                               |           |          
|Increase in loans, net                                             |           |          
|Purchase of investment securities available-for-sale               |           |          
|Proceeds from sales of investment securities available-for-sale    |           |          
|Proceeds from called investment securities available-for-sale      |           |          
|Proceeds from principal paydowns on mortgage-backed securities     |           |          
|Purchase of FHLB Stock                                             |           |          
|Purchase of property and equipment                                 |           |          
|Building construction in progress                                  |           |          
|                                                                   |           |          
|Net cash used for investing activities                             |           |          
|                                                                   |           |          
|Financing activities                                               |           |          
|Increase in deposits, net                                          |           |          
|Increase in Federal Home Loan Bank advances                        |           |          
|Increase in federal funds purchased                                |           |          
|                                                                   |           |          
|Net cash provided by financing activities                          |           |          
|                                                                   |           |          
|Net increase (decrease) in cash and cash equivalents               |           |          
|Cash and cash equivalents, beginning of period                     |           |          
|                                                                   |           |          
|Cash and cash equivalents, end of period                           |           |          
|                                                                   |           |          
|Supplemental information                                           |           |          
|Cash paid for:                                                     |           |          
|Interest                                                           |           |          
|                                                                   |           |          
|Schedule of non-cash transactions:                                 |           |          
|Decrease in unrealized gains on investment securities,             |           |          
|no income tax                                                      |           |          
|                                                                   |           |          

The accompanying notes are an integral part of these financial statements.

6

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# BANKGREENVILLE
FINANCIAL CORPORATION

# Notes to Consolidated
Financial Statements

# NOTE 1  NATURE OF
BUSINESS AND BASIS OF PRESENTATION

BankGreenville
Financial Corporation (the Company) is a South Carolina corporation organized
to operate as a bank holding company pursuant to the Federal Bank Holding Company Act of
1956 and the South Carolina Bank Holding Company Act, and to own and control all of the
capital stock of BankGreenville (the Bank). The Bank is a state chartered
institution organized under the laws of South Carolina to conduct general banking business
in Greenville, South Carolina. From our inception on March 18, 2005 and before opening the
Bank for business on January 30, 2006, we engaged in organizational and pre-opening
activities necessary to obtain regulatory approvals and to prepare our subsidiary, the
Bank, to commence business as a financial institution. The Company sold 1,180,000 shares
of its common stock at $10.00 per share and raised $11.8 million in its initial public
offering. Proceeds, net of brokerage commissions and other offering costs totaled
approximately $11.04 million and the Bank was capitalized with $11 million of the net
proceeds. The Bank is primarily engaged in the business of accepting deposits, insured by
the FDIC, and providing commercial, consumer and mortgage loans to the general public in
Greenville County, South Carolina.

The
following is a description of the more significant accounting and reporting policies that
the Company follows in preparing and presenting consolidated financial statements.

# Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q. Accordingly,
they do not include all information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial statements.
However, in the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.

The
accompanying consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary, the Bank. In consolidation, all significant intercompany
transactions have been eliminated. The accounting and reporting policies conform to
accounting principles generally accepted in the United States of America and to general
practices in the banking industry. The Company uses the accrual basis of accounting.

Operating
results for the three months ended March 31, 2008 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2008. For further
information, refer to the audited consolidated financial statements and footnotes thereto
included in the Companys 10-KSB for the year ended December 31, 2007 as filed with
the Securities and Exchange Commission.

# NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

A
summary of the Companys significant accounting policies is included in our Annual
Report on Form 10-KSB filed with the Securities and Exchange Commission for the year ended
December 31, 2007. For further information, refer to the financial statements and
footnotes thereto included in that filing. Accounting standards that have been issued or
proposed by the Financial Accounting Standards Board (FASB) that do not
require adoption until a future date are not expected to have a material impact on the
consolidated financial statements upon adoption.

# Net Income per Share

Basic
income per share represents net income to shareholders divided by the weighted-average
number of common shares outstanding during the period. Potential common shares that may be
issued by the Company relate to outstanding stock options and warrants, and are determined
using the treasury stock method. For the quarters ended March 31, 2008 and 2007, the stock
options and warrants were not in-the-money. The exercise price of the stock
options and warrants exceeded the weighted average fair market value of the common stock.
The outstanding stock options and warrants were anti-dilutive, and basic and dilutive
shares and loss per common share, respectively, were the same.

7

---

# NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

# Stock Compensation Plans

Upon
completion of the offering, the Company issued stock warrants to the organizing directors
for the purchase of three shares of common stock at $10.00 per share for every four shares
purchased in the stock offering, up to a maximum of 10,000 warrants per director. The
Company issued a total of 107,500 warrants, all of which immediately vested upon
completion of the offering. Of these warrants, 10,000 warrants expired in February 2008,
due to the death of one of our organizing directors in 2007. The average fair value per
share of warrants issued amounted to approximately $1.83.  The fair value of each
warrant granted was estimated on the date of grant using the Black-Scholes pricing model
with the following assumptions used for grants:  expected volatility of 6%, risk-free
interest rate of 4.0% and expected lives of five years.

On
January 1, 2006, the Company adopted the fair value recognition provisions of FASB SFAS
No. 123(R), Accounting for Stock-Based Compensation, to account for
compensation costs under its stock option plan. Previously, stock option plans were
accounted for using the intrinsic value method under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees (as amended) (APB
25). Under the intrinsic value method prescribed by APB 25, the Company would not
have recognized compensation cost for stock options because the option exercise price in
its plan equals the market price on the date of grant. In adopting SFAS No. 123(R), the
Company elected to use the modified prospective method to account for the transition from
the intrinsic value method to the fair value recognition method. Under the modified
prospective method, compensation cost is recognized from the grant date for all new stock
options granted and for any outstanding unvested awards, applying the fair value method to
those awards as of the date of grant, and is expensed over the employees requisite
service period.

There
were no options granted during the three months ended March 31, 2008 and 2007. At March
31, 2008 and December 31, 2007, the Company had 105,900 options outstanding at $10.00 per
share. Vested options amounted to 37,760 and 18,880 at March 31, 2008 and December 31,
2007, respectively. The options have a weighted average remaining contractual term of
approximately eight years. Total unrecognized compensation cost related to non-vested
options granted as of March 31, 2008 was $171,295, and is expected to be expensed ratably
over the remaining vesting periods of the stock options. Net income, as reported, included
stock-based employee compensation expense of $14,532 for the three months ended March 31,
2008, and net loss, as reported, included stock-based employee compensation expense of
$14,028 for the three months ended March 31, 2007. The exercise or conversion ratio of all
stock options granted was 1:1 and the aggregate intrinsic value of the stock options was
zero for both periods.

# Statement of Cash Flows

For
purposes of reporting cash flows, cash equivalents include amounts due from banks and
federal funds sold. Generally, federal funds are sold for one-day periods. The Company had
no federal funds sold at either March 31, 2008 or December 31, 2007.

# Investment Securities

Investment securities are accounted for in accordance with SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities.  Management classifies
securities at the time of purchase into securities held to maturity, trading securities
and securities available for sale. Securities held to maturity are securities which the
Company has the positive intent and ability to hold to maturity, and are reported at
amortized cost. Trading securities are purchased and held principally for the purpose of
selling them in the near future and are reported at fair value with unrealized gains and
losses included in earnings. Securities available for sale are securities that may be sold
under certain conditions, and are reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of shareholders equity
as accumulated other comprehensive income (loss). At March 31, 2008, the Companys
investment securities were classified as available for sale. The amortization of premiums
and accretion of discounts on investment securities are recorded as adjustments to
interest income. Gains or losses on sales of investment securities are based on the net
proceeds and the adjusted carrying amount of the securities sold, using the specific
identification method. Unrealized losses on securities, reflecting a decline in value or
impairment judged by the Company to be other than temporary, are charged to earnings in
the consolidated statements of operations.

8

---

# NOTE 3  FAIR VALUE

Effective
January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements
(SFAS 157) which provides a framework for measuring and disclosing fair value
under generally accepted accounting principles. SFAS 157 requires disclosures about the
fair value of assets and liabilities recognized in the balance sheet in periods subsequent
to initial recognition, whether the measurements are made on a recurring basis (for
example, available-for-sale investment securities) or on a nonrecurring basis (for
example, impaired loans).

SFAS
157 defines fair value as the exchange price that would be received for an asset or paid
to transfer a liability (an exit price) in the principal or most advantageous market for
the asset or liability in an orderly transaction between market participants on the
measurement date. SFAS 157 also establishes a fair value hierarchy which requires an
entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standard describes three levels of inputs that may
be used to measure fair value:

|        |  |  |                                                                                           
|------- |  |  | ------------------------------------------------------------------------------------------
|Level 1 |  |  | Quoted prices in active markets for identical assets or liabilities. Level 1 assets and   
|        |  |  | liabilities include debt and equity securities and derivative contracts that are traded in
|        |  |  | an active exchange market, as well as U.S. Treasury, other U.S. Government and agency     
|        |  |  | mortgage-backed debt securities that are highly liquid and are actively traded in         
|        |  |  | over-the-counter markets.                                                                 
|        |  |  |                                                                                           
|Level 2 |  |  | Observable inputs other than Level 1 prices such as quoted prices for similar assets or   
|        |  |  | liabilities; quoted prices in markets that are not active; or other inputs that are       
|        |  |  | observable or can be corroborated by observable market data for substantially the full    
|        |  |  | term of the assets or liabilities. Level 2 assets and liabilities include debt securities 
|        |  |  | with quoted prices that are traded less frequently than exchange-traded instruments and   
|        |  |  | derivative contracts whose value is determined using a pricing model with inputs that are 
|        |  |  | observable in the market or can be derived principally from or corroborated by observable 
|        |  |  | market data. This category generally includes certain derivative contracts and impaired   
|        |  |  | loans.                                                                                    
|        |  |  |                                                                                           
|Level 3 |  |  | Unobservable inputs that are supported by little or no market activity and that are       
|        |  |  | significant to the fair value of the assets or liabilities. Level 3 assets and liabilities
|        |  |  | include financial instruments whose value is determined using pricing models, discounted  
|        |  |  | cash flow methodologies, or similar techniques, as well as instruments for which the      
|        |  |  | determination of fair value requires significant management judgment or estimation. For   
|        |  |  | example, this category generally includes certain private equity investments, retained    
|        |  |  | residual interests in securitizations, residential mortgage servicing rights, and         
|        |  |  | highly-structured or long-term derivative contracts.                                      

Available-for-sale
investment securities ($18,788,422 at March 31, 2008) are the only assets whose fair
values are measured on a recurring basis using Level 1 inputs (active market quotes).

The
Company is predominantly an asset based lender with real estate serving as collateral on a
substantial majority of loans. Loans which are deemed to be impaired are primarily valued
nonrecurring basis at the fair values of the underlying real estate collateral. Such fair
values are obtained using independent appraisals, which the Company considers to be level
2 inputs. The aggregate carrying amount of impaired loans at March 31, 2008 was $-0-.

FASB
Staff Position No. 157-2 delays the implementation of SFAS 157 until the first quarter of
2009 with respect to goodwill, other intangible assets, real estate and other assets
acquired through foreclosure and other non-financial assets measured at fair value on a
nonrecurring basis.

The
Company has no assets or liabilities whose fair values are measured using level 3 inputs.

The Company
has no liabilities carried at fair value or measured at fair value on a nonrecurring basis.

9

---

# Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations.

The following discussion reviews our results of operations and assesses our
financial condition. You should read the following discussion and analysis in conjunction
with the accompanying consolidated financial statements. The commentary should be read in
conjunction with the discussion of forward-looking statements, the financial statements,
and the related notes and the other statistical information included in this report and in
our 2007 Form 10-KSB.

# DISCUSSION OF
FORWARD-LOOKING STATEMENTS

This
report contains forward-looking statements relating to, without limitation,
future economic performance, plans and objectives of management for future operations, and
projections of revenues and other financial items that are based on the beliefs of
management, as well as assumptions made by and information currently available to
management. The words may, will, anticipate,
should, would, believe, contemplate,
expect, estimate, continue, and intend, as
well as other similar words and expressions of the future, are intended to identify
forward-looking statements. Our actual results may differ materially from the results
discussed in the forward-looking statements, and our operating performance each quarter is
subject to various risks and uncertainties that are discussed in detail in our 2007 Form
10-KSB under the Risk Factors heading as filed with the Securities and
Exchange Commission and that include, without limitation, the following:

| |  | our short operating history;
| | - | ----------------------------

| |  | significant increases in competitive pressure in the banking and financial services
industries;
| | - | -----------------------------------------------------------------------------------------------

| |  | changes in the interest rate environment which could reduce
anticipated or actual margins;
| | - | ------------------------------------------------------------------------------------------

| |  | our ability to control costs, expenses and
loan delinquency rates;
| | - | ------------------------------------------------------------------

| |  | changes in political conditions or the legislative
or regulatory environment;
| | - | -----------------------------------------------------------------------------

| |  | general economic conditions, either nationally or
regionally and especially in our primary service area, becoming
less favorable than expected resulting in, among other things, a deterioration in credit quality;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | changes occurring in business conditions and inflation;
| | - | -------------------------------------------------------

| |  | changes in technology;
| | - | ----------------------

| |  | changes in deposit flows;
| | - | -------------------------

| |  | the lack of seasoning of our loan portfolio;
| | - | --------------------------------------------

| |  | changes in monetary and tax policies;
| | - | -------------------------------------

| |  | the level of allowance for loan loss;
| | - | -------------------------------------

| |  | the rate of delinquencies and amounts of charge-offs;
| | - | -----------------------------------------------------

| |  | the rates of loan growth;
| | - | -------------------------

| |  | adverse changes in asset quality and resulting credit risk-related losses and
expenses;
| | - | ---------------------------------------------------------------------------------------

| |  | loss of consumer confidence and economic disruptions resulting
from terrorist activities;
| | - | -----------------------------------------------------------------------------------------

| |  | changes in the securities markets; and
| | - | --------------------------------------

| |  | other risks and uncertainties detailed from time to time in our filings with the
Securities and Exchange Commission.
| | - | --------------------------------------------------------------------------------------------------------------------

We
undertake no obligation to publicly update or otherwise revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.

# General

Like
most community banks, we derive the majority of our income from interest we receive on our
loans and investments. Our primary source of funds for making these loans and investments
is our deposits, on which we pay interest. Consequently, one of the key measures of our
success is our amount of net interest income, or the difference between the income on our
interest-earning assets, such as loans and investments, and the expense on our
interest-bearing liabilities, such as deposits, also known as net interest margin. Another
key measure is the spread between the yield we earn on these interest-earning assets and
the rate we pay on our interest-bearing liabilities, which is referred to as net interest
spread.

There
are risks inherent in all loans, so we maintain an allowance for loan losses to absorb
probable losses on existing loans that may become uncollectible. We establish and maintain
this allowance by charging a provision for loan losses against our operating earnings. In
the following section, we have included a detailed discussion of this process.

In
addition to earning interest on our loans and investments, we earn income through fees and
other expenses we charge to our clients. We describe the various components of this
non-interest income, as well as our non-interest expense, in the following discussion.

10

---

This
discussion and analysis also identifies significant factors that have affected our
financial position and operating results during the periods included in the accompanying
financial statements. We encourage you to read this discussion and analysis in conjunction
with our financial statements and the other statistical information included in this
report.

# Critical Accounting
Policies

We
have adopted various accounting policies that govern the application of accounting
principles generally accepted in the United States and with general practices within the
banking industry in the preparation of our financial statements. Our significant
accounting policies are described in footnote 1 to our audited consolidated financial
statements as of December 31, 2007, as filed on our annual report on Form 10-KSB.

Certain
accounting policies involve significant judgments and assumptions by us that have a
material impact on the carrying value of certain assets and liabilities. We consider these
accounting policies to be critical accounting policies. The judgment and assumptions we
use are based on historical experience and other factors, which we believe to be
reasonable under the circumstances. Because of the nature of the judgment and assumptions
we make, actual results could differ from these judgments and estimates that could have a
material impact on the carrying values of our assets and liabilities and our results of
operations.

# Allowance for Loan Losses

We
believe the allowance for loan losses is the critical accounting policy that requires the
most significant judgments and estimates used in preparation of our consolidated financial
statements. Some of the more critical judgments supporting the amount of our allowance for
loan losses include judgments about the creditworthiness of borrowers, the estimated value
of the underlying collateral, cash flow assumptions, determination of loss factors for
estimating credit losses, the impact of current events, and conditions, and other factors
impacting the level of probable inherent losses. Under different conditions or using
different assumptions, the actual amount of credit losses incurred by us may be different
from managements estimates provided in our consolidated financial statements. Refer
to the portion of this discussion that addresses our allowance for loan losses for a more
complete discussion of our processes and methodology for determining our allowance for
loan losses.

# Income Taxes

We
use assumptions and estimates in determining income taxes payable or refundable for the
current year, deferred income tax liabilities and assets for events recognized differently
in our financial statements and income tax returns, and income tax expense. Determining
these amounts requires analysis of certain transactions and interpretation of tax laws and
regulations. Management exercises judgment in evaluating the amount and timing of
recognition of resulting tax liabilities and assets. These judgments and estimates are
re-evaluated on a continual basis as regulatory and business factors change. No assurance
can be given that either the tax returns submitted by us or the income tax reported on the
financial statements will not be adjusted by either adverse rulings by the United States
Tax Court, changes in the tax code, or assessments made by the Internal Revenue Service.
We are subject to potential adverse adjustments, including, but not limited to, an
increase in the statutory federal or state income tax rates, the permanent
non-deductibility of amounts currently considered deductible either now or in future
periods, and the dependency on the generation of future taxable income, including capital
gains, in order to ultimately realize deferred income tax assets.

# Results of Operations

Three months ended March
31, 2008 and 2007

General

Our
net income for the quarter ended March 31, 2008 was $6,731, compared to a net loss of
$132,895, or $0.11 per share, for the quarter ended March 31, 2007, for an improvement of
$139,626, or 105%. As described below, most of this improvement in net income is
attributable to an increase in our net interest income, which reflects the continued
growth of our bank and the volume increases in our loans and investment securities. Also
included in net income for the first quarter of 2008, was $38,924 in gains on investment
securities called and sold during the first quarter of 2008. Refer to Non-interest
Income for a discussion of these gains.

Net Interest Income

Our
primary source of revenue is net interest income. Net interest income is the difference
between income earned on interest-bearing assets and interest paid on deposits and
borrowings used to support such assets. The level of net interest income is determined by
the balances of interest-earning assets and interest-bearing liabilities and corresponding
interest rates earned and paid on those assets and liabilities, respectively. In addition
to the volume of and corresponding interest rates associated with

11

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these interest-earning assets and
interest-bearing liabilities, net interest income is affected by the timing of re-pricing
these interest-earning assets and interest-bearing liabilities.

Net
interest income was $429,659 for the quarter ended March 31, 2008, an increase of
$144,307, or 51% over net interest income of $285,352 for the quarter ended March 31,
2007. Interest income increased $442,803, or 87% to $951,647 for the quarter ended March
31, 2008, due to volume increases in loans and investment securities. Loan interest and
related fees improved $386,484, or 126% over the first quarter of 2007, due to continued
growth in the loan portfolio. Average loans as a percentage of average assets were 63% and
45% at March 31, 2008 and 2007, respectively. Interest expense for the first quarter of
2008 increased $298,496, or 134%, over the same period in 2007, due to volume increases in
deposits and Federal Home Loan Bank advances.

The
following table sets forth information related to our average balance sheet, average
yields on assets, and average costs of liabilities for the quarters ended March 31, 2008
and 2007. We derived these yields and rates by dividing annualized income or expense by
the average balance of the corresponding assets or liabilities. We derived average
balances from the daily balances throughout the periods indicated. The net amount of
capitalized loan fees is amortized into interest income over the life of the loans.

|                                           | Average Balances, Income and Expenses, Yields and Rates |  |  
|------------------------------------------ | ------------------------------------------------------- |  | -
|
|
|
|
|
|Interest-earning assets:                   |                                                         |  |  
|Federal funds sold                         |                                                         |  | $
|Investment securities and FHLB stock       |                                                         |  |  
|Loans (1)                                  |                                                         |  |  
|                                           |                                                         |  |  
|Total interest-earning  assets             |                                                         |  |  
|Non-earning assets                         |                                                         |  |  
|                                           |                                                         |  |  
|Total assets                               |                                                         |  | $
|                                           |                                                         |  |  
|Interest-bearing liabilities:              |                                                         |  |  
|Interest checking                          |                                                         |  | $
|Savings and money market                   |                                                         |  |  
|Time deposits                              |                                                         |  |  
|Federal funds purchased                    |                                                         |  |  
|FHLB borrowings                            |                                                         |  |  
|                                           |                                                         |  |  
|Total interest-bearing liabilities         |                                                         |  |  
|                                           |                                                         |  |  
|Non-interest bearing liabilities           |                                                         |  |  
|Shareholders equity                       |                                                         |  |  
|                                           |                                                         |  |  
|Total liabilities and shareholders' equity |                                                         |  | $
|                                           |                                                         |  |  
|Net interest spread                        |                                                         |  |  
|                                           |                                                         |  |  
|Net interest income/margin                 |                                                         |  |  
|                                           |                                                         |  |  

| | 
| | 
| | 

Our
consolidated net interest margin for the quarter ended March 31, 2008 was 2.98%, a
decrease of 100 basis points from the net interest margin of 3.98% for the same period in
2007. From March 31, 2007 to March 31, 2008, there was a 300 basis point drop in the prime
rate. With approximately 68% of our loan portfolio tied to the prime rate, we experienced
an immediate decrease in loan yields as the prime rate decreases occurred. Conversely, we
relied on a higher volume of certificates of deposit, both local and brokered, to fund the
growth of our loan portfolio. These deposits are priced higher than core deposits and have
stated maturity dates, so there is not an immediate decrease in the interest rates paid on
these time deposits. Additionally, during the quarter ended March 31, 2008, we utilized
alternative funding sources of federal funds purchased and FHLB borrowings. The net
interest margin is calculated by dividing annualized net interest income by year-to-date
average earning assets. Our net interest spread was 2.28% and 2.56% for the quarters ended
March 31, 2008 and 2007, respectively. The net interest spread is the difference between
the yield we earn on our interest-earning assets and the rate we pay on our
interest-bearing liabilities. In pricing deposits, we consider our liquidity needs, the
direction and levels of interest rates and local market conditions.

Provision for Loan Losses

We
have established an allowance for loan losses through a provision for loan losses charged
as a non-cash expense to our statements of operations. We review our loan portfolio
periodically to evaluate our outstanding loans and to measure both the performance of the
portfolio and the adequacy of the allowance for loan losses. Please see the discussion
below under

12

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Allowance for Loan Losses
for a description of the factors we consider in determining the amount of the provision we
expense each period to maintain this allowance.

Our
provision for loan losses for the quarter ended March 31, 2008 was $33,608, compared to
$36,000 for the quarter ended March 31, 2007. The allowance as a percentage of gross loans
decreased to 1.12% at March 31, 2008 from 1.23% at December 31, 2007. Management evaluates
the adequacy of the reserve for probable loan losses given the size, mix, and quality of
the current loan portfolio. Management also relies on our limited history of past-dues and
charge-offs, as well as peer data to determine our loan loss allowance.

Non-interest Income

Non-interest
income totaled $50,353 for the first quarter of 2008, an improvement of $36,626, or 267%,
over the first quarter of 2007. During the first quarter of 2008, we recognized $38,924 in
gains on investment securities called or sold during the first quarter, compared to no
gains for the same period in 2007. Three agency bonds were called during the first quarter
of 2008. In addition, three other agency bonds were sold during the first quarter of 2008
prior to April call dates. Management correctly estimated that interest rates would drop
prior to the call dates, and sold these agency bonds in order to reinvest the proceeds in
investment securities prior to the additional interest rate decreases. One mortgage-backed
security was sold as its prepayment speed had increased and the proceeds were reinvested
in a higher yielding investment grade corporate bond.

Non-interest Expenses

The
following table sets forth our non-interest expenses for the first quarter of 2008 and
2007.

|                                                      | Three Months Ended
|----------------------------------------------------- | ------------------
|
|
|Compensation and employee benefits                    |                   
|Occupancy and equipment                               |                   
|Data processing and related costs                     |                   
|Marketing, advertising and shareholder communications |                   
|Legal, audit and compliance                           |                   
|Other professional fees                               |                   
|Supplies, postage and telephone                       |                   
|Insurance                                             |                   
|Credit related expenses                               |                   
|Courier and armored carrier service                   |                   
|Regulatory fees and FDIC insurance                    |                   
|Other                                                 |                   
|                                                      |                   
|Total non-interest expense                            |                   
|                                                      |                   

Non-interest
expenses were $439,673 for the quarter ended March 31, 2008 compared to $395,974 for the
quarter ended March 31, 2007, for an increase of 11%. The most significant component of
non-interest expense is compensation and benefits, which totaled $267,519 for the quarter
ended March 31, 2008, compared to $202,673 for the quarter ended March 31, 2007. The
increase primarily related to staff additions associated with the banks growth,
performance raises and increases in bank-paid employee health care and other insurance
costs. Other professional fees decreased from $34,410 for the quarter ended March 31, 2007
to $5,888 for the quarter ended March 31, 2008, primarily due to a search firm fee paid in
conjunction with the hiring of a senior lender during the first quarter of 2007.
Regulatory fees and FDIC insurance increased from $4,370 for the quarter ended March 31,
2007 to $11,613 for the quarter ended March 31, 2008. Our FDIC insurance assessments did
not begin until the second quarter of 2007, and these assessments continue to increase as
deposits grow.

# Balance Sheet Review

General

At
March 31, 2008, total assets were $65.5 million compared to $58.6 million at December 31,
2007, for an increase of $6.9 million, or 12%. The increase in assets resulted from volume
increases in our loan and investment portfolios and related increases in our funding
sources of deposits and other borrowings. Interest-earning assets comprised approximately
94% and 93% of total assets at March 31, 2008 and December 31, 2007, respectively. Gross
loans totaled $42.9 million, an increase of $6.7 million, or 18% from $36.2 million at
December 31, 2007. Investment securities and Federal Home Loan Bank stock amounted to
$19.2 million at March 31, 2008. At March 31, 2008, we were in a federal funds purchased
(borrowing) position as described below.

13

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Deposits
totaled $47.2 million at March 31, 2008, a $3.1 million, or 7% increase from $44.1 million
at December 31, 2007. Federal funds purchased were $2.2 million at March 31, 2008 compared
to $1.6 million at December 31, 2007, for an increase of $0.5 million, or 33%. Federal
Home Loan Bank borrowings were $5.9 million at March 31, 2008 compared to $2.4 million at
December 31, 2007, for an increase of $3.4 million, or 140%. Shareholders equity
remained virtually unchanged at $9.7 million.

Investments

On
March 31, 2008 and December 31, 2007, our investment securities portfolio amounted to
$18.8 million and $18.5 million, respectively and represented 30% and 34%, respectively,
of interest-earning assets. Unrealized gains on available for sale investment securities
amounted to $52,096 at March 31, 2008. Our portfolio consisted of U.S. government
sponsored agencies of $4.2 million, mortgage-backed agencies of $11.7 million, taxable
municipal securities of $0.4 million and corporate bonds of $2.4 million. All of our
investment securities are classified as available for sale.

The amortized costs and the fair
value of our investment securities are shown in the following table.

|                                   | March 31, 2008 | December 31, 2007
|---------------------------------- | -------------- | -----------------
|
|
|
|
|U.S. Government sponsored agencies |                |                  
|Mortgage-backed agencies           |                |                  
|Taxable municipal securities       |                |                  
|Corporate bonds                    |                |                  
|                                   |                |                  
|Total                              |                |                  
|                                   |                |                  

During
the first quarter of 2008, three agency bonds were called and three bonds were sold prior
to call dates in anticipation of additional interest rate decreases. The proceeds of these
calls and sales were reinvested in agency mortgage-backed securities and investment grade
corporate bonds.

We
believe, based on industry analyst reports and credit ratings, the deterioration in fair
values of individual investment securities available for sale is attributed to changes in
market interest rates and not in the credit quality of the issuer and therefore, these
losses are not considered other-than-temporary. We have the ability and intent to hold
these securities until such time as the value recovers or the securities mature.

Investment
securities with market values of approximately $9.2 million and $5.9 million at March 31,
2008 and December 31, 2007, respectively, were pledged to secure public deposits and
Federal Home Loan Bank borrowings.

In
2007, we became a member of the Federal Home Loan Bank, and at March 31, 2008 and December
31, 2007, we held non-marketable equity securities, which consisted of Federal Home Loan
Bank stock of $368,900 and $183,000, respectively. This investment is carried at cost,
which approximates fair market value. This stock pays a quarterly dividend, which is
currently 6%.

Loans

Since
loans typically provide higher interest yields than other interest-earning assets, it is
our goal to ensure that the highest percentage of our earning assets is invested in our
loan portfolio. Gross loans outstanding at March 31, 2008 and December 31, 2007, were
$42.9 million and $36.2 million, respectively. Gross loans represented 69% and 66% of
interest-earning assets for March 31, 2008 and December 31, 2007, respectively.

Although
the loan portfolio grew $6.7 million during the first quarter of 2008, the percentage of
loans in each category remained stable from December 31, 2007 to March 31, 2008, as shown
in the table below. Loans secured by real estate mortgages comprised approximately 78% of
loans outstanding for both periods presented. Most of our real estate loans are secured by
residential and commercial properties. We do not generally originate traditional long term
residential mortgages, but we do issue traditional second mortgage residential real estate
loans and home equity lines of credit. We obtain a security interest in real estate
whenever possible, in addition to any other available collateral. This collateral is taken
to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the
loan-to-value ratio on loans we make to 80%.

14

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Due
to the short time our portfolio has existed, the loan mix shown below may not be
indicative of the ongoing portfolio mix. We attempt to maintain a relatively diversified
loan portfolio to help reduce the risk inherent in concentration of certain types of
collateral.

The
following table summarizes the composition of our loan portfolio at March 31, 2008 and
December 31, 2007.

|                                      | March 31, | December 31,
|------------------------------------- | --------- | ------------
|
|
|
|Real Estate:                          |           |             
|Construction and development and land |           |             
|Commercial                            |           |             
|Residential mortgages                 |           |             
|Home equity lines                     |           |             
|                                      |           |             
|Total real estate                     |           |             
|                                      |           |             
|Commercial                            |           |             
|Consumer                              |           |             
|Deferred origination fees, net        |           |             
|                                      |           |             
|Gross loans                           |           |             
|                                      |           |             
|Less allowance for loan losses        |           |             
|                                      |           |             
|Total loans, net                      |           |             
|                                      |           |             

Allowance for Loan Losses

We
have established an allowance for loan losses through a provision for loan losses charged
to expense on our consolidated statements of operations. The allowance for loan losses was
$479,792 and $446,184 as of March 31, 2008 and December 31, 2007, respectively, and
represented 1.12% of outstanding loans at March 31, 2008 and 1.23% as of December 31,
2007. The allowance for loan losses represents an amount which we believe will be adequate
to absorb probable losses on existing loans that may become uncollectible. Our judgment as
to the adequacy of the allowance for loan losses is based on a number of assumptions about
future events, which we believe to be reasonable, but which may or may not prove to be
accurate. Our determination of the allowance for loan losses is based on evaluations of
the collectibility of loans, including consideration of factors such as the balance of
impaired loans, the quality, mix, and size of our overall loan portfolio, economic
conditions that may affect the borrowers ability to repay, the amount and quality of
collateral securing the loans, our historical loan loss experience, and a review of
specific problem loans. We also consider subjective issues such as changes in the lending
policies and procedures, changes in the local/national economy, changes in volume or type
of credits, changes in volume/severity of problem loans, quality of loan review and board
of director oversight, concentrations of credit, and peer group comparisons. Due to our
limited operating history, to date the provision for loan losses has been made primarily
as a result of our assessment of general loan loss risk compared to banks of similar size
and maturity.

Due
to our short operating history, the loans in our loan portfolio and our lending
relationships are of very recent origin. In general, loans do not begin to show signs of
credit deterioration or default until they have been outstanding for some period of time,
a process known as seasoning. As a result, a portfolio of older loans will usually behave
more predictably than a newer portfolio. Because our loan portfolio is new, the current
level of delinquencies and defaults may not be representative of the level that will
prevail when the portfolio becomes more seasoned, which may be higher than current levels.
If delinquencies and defaults increase, we may be required to increase our provision for
loan losses, which would adversely affect our results of operations and financial
condition. Periodically, we will adjust the amount of the allowance based on changing
circumstances. We charge recognized losses to the allowance and add subsequent recoveries
back to the allowance for loan losses. There can be no assurance that charge-offs of loans
in future periods will not exceed the allowance for loan losses as estimated at any point
in time or that provisions for loan losses will not be significant to a particular
accounting period.

Because
of our short operating history and the lack of seasoning of our loan portfolio, we do not
allocate the allowance for loan losses to specific categories of loans. Instead, we
evaluate the adequacy of the allowance for loan losses on an overall portfolio basis
utilizing our credit grading system which we apply to each loan. We have retained an
independent consultant to review the loan files on a test basis to assess the grading of
samples of loans.

15

---

There
were no charge-offs during the first quarter of 2008. There were no nonaccrual or
nonperforming loans at March 31, 2008 and December 31, 2007, and no accruing loans which
were contractually past due 90 days or more as to principal or interest payments.
Generally, a loan will be placed on nonaccrual status when it becomes 90 days past due as
to principal or interest, or when management believes, after considering economic and
business conditions and collection efforts, that the borrowers financial condition
is such that collection of the loan is doubtful. A payment of interest on a loan that is
classified as nonaccrual will be recognized as income when received.

At
March 31, 2008 and December 31, 2007, we were not aware of any potential problem loans,
nor any loans considered impaired.

Deposits

Our
primary source for our loans and investments is our deposits. Deposits increased $3.1
million, from $44.1 million at December 31, 2007 to $47.2 million at March 31, 2008. The
following table shows the composition of deposits at March 31, 2008.

|                                           |  | Percent
|------------------------------------------ |  | -------
|
|
|Non-interest bearing demand deposits       |  |        
|Interest bearing checking                  |  |        
|Money market and savings                   |  |        
|Time deposits less than $100,000           |  |        
|Time deposits $100,000 and over            |  |        
|Brokered time deposits, less than $100,000 |  |        
|                                           |  |        
|Total                                      |  |        
|                                           |  |        

Core
deposits, which exclude time deposits of $100,000 or more and brokered certificates of
deposit, provide a relatively stable funding source for our loan portfolio and other
earning assets. Our core deposits were $21.8 million and $20.4 million at March 31, 2008
and December 31, 2007, respectively. Our loan-to-deposit ratio was 91% and 82% at March
31, 2008 and December 31, 2007, respectively. Due to the competitive interest rate
environment in our market, we utilized brokered certificates of deposit as a funding
source in the first quarter of 2008 when we were able to procure these certificates at
interest rates less than those in the local market. Brokered certificates of deposit
purchased outside our primary market totaled $14.2 million and $12.2 million at March 31,
2008 and December 31, 2007, respectively. All of our time deposits are certificates of
deposits.

Borrowings and lines of
credit

At
March 31, 2008, the bank had short-term lines of credit with correspondent banks to
purchase a maximum of $5.4 million in unsecured federal funds on a one to fourteen day
basis for general corporate purposes. The interest rate on borrowings under these lines is
the prevailing market rate for federal funds purchased. These accommodation lines of
credit are renewable annually and may be terminated at any time at the correspondent
banks sole discretion. The Bank utilized these lines of credit during the first
quarter of 2008. The average amount outstanding during the first quarter of 2008 was
$843,000. At March 31, 2008 and December 31, 2007, $2,196,000 and $1,648,000,
respectively, were outstanding on these lines of credit.

We
are also a member of the Federal Home Loan Bank. At March 31, 2008 and December 31, 2007,
we had $5.9 million and $2.4 million outstanding, respectively, in Federal Home Loan Bank
borrowings. At March 31, 2008, we had used all of our available credit with the Federal
Home Loan Bank. These borrowings were used to fund loans and purchase investment
securities, and were utilized as the interest rates charged on these advances were less
than those we pay for deposits.

# Capital Resources

Total
shareholders equity increased $15,525 from $9.68 million at December 31, 2007 to
$9.69 million at March 31, 2008. Common stock increased $14,532 due to stock compensation
expense accrued during the three months ended March 31, 2008. We incurred an unrealized
loss of $5,738 on investment securities available for sale, which decreased
shareholders equity, during the first quarter. Our net income of $6,731 for the three
months ended March 31, 2008 contributed to the net increase in shareholders equity
during the three month period.

The
Federal Reserve and bank regulatory agencies require bank holding companies and financial
institutions to maintain capital at adequate levels based on a percentage of assets and
off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%. The
Federal Reserve guidelines contain an exemption from the capital requirements for
small bank holding

16

---

companies, which in 2006 were
amended to cover most bank holding companies with less than $500 million in total assets
that do not have a material amount of debt or equity securities outstanding registered
with the SEC. Although we file periodic reports with the SEC, we believe that because our
stock is not registered under Section 12 of the Securities Exchange Act and is not listed
on any exchange or otherwise actively traded, the Federal Reserve Board will interpret its
new guidelines to mean that we qualify as a small bank holding company. Nevertheless, our
Bank remains subject to these capital requirements. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a direct material effect on the Banks
financial statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Banks assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The Banks capital amounts
and classifications are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. Regardless, our Bank is well
capitalized under these minimum capital requirements as set per bank regulatory
agencies.

Under
the capital adequacy guidelines, regulatory capital is classified into two tiers. These
guidelines require an institution to maintain a certain level of Tier 1 and Tier 2 capital
to risk-weighted assets. Tier 1 capital consists of common shareholders equity,
excluding the unrealized gain or loss on securities available for sale, minus certain
intangible assets. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0%
to 100% based on the risks believed to be inherent in the type of asset. Tier 2 capital
consists of Tier 1 capital plus the general reserve for loan losses, subject to certain
limitations. We are also required to maintain capital at a minimum level based on total
average assets, which is known as the Tier 1 leverage ratio.

At
the bank level, we are subject to various regulatory capital requirements administered by
the federal banking agencies. To be considered adequately capitalized under
these capital guidelines, we must maintain a minimum total risk-based capital of 8%, with
at least 4% being Tier 1 capital. In addition, we must maintain a minimum Tier 1 leverage
ratio of at least 4%. To be considered well-capitalized, we must maintain
total risk-based capital of at least 10%, Tier 1 capital of at least 6%, and a leverage
ratio of at least 5%.

The
following tables set forth the Banks capital ratios at March 31, 2008 and December
31, 2007.

|                          |  |  | Well capitalized | Adequately capitalized
|------------------------- |  |  | ---------------- | ----------------------
|
|
|($ in thousands)          |  |  |                  |                       
|Total risk-based capital  |  |  |                  | $10,087               
|Tier 1 risk-based capital |  |  |                  | 9,607                 
|Leverage capital          |  |  |                  | 9,607                 

|                          |  |  | Well capitalized | Adequately capitalized
|------------------------- |  |  | ---------------- | ----------------------
|
|
|($ in thousands)          |  |  |                  |                       
|Total risk-based capital  |  |  |                  | $10,031               
|Tier 1 risk-based capital |  |  |                  | 9,585                 
|Leverage capital          |  |  |                  | 9,585                 

We
believe that our capital is sufficient to fund the activities of the bank in its initial
stages of operation and that the rate of asset growth will not negatively impact the
capital base. We have no plans for significant capital expenditures in 2008.

# Effect of Inflation and
Changing Prices

The
effect of relative purchasing power over time due to inflation has not been taken into
account in our consolidated financial statements. Rather, our financial statements have
been prepared on an historical cost basis in accordance with accounting principles
generally accepted in the United States of America.

Unlike
most industrial companies, our assets and liabilities are primarily monetary in nature.
Therefore, the effect of changes in interest rates will have a more significant impact on
our performance than will the effect of changing prices and inflation in general. In
addition, interest rates may generally increase as the rate of inflation increases,
although not necessarily in the same magnitude. We attempt to manage the relationships
between interest-sensitive assets and liabilities in order to protect against wide rate
fluctuations, including those resulting from inflation.

17

---

# Off-Balance Sheet Risk

Through
the bank, we have made contractual commitments to extend credit in the ordinary course of
its business activities. These commitments are legally binding agreements to lend money to
our clients at predetermined interest rates for a specified period of time. We evaluate
each clients creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by us upon extension of credit, is based on our credit
evaluation of the borrower. Collateral varies but may include accounts receivable,
inventory, property, plant and equipment, commercial and residential real estate. We
manage the credit risk on these commitments by subjecting them to normal underwriting and
risk management processes. At March 31, 2008, the bank had issued commitments to extend
credit of $5.7 million through various types of lending arrangements.

Commitments
generally have fixed expiration dates or other termination clauses and may require the
payment of a fee. A significant portion of the unfunded commitments relate to consumer
equity lines of credit and commercial lines of credit. Based on historical experience, we
anticipate that a portion of these lines of credit will not be funded.

Except
as disclosed in this document, we are not involved in off-balance sheet contractual
relationships, unconsolidated related entities that have off-balance sheet arrangements or
transactions that could result in liquidity needs or other commitments that significantly
impact earnings.

# Liquidity

Liquidity
represents the ability of a company to convert assets into cash or cash equivalents
without significant loss, and the ability to raise additional funds by increasing
liabilities. Liquidity management involves monitoring our sources and uses of funds in
order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity
management is made more complicated because different balance sheet components are subject
to varying degrees of management control. For example, the timing of maturities of our
investment portfolio is fairly predictable and subject to a high degree of control at the
time investment decisions are made. However, net deposit inflows and outflows are far less
predictable and are not subject to the same degree of control.

At
March 31, 2008, our liquid assets, consisting of cash and due from banks, amounted to
$633,317, or approximately .97% of total assets. Our investment securities available for
sale amounted to $18.8 million or approximately 29% of total assets. Unpledged investment
securities traditionally provide a secondary source of liquidity since they can be
converted into cash in a timely manner. At March 31, 2008, $9.2 million of our investment
securities were pledged to secure public entity deposits and as collateral for Federal
Home Loan Bank borrowings.

Our
ability to maintain and expand our deposit base and borrowing capabilities serves as our
primary source of liquidity. We plan to meet our future cash needs through the liquidation
of temporary investments and the generation of deposits. In addition, we will receive cash
upon the maturities and sales of loans and maturities, calls and prepayments on investment
securities. We maintain federal funds purchased lines of credit with correspondent banks
totaling $5.4 million. Availability on these lines of credit was $3.2 million at March 31,
2008. We are a member of the Federal Home Loan Bank (FHLB), from which
applications for borrowings can be made. The FHLB requires that investment securities or
qualifying mortgage loans be pledged to secure advances from them. We are also required to
purchase FHLB stock in a percentage of each advance. There was no unused borrowing
capacity available from the FHLB at March 31, 2008. FHLB borrowing capacity increases as
our quarterly total assets increase and as long as we have sufficient collateral to pledge
toward these advances. We believe that our existing stable base of core deposits along
with continued growth in our deposit base will enable us to successfully meet our long
term liquidity needs.

# Market Risk

Market
risk is the risk of loss from adverse changes in market prices and rates, which
principally arises from interest rate risk inherent in our lending, investing, deposit
gathering, and borrowing activities. Other types of market risks, such as foreign currency
exchange rate risk and commodity price risk, do not generally arise in the normal course
of our business.

We
actively monitor and manage our interest rate risk exposure principally by measuring our
interest sensitivity gap, which is the positive or negative dollar difference
between assets and liabilities that are subject to interest rate repricing within a given
period of time. Interest rate sensitivity can be managed by repricing assets or
liabilities, selling securities available for sale, replacing an asset or liability at
maturity, or adjusting the interest rate during the life of an asset or liability.
Managing the amount of assets and liabilities repricing in this same time interval helps
to hedge the risk and minimize the impact on net interest income of rising or falling
interest rates. We generally would benefit from increasing market rates of interest when
we have an asset-

18

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sensitive gap position and generally
would benefit from decreasing market rates of interest when we are liability-sensitive.
The analysis presents only a static view of the timing of maturities and repricing
opportunities, without taking into consideration that changes in interest rates do not
affect all assets and liabilities equally. For example, rates paid on a substantial
portion of core deposits may change contractually within a relatively short time frame,
but those rates are viewed by us as significantly less interest-sensitive than
market-based rates such as those paid on noncore deposits. Net interest income may be
affected by other significant factors in a given interest rate environment, including
changes in the volume and mix of interest-earning assets and interest-bearing liabilities.

At
March 31, 2008 and December 31, 2007, we were asset-sensitive over a one-year timeframe.

# Recently Issued
Accounting Standards

The
following is a summary of recent authoritative pronouncements that could impact the
accounting, reporting and/or disclosure of financial information by the Company.

In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments
and Hedging Activities (SFAS 161). SFAS 161 requires enhanced
disclosures about an entitys derivative and hedging activities and thereby improving
the transparency of financial reporting. It is intended to enhance the current disclosure
framework in SFAS 133 by requiring that objectives for using derivative instruments be
disclosed in terms of underlying risk and accounting designation. This disclosure better
conveys the purpose of derivative use in terms of the risks that the entity is intending
to manage. SFAS 161 is effective for the Company on January 1, 2009. This pronouncement
does not impact accounting measurements but will result in additional disclosures if the
Company is involved in material derivative and hedging activities at that time.

In
February 2008, the FASB issued FASB Staff Position No. 140-3, Accounting for
Transfers of Financial Assets and Repurchase Financing Transactions (FSP
140-3).  This FSP provides guidance on accounting for a transfer of a financial
asset and the transferors repurchase financing of the asset.  This FSP presumes
that an initial transfer of a financial asset and a repurchase financing are considered
part of the same arrangement (linked transaction) under SFAS No. 140. However, if certain
criteria are met, the initial transfer and repurchase financing are not evaluated as a
linked transaction and are evaluated separately under Statement 140.  FSP 140-3 will
be effective for financial statements issued for fiscal years beginning after November 15,
2008, and interim periods within those fiscal years and earlier application is not
permitted. Accordingly, this FSP is effective for the Company on January 1, 2009. 
The Company is currently evaluating the impact, if any, the adoption of FSP 140-3 will
have on its financial position, results of operations and cash flows.

In
April 2008, the FASB issued FASB Staff Position No. 142-3, Determination of the
Useful Life of Intangible Assets (FSP 142-3). This FSP amends the
factors that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
Goodwill and Other Intangible Assets. The intent of this FSP is to improve the
consistency between the useful life of a recognized intangible asset under SFAS No. 142
and the period of expected cash flows used to measure the fair value of the asset under
SFAS No. 141(R), Business Combinations, and other U.S. generally accepted
accounting principles. This FSP is effective for financial statements issued for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal years and
early adoption is prohibited. Accordingly, this FSP is effective for the Company on
January 1, 2009. The Company does not believe the adoption of FSP 142-3 will have a
material impact on its financial position, results of operations or cash flows.

Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies are not expected to have a material impact on the Companys
financial position, results of operations or cash flows.

# Item 3.   Quantitative and
Qualitative Disclosures About Market Risk.

Not applicable.

# Item 4.   Controls and
Procedures.

As
of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures as defined in Exchange Act Rule 13a-15(e). Based upon that evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that our current
disclosure controls and procedures are effective as of March 31, 2008. There have been no
significant changes in our internal controls over financial reporting during the fiscal
quarter ended March 31, 2008 that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.

19

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The
design of any system of controls and procedures is based in part upon certain assumptions
about the likelihood of future events. There can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions, regardless of
how remote.

20

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# PART II  OTHER
INFORMATION

# Item 1.   Legal Proceedings.

There are no material pending legal
proceedings to which we are a party or of which any of our property is the subject.

# Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

Not applicable.

# Item 3.   Default
Upon Senior Securities.

Not applicable.

# Item 4.   Submission of Matters to a Vote of Security Holders.

Not applicable.

# Item 5.   Other
Information.

Not applicable.

# Item 6.   Exhibits

31.1        Rule 13a-14(a) Certification of the Chief Executive Officer.

31.2         Rule 13a-14(a) Certification of the Chief Financial Officer.

32           
Section 1350 Certifications.

21

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# BANKGREENVILLE
FINANCIAL CORPORATION

# SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

| |  | BANKGREENVILLE FINANCIAL CORPORATION
| |  | ------------------------------------
| |  | (Registrant)                        

|                    |  |                                                               
|------------------- |  | --------------------------------------------------------------
|                    |  |                                                               
|Date:  May 13, 2008 |  | By:   /s/  Russel T. Williams                                 
|                    |  | Russel T. Williams                                            
|                    |  | Chief Executive Officer
         (Principal Executive Officer)

|                    |  |                                                               
|------------------- |  | --------------------------------------------------------------
|                    |  |                                                               
|Date:  May 13, 2008 |  | By:   /s/  Paula S. King                                      
|                    |  | Paula S. King                                                 
|                    |  | Chief Financial Officer
         (Principal Financial Officer)

22

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# BANKGREENVILLE
FINANCIAL CORPORATION

# EXHIBIT INDEX

ExhibitNumber
              Description

31.1        Rule 13a-14(a) Certification of the Chief Executive Officer.

31.2         Rule 13a-14(a) Certification of the Chief Financial Officer.

32           
Section 1350 Certifications.

23