Form
10-Q
 
 T
Bancshares, Inc. - TBNC
 
 Filed:
August 14, 2009 (period: June 30, 2009)
 
 Quarterly
report which provides a continuing view of a company's financial
position





UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934




For
the quarterly period ended June 30, 2009




Commission
File Number 000-51297




T
BANCSHARES, INC.


(Exact
name of registrant as specified in its charter)




Texas
            
            71-0919962(State or other jurisdiction of
              incorporation or organization)
            
            (I.R.S. Employer
              Identification No.)





16000
Dallas Parkway, Suite 125, Dallas, Texas 75248


(Address
of principal executive offices)





(972)
720- 9000


(Issuer’s
telephone number, including area code)




Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or such shorter period that
the registrant was required to filed such reports), and (2) has been subject to
such filing requirements for the past 90 days.   Yesx     No ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or such shorter period that the
registrant was required to submit and post such
files).   Yes ̈    No ̈





Check
whether the registrant is a large accelerated filer, an accelerated filer, a
nonaccelerated filer or a smaller reporting company.





Larger Accelerated Filer
              Yes    ̈
              
              No   xAccelerated Filer
              Yes    ̈
              
              No   xNonaccelerated Filer
              Yes    ̈
              
              No   xSmaller Reporting Company
              Yes   x
              
              No    ̈





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




The
number of shares outstanding of the issuer’s Common Stock as of August 14, 2009,
was 1,941,305 shares.





Transitional Small Business Disclosure
Format (check one)   Yes ̈Nox







T
BANCSHARES, INC.




INDEX




PAGEPART
      I.
              FINANCIAL
      INFORMATION
              
              3ITEM
      1.
              Financial
      Statements
              
              3ITEM
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              
              18ITEM
      3.
              Quantitative
      and Qualitative Disclosures about Market Risk
              
              31ITEM
      4.
              Controls
      and Procedures
              
              31PART
      II.
              OTHER
      INFORMATION
              
              31ITEM
      1.
              Legal
      Proceedings
              
              31ITEM
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              31ITEM
      3.
              Defaults
      Upon Senior Securities
              
              31ITEM
      4.
              Submission
      of Matters to a Vote of Security Holders
              
              32ITEM
      5.
              Other
      Information
              
              32ITEM
      6.
              Exhibits
              
              33


2


PART I. FINANCIAL
INFORMATION


ITEM 1. Financial
Statements


T
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION




(000's)
                
                June
      30,
                  2009
                
                
                December 31,
                  2008(unaudited)ASSETSCash
      and due from banks
                
                $
                1,679
                
                
                $
                1,242Federal
      funds sold
                
                
                7,855
                
                
                
                7,215Total
      cash and cash equivalents
                
                
                9,534
                
                
                
                8,457Securities
      available for sale at estimated fair value
                
                
                5,564
                
                
                
                -Securities
      held to maturity at amortized cost
                
                
                905
                
                
                
                981Securities,
      restricted
                
                
                1,199
                
                
                
                722Total
      investment securities
                
                
                7,668
                
                
                
                1,703Loans,
      net of allowance for loan losses of $1,648 and $1,638,
      respectively
                
                
                119,551
                
                
                
                123,393Bank
      premises and equipment, net
                
                
                1,007
                
                
                
                1,169Other
      assets
                
                
                1,808
                
                
                
                1,528Total
      assets
                
                $
                139,568
                
                
                $
                136,250LIABILITIESDemand
      Deposits:Noninterest-bearing
                
                $
                10,669
                
                
                $
                10,077Interest-bearing
                
                
                31,991
                
                
                
                42,407Time
      deposits $100,000 and over
                
                
                37,883
                
                
                
                37,240Other
      time deposits
                
                
                18,909
                
                
                
                21,372Total
      deposits
                
                
                99,452
                
                
                
                111,096Borrowed
      Funds
                
                
                24,000
                
                
                
                10,500Other
      liabilities
                
                
                943
                
                
                
                860Total
      liabilities
                
                
                124,395
                
                
                
                122,456Shareholders'
      EquityCommon
      Stock, $ .01 par value; 10,000,000 shares authorized; 1,941,305 and
      1,703,801 shares issued and outstanding at June 30, 2009 and December 31,
      2008, respectively
                
                
                19
                
                
                
                17Additional
      paid-in capital
                
                
                18,484
                
                
                
                16,915Retained
      deficit
                
                
                (3,333
                )
                
                
                (3,138
                )Accumulated
      other comprehensive income
                
                
                3
                
                
                
                -Total
      shareholders' equity
                
                
                15,173
                
                
                
                13,794Total
      liabilities and shareholders' equity
                
                $
                139,568
                
                
                $
                136,250




See
accompanying notes to consolidated financial statements


3





T
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





Three Months Ended June
      30,
                                    
                                    
                                    Six Months Ended June 30,(000's)
      except earnings per share
                                    
                                    2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009
                                    
                                    
                                    2008Interest
      IncomeLoan,
      including fees
                                    
                                    $
                                    2,058
                                    
                                    
                                    $
                                    2,470
                                    
                                    
                                    $
                                    4,131
                                    
                                    
                                    $
                                    4,971Securities,
      restricted
                                    
                                    
                                    36
                                    
                                    
                                    
                                    9
                                    
                                    
                                    
                                    55
                                    
                                    
                                    
                                    25Federal
      funds sold
                                    
                                    
                                    42
                                    
                                    
                                    
                                    74
                                    
                                    
                                    
                                    61
                                    
                                    
                                    
                                    193Total
      interest income
                                    
                                    
                                    2,136
                                    
                                    
                                    
                                    2,553
                                    
                                    
                                    
                                    4,247
                                    
                                    
                                    
                                    5,189Interest
      ExpenseDeposits
                                    
                                    
                                    802
                                    
                                    
                                    
                                    1,284
                                    
                                    
                                    
                                    1,638
                                    
                                    
                                    
                                    2,611Borrowed
      funds
                                    
                                    
                                    22
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    35
                                    
                                    
                                    
                                    -Total
      interest expense
                                    
                                    
                                    824
                                    
                                    
                                    
                                    1,284
                                    
                                    
                                    
                                    1,673
                                    
                                    
                                    
                                    2,611Net
      interest income
                                    
                                    
                                    1,312
                                    
                                    
                                    
                                    1,269
                                    
                                    
                                    
                                    2,574
                                    
                                    
                                    
                                    2,578Provision
      for loan losses
                                    
                                    
                                    40
                                    
                                    
                                    
                                    150
                                    
                                    
                                    
                                    158
                                    
                                    
                                    
                                    300Net
      interest income after provision for loan losses
                                    
                                    
                                    1,272
                                    
                                    
                                    
                                    1,119
                                    
                                    
                                    
                                    2,416
                                    
                                    
                                    
                                    2,278Noninterest
      IncomeTrust
      income
                                    
                                    
                                    1,625
                                    
                                    
                                    
                                    3,208
                                    
                                    
                                    
                                    3,182
                                    
                                    
                                    
                                    5,672Service
      fees
                                    
                                    
                                    22
                                    
                                    
                                    
                                    29
                                    
                                    
                                    
                                    46
                                    
                                    
                                    
                                    54Total
      noninterest income
                                    
                                    
                                    1,647
                                    
                                    
                                    
                                    3,237
                                    
                                    
                                    
                                    3,228
                                    
                                    
                                    
                                    5,726Noninterest
      ExpenseSalaries
      and employee benefits
                                    
                                    
                                    794
                                    
                                    
                                    
                                    762
                                    
                                    
                                    
                                    1,606
                                    
                                    
                                    
                                    1,518Occupancy
      and equipment
                                    
                                    
                                    384
                                    
                                    
                                    
                                    362
                                    
                                    
                                    
                                    682
                                    
                                    
                                    
                                    698Trust
      consulting services
                                    
                                    
                                    1,396
                                    
                                    
                                    
                                    2,815
                                    
                                    
                                    
                                    2,751
                                    
                                    
                                    
                                    4,952Professional
      fees
                                    
                                    
                                    118
                                    
                                    
                                    
                                    209
                                    
                                    
                                    
                                    217
                                    
                                    
                                    
                                    345Data
      processing
                                    
                                    
                                    23
                                    
                                    
                                    
                                    52
                                    
                                    
                                    
                                    139
                                    
                                    
                                    
                                    176Other
                                    
                                    
                                    226
                                    
                                    
                                    
                                    181
                                    
                                    
                                    
                                    444
                                    
                                    
                                    
                                    366Total
      noninterest  expense
                                    
                                    
                                    2,942
                                    
                                    
                                    
                                    4,381
                                    
                                    
                                    
                                    5,839
                                    
                                    
                                    
                                    8,055Net
      Loss
                                    
                                    $
                                    (23
                                    )
                                    
                                    $
                                    (25
                                    )
                                    
                                    $
                                    (195
                                    )
                                    
                                    $
                                    (51
                                    )Earning
      (loss) per common share:Basic
                                    
                                    
                                    (0.01
                                    )
                                    
                                    
                                    (0.02
                                    )
                                    
                                    
                                    (0.10
                                    )
                                    
                                    
                                    (0.03
                                    )Diluted
                                    
                                    
                                    (0.01
                                    )
                                    
                                    
                                    (0.02
                                    )
                                    
                                    
                                    (0.10
                                    )
                                    
                                    
                                    (0.03
                                    )Weighted
      average common shares outstanding
                                    
                                    
                                    1,941,305
                                    
                                    
                                    
                                    1,703,801
                                    
                                    
                                    
                                    1,930,808
                                    
                                    
                                    
                                    1,703,801Weighted
      average diluted shares outstanding
                                    
                                    
                                    1,941,305
                                    
                                    
                                    
                                    1,703,801
                                    
                                    
                                    
                                    1,930,808
                                    
                                    
                                    
                                    1,703,801





See
accompanying notes to consolidated financial statements


4





T
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


(Unaudited)





(000's)
                
                Common
                  Stock
                
                
                Additional
                  Paid-in
                  Capital
                
                
                Retained
                  Deficit
                
                
                Accumulated
                  Other
                  Comprehensive
                  Income
                
                
                TotalBALANCE,
      January 1, 2008
                
                $
                17
                
                
                $
                16,819
                
                
                $
                (2,710
                )
                
                $
                -
                
                
                $
                14,126Comprehensive
      loss:Net
      loss — YTD
                
                
                
                
                
                
                
                
                
                
                (51
                )
                
                
                
                
                
                
                (51
                )Total
      comprehensive loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (51
                )Stock
      based compensation
                
                
                
                
                
                
                46
                
                
                
                
                
                
                
                
                
                
                
                46BALANCE,
      June 30, 2008
                
                $
                17
                
                
                $
                16,865
                
                
                $
                (2,761
                )
                
                $
                -
                
                
                $
                14,121BALANCE,
      January 1, 2009
                
                $
                17
                
                
                $
                16,915
                
                
                $
                (3,138
                )
                
                $
                -
                
                
                $
                13,794Comprehensive
      loss:Net
      loss — YTD
                
                
                
                
                
                
                
                
                
                
                (195
                )
                
                
                
                
                
                
                (195
                )Change
      in accumulated gain on securities available for sale
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                3
                
                
                
                3Total
      comprehensive loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (192
                )Net
      proceeds from rights offering
                
                
                2
                
                
                
                1,519
                
                
                
                
                
                
                
                
                
                
                
                1,521Stock
      based compensation
                
                
                
                
                
                
                50
                
                
                
                
                
                
                
                
                
                
                
                50BALANCE,
      June 30, 2009
                
                $
                19
                
                
                $
                18,484
                
                
                $
                (3,333
                )
                
                $
                3
                
                
                $
                15,173





See
accompanying notes to consolidated financial
statements


5




T
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Six Months Ended June 30,(000's)
                
                2009
                
                
                2008Cash
      Flows from Operating ActivitiesNet
      loss
                
                $
                (195
                )
                
                $
                (51
                )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Provision
      for loan losses
                
                
                158
                
                
                
                300Depreciation
      and amortization
                
                
                241
                
                
                
                260Accretion
      of discount
                
                
                14
                
                
                
                (8
                )Gain
      on sale of other real estate owned
                
                
                (1
                )
                
                
                -Stock
      based compensation
                
                
                50
                
                
                
                46Net
      change in other assets
                
                
                299
                
                
                
                (749
                )Net
      change in other liabilities
                
                
                83
                
                
                
                939Net
      cash provided by operating activities
                
                
                649
                
                
                
                737Cash
      Flows from Investing ActivitiesPurchase
      of securities held to maturity
                
                
                -
                
                
                
                (996
                )Proceeds
      from maturity of securities
                
                
                -
                
                
                
                1,000Proceeds
      from principal payments on mortgage-backed securities
                
                
                186
                
                
                
                -Purchase
      of securities available for sale, net
                
                
                (5,685
                )
                
                
                -Purchase
      of securities, restricted, net
                
                
                (902
                )
                
                
                (48
                )Proceeds
      from sale of securities, restricted
                
                
                425
                
                
                
                -Net
      change in loans
                
                
                2,729
                
                
                
                (15,058
                )Proceeds
      from sale of other real estate owned
                
                
                377
                
                
                
                -Purchases
      of premises and equipment
                
                
                (79
                )
                
                
                (19
                )Net
      cash used in investing activities
                
                
                (2,949
                )
                
                
                (15,121
                )Cash
      Flows from Financing ActivitiesNet
      change in demand deposits
                
                
                (9,824
                )
                
                
                (3,008
                )Net
      change in time deposits
                
                
                (1,820
                )
                
                
                12,416Proceeds
      from borrowed funds
                
                
                124,450
                
                
                
                -Repayment
      of borrowed funds
                
                
                (110,950
                )
                
                
                -Net
      proceeds from rights offering
                
                
                1,521
                
                
                
                -Net
      cash provided by financing activities
                
                
                3,377
                
                
                
                9,408Net
      change in cash and cash equivalents
                
                
                1,077
                
                
                
                (4,976
                )Cash
      and cash equivalents at beginning of period
                
                
                8,457
                
                
                
                23,560Cash
      and cash equivalents at end of period
                
                $
                9,534
                
                
                $
                18,584Supplemental
      disclosures of cash flow informationCash
      paid during the period forInterest
                
                $
                1,637
                
                
                $
                2,579Income
      taxes
                
                $
                -
                
                
                $
                20Non-cash
      transactions:Transfers
      from loans to other real estate owned
                
                $
                955
                
                
                $
                -





See
accompanying notes to consolidated financial statements


6




T
BANCSHARES, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)




NOTE 1. BASIS OF
PRESENTATION




We
prepared the consolidated financial statements of T Bancshares, Inc. and its
subsidiaries (the “Company,” “we,” “us,” or “our,” hereafter) following the
requirements of the Securities and Exchange Commission (“SEC”) for interim
reporting. As permitted under those rules, certain footnotes or other financial
information that are normally required by accounting principles generally
accepted in the United States of America (“GAAP”) can be condensed or
omitted.




We are
responsible for the unaudited financial statements included in this document.
The financial statements include all normal and recurring adjustments that are
considered necessary for the fair presentation of our financial position and
operating results. The accounting and reporting policies of the Company reflect
banking industry practice and conform to generally accepted accounting
principles in the United States of America. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported asset and liability balances and revenue and expense
amounts and the disclosure of contingent assets and liabilities. The allowance
for loan loss is the primary estimate by management, which is established
through a provision for loan loss charge to expense. It is reasonably possible
that actual results could differ significantly from those
estimates.





In
accordance with SFAS No. 165, the Company has evaluated whether any subsequent
events that require recognition or disclosure in the accompanying financial
statements and notes thereto have taken place through the date these financial
statements were issued (August 14, 2009). The Company has determined there are
no such subsequent events.





Certain
reclassifications have been made to the 2008 financial statements from their
original presentation to conform with the 2009 financial statement
presentation.  These reclassifications had no effect on shareholders’
equity or net loss for the quarter ended June 30, 2008.





In
preparing these condensed consolidated interim financial statements, the Company
has evaluated, for potential recognition or disclosure, events or transactions
subsequent to the end of the most recent quarterly period through August 14,
2009, the issuance date of these condensed consolidated interim financial
statements.  No such transactions or events resulted in additional
recognition or disclosure.




The
information included in this Quarterly Report on Form 10-Q should be read in
conjunction with the consolidated financial statements and accompanying notes
included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2008.





NOTE
2. ADOPTION OF NEW ACCOUNTING POLICIES




In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements
("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. The standard eliminates inconsistencies found in
various prior pronouncements but does not require any new fair value
measurements. SFAS 157 was effective for the Company on January 1, 2008 and did
not have a significant impact on the Company’s financial statements, except that
expanded disclosure has been made as reflected in Note 16.





In
February 2007, the FASB issued SFAS 159, “Fair Value Option for Financial Assets
and Financial Liabilities”. SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. The FASB believes
the statement will improve financial reporting by providing companies the
opportunity to mitigate volatility in reported earnings by measuring related
assets and liabilities differently without having to apply complex hedge
accounting provisions. Use of the statement will expand the use of fair value
measurements for accounting for financial instruments. The provisions of SFAS
159 are effective for financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods with those fiscal years. The
adoption of this standard on January 1, 2008, did not have a material impact on
the Company’s consolidated financial position, results of operations, or cash
flows.





On
May 28, 2009, the FASB issued SFAS No. 165, Subsequent Events, which
requires entities to evaluate subsequent events through the date financial
statements are issued.  Existing guidance on subsequent events was part of
the AICPA Auditing Standards.  This Statement is not intended to change
existing practice.  The Statement requires entities to recognize in the
financial statements the effects of all subsequent events that provide
additional evidence about conditions that existed at the date of the balance
sheet, including estimates inherent in the process of preparing financial
statements (“recognizable subsequent events”).  This Statement also
requires entities to disclose the date through which subsequent events have been
evaluated and the nature and estimated financial effects of certain subsequent
events.  This statement became effective in the second quarter of 2009, and
did not have a significant impact on the financial
statements.


7


NOTE 3. LOANS





Loans
held in portfolio consisted of the following:




(000's)
                  
                  June
      30,
                    2009
                  
                  
                  December 31,
                    2008Commercial
      and industrial
                  
                  $
                  82,573
                  
                  
                  $
                  81,342Consumer
      installment
                  
                  
                  2,295
                  
                  
                  
                  3,799Real
      estate — mortgage
                  
                  
                  26,032
                  
                  
                  
                  20,543Real
      estate — construction
                  
                  
                  10,338
                  
                  
                  
                  19,481Other
                  
                  
                  107
                  
                  
                  
                  12Total
      loans
                  
                  
                  121,345
                  
                  
                  
                  125,177Less
      allowance for loan losses
                  
                  
                  1,648
                  
                  
                  
                  1,638Less
      deferred loan fees
                  
                  
                  146
                  
                  
                  
                  146Net
      loans
                  
                  $
                  119,551
                  
                  
                  $
                  123,393




The
change in the allowance for loan losses is as follows:





(000's)
                  
                  June
      30,
                    2009
                  
                  
                  December 31,
                    2008Balance
      at beginning of period
                  
                  $
                  1,638
                  
                  
                  $
                  1,600Provision
      charged to operations
                  
                  
                  158
                  
                  
                  
                  417Loans
      charged off
                  
                  
                  (157
                  )
                  
                  
                  (451
                  )Recoveries
      of loans previously charged off
                  
                  
                  9
                  
                  
                  
                  72Balance
      at end of period
                  
                  $
                  1,648
                  
                  
                  $
                  1,638




At June
30, 2009, there were $3,443,000 of nonaccrual loans and no loans contractually
delinquent over ninety days, and at December 31, 2008, there were $3,254,000 of
nonaccrual loans and $1,328,000 of loans contractually delinquent over ninety
days.


8





NOTE 4. SECURITIES




A summary
of the amortized cost and fair value of securities is presented
below.





June 30, 2009(000's)
                  
                  Amortized
                    Cost
                  
                  
                  Unrealized
                    Gains
                  
                  
                  Unrealized
                    Losses
                  
                  
                  Estimated
                    Fair ValueSecurities Available for
      Sale:U.S.
      Government Agencies
                  
                  $
                  5,561
                  
                  
                  $
                  3
                  
                  
                  $
                  -
                  
                  
                  $
                  5,564Securities
      Held to Maturity:U.S.
      Government Agencies
                  
                  $
                  905
                  
                  
                  $
                  23
                  
                  
                  $
                  -
                  
                  
                  $
                  928Securities,
      restrictedOther
                  
                  $
                  1,199
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,199




December 31, 2008(000's)
                
                Amortized
                  Cost
                
                
                Unrealized
                  Gains
                
                
                Unrealized
                  Losses
                
                
                Estimated
                  Fair ValueSecurities
      Held to Maturity:U.S.
      Government Agencies
                
                $
                981
                
                
                $
                31
                
                
                $
                -
                
                
                $
                1,012Securities,
      restricted:Other
                
                $
                722
                
                
                $
                -
                
                
                $
                -
                
                
                $
                722




Our
subsidiary, T Bank, N.A. (the “Bank”) held Federal Reserve Bank of Dallas stock
of $420,000 at June 30, 2009 and December 31, 2008. The Bank also held Federal
Home Loan Bank of Dallas stock of $778,800 and $302,400 at June 30, 2009 and
December 31, 2008, respectively. Both stocks are carried at cost and are
reported as securities, restricted in the table above.  The securities
held to maturity category consisted of one mortgage back security at June 30,
2009 and December 31, 2008 and was pledged to secure trust
deposits.




NOTE 5. RELATED PARTIES




Certain
directors and officers of the Company have depository accounts with the Bank.
None of those deposit accounts has terms more favorable than those available to
any other depositor.




NOTE 6. BANK PREMISES AND
EQUIPMENT




The
original cost and related accumulated depreciation at June 30, 2009 and December
31, 2008 were as follows:




(000's)
                  
                  June
      30,
                    2009
                  
                  
                  December 31,
                    2008Leasehold
      improvements
                  
                  $
                  929
                  
                  
                  $
                  929Furniture
      and equipment
                  
                  
                  1,873
                  
                  
                  
                  1,7942,802
                  
                  
                  
                  2,723Less:
      accumulated depreciation
                  
                  
                  1,795
                  
                  
                  
                  1,554Balance
      at end of period
                  
                  $
                  1,007
                  
                  
                  $
                  1,169


9





NOTE
7. OTHER ASSETS




Other
assets consisted of the following at June 30, 2009 and December 31,
2008:




(000's)
                  
                  June
      30,
                    2009
                  
                  
                  December 31,
                    2008Other
      Real Estate Owned
                  
                  $
                  562
                  
                  
                  $
                  -Accounts
      receivable – trust fees
                  
                  
                  553
                  
                  
                  
                  509Accrued
      interest receivable
                  
                  
                  453
                  
                  
                  
                  472Prepaid
      assets
                  
                  
                  210
                  
                  
                  
                  267Capitalized
      rights offering costs
                  
                  
                  -
                  
                  
                  
                  242Other
                  
                  
                  30
                  
                  
                  
                  38$
                  1,808
                  
                  
                  $
                  1,528




Other
Real Estate Owned (“OREO”) consists of one property at June 30, 2009, and is
recorded at fair market value.  The OREO asset is actively being
marketed, and disposal of the asset is anticipated to occur prior to year end,
December 31, 2009.





NOTE 8. DEPOSITS




Deposits
are summarized as follows:




(000's)
                  
                  As of June
      30, 2009
                  
                  
                  As of December 31, 2008Noninterest
      bearing demand
                  
                  $
                  10,669
                  
                  
                  
                  11
                  %
                  
                  $
                  10,077
                  
                  
                  
                  9
                  %Interest
      bearing demand (NOW)
                  
                  
                  1,813
                  
                  
                  
                  2
                  %
                  
                  
                  1,899
                  
                  
                  
                  2
                  %Money
      market accounts
                  
                  
                  29,968
                  
                  
                  
                  30
                  %
                  
                  
                  40,333
                  
                  
                  
                  36
                  %Savings
      accounts
                  
                  
                  210
                  
                  
                  
                  0
                  %
                  
                  
                  175
                  
                  
                  
                  0
                  %Certificates
      of deposit, $100,000 and greater
                  
                  
                  37,883
                  
                  
                  
                  38
                  %
                  
                  
                  37,240
                  
                  
                  
                  34
                  %Certificates
      of deposit, less than $100,000
                  
                  
                  18,909
                  
                  
                  
                  19
                  %
                  
                  
                  21,372
                  
                  
                  
                  19
                  %$
                  99,452
                  
                  
                  
                  100
                  %
                  
                  $
                  111,096
                  
                  
                  
                  100
                  %




At June
30, 2009, the scheduled maturities of certificates of deposit were as
follows:




(000’s)2009
                    
                    $
                    10,2532010
                    
                    
                    20,9682011
                    
                    
                    15,7182012
                    
                    
                    8,1972013
                    
                    
                    1,4992014
                    
                    
                    157Total
                    
                    $
                    56,792


10





NOTE
9.  BORROWED FUNDS




Borrowed
funds as of June 30, 2009 and December 31, 2008, were as follows:





(000's)
                  
                  June
      30,
                    2009
                  
                  
                  December 31,
                    2008Federal
      Home Loan Bank Advance
                  
                  $
                  17,000
                  
                  
                  $
                  -Federal
      Reserve Bank Advance
                  
                  
                  7,000
                  
                  
                  
                  10,500Total
                  
                  $
                  24,000
                  
                  
                  $
                  10,500




At June
30, 2009, borrowed funds consisted of loans of $17.0 million and $7.0 million
from the Federal Home Loan Bank and the Federal Reserve Bank, respectively. The
Federal Home Loan Bank advance had a rate of .06%, a one day term and matured on
July 1, 2009.  The Federal Reserve Bank advance had a rate of .50%, a
7 day term and matured on July 6, 2009. The Company has a $23.9 million credit
line with the Federal Reserve Bank, which is secured by $31.9 million in pledged
commercial and industrial loans, and $17.1 million credit line with the Federal
Home Loan Bank which is secured by $17.5 million in pledged real estate loans
and $3.4 million in securities.




NOTE 10. OTHER LIABLITIES





Other
liabilities comprised the following at June 30, 2009 and December 31,
2008:




(000's)
                  
                  June
      30,
                    2009
                  
                  
                  December 31,
                    2008Trust
      Advisor Fees Payable
                  
                  $
                  481
                  
                  
                  $
                  453Interest
      Payable
                  
                  
                  161
                  
                  
                  
                  125Audit
      Fees
                  
                  
                  11
                  
                  
                  
                  97Incentive
      Compensation
                  
                  
                  63
                  
                  
                  
                  67FDIC
      Assessment Payable
                  
                  
                  58
                  
                  
                  
                  -Legal
                  
                  
                  39
                  
                  
                  
                  -Franchise
      & Property Taxes
                  
                  
                  19
                  
                  
                  
                  37Other
      Accruals
                  
                  
                  111
                  
                  
                  
                  81$
                  943
                  
                  
                  $
                  860





NOTE 11. INCOME TAXES




No
federal income tax expense has been recorded for quarter-ended June 30, 2009 as
net operating losses are being used to offset taxable income. Based upon the
Company’s limited operating history, the federal income tax benefit of these
losses has a valuation allowance equal to the amount of the benefit. As of
December 31, 2008, the Company had net tax operating loss carry forwards of
approximately $760,000 that will ultimately expire in 2028 if not used. This
amount is lower than the losses reflected in the financial statements as all
organizational costs are capitalized for income tax purposes and provisions for
loan losses are not recognized for tax purposes.





NOTE 12. STOCK OPTIONS




The
shareholders of the Company approved the 2005 Stock Incentive Plan at the annual
shareholder meeting held on June 2, 2005. The plan authorizes the granting of
options to purchase up to 260,000 shares of common stock of the Company to
employees of the Company and its subsidiaries. The plan is designed to provide
the Company with the flexibility to grant incentive stock options and
non-qualified stock options to its executive and other officers. The purpose of
the plan is to provide increased incentive for key employees to render services
and to exert maximum effort for the success of the Company. The plan has a term
of 10 years. The plan is administered by the Board of Directors. As of June 30,
2009, options to purchase a total of 195,500 had been issued with a weighted
average exercise price of $10.03. As of December 31, 2008, options to purchase a
total of 205,500 had been issued with a weighted average exercise price of
$9.87. These options vest through December 2013. These options could potentially
dilute earnings per share, but were not included in the earnings (loss) per
share computations because their effect was anti-dilutive for the six months
ended June 30, 2009 and 2008.




Effective
January 1, 2006, the Company adopted SFAS 123R using the
modified-prospective-transition method. Under this method, prior periods are not
restated. Also, under this transition method, stock compensation cost recognized
beginning January 1, 2006 includes: (a) compensation cost for all share-based
payments granted prior to, but not yet vested as of January 1, 2006, based on
the grant-date fair value estimated in accordance with the original provisions
of SFAS 123, and (b) compensation cost for all share-based payments granted on
or subsequent to January 1, 2006, based on the grant-date fair value estimated
in accordance with the provisions of SFAS 123R.


11


The
following is a summary of activity in the Company’s stock option plan at June
30, 2009:




Number of
                    Shares
                    Underlying
                    Options
                  
                  
                  Weighted
                    Average
                    Exercise
                    PricesOutstanding
      at beginning of the year
                  
                  
                  205,500
                  
                  
                  $
                  9.87Granted
                  
                  
                  -
                  
                  
                  
                  -Exercised
                  
                  
                  -
                  
                  
                  
                  -Expired
      / forfeited
                  
                  
                  10,000
                  
                  
                  
                  6.75Outstanding
      at end of period
                  
                  
                  195,500
                  
                  
                  $
                  10.03Exercisable
      at end of period
                  
                  
                  120,300
                  
                  
                  $
                  10.17Available
      for grant at end of period
                  
                  
                  53,500




The
weighted average remaining contractual life of options outstanding at June 30,
2009 was 6.8 years. Outstanding options were granted with a weighted average
exercise price of $10.03.




The
following is a summary of the Company’s nonvested options at June 30,
2009:




Shares
                      
                      
                      Weighted
                        Average
                        Grant Date
                        Fair ValueNonvested
      at January 1, 2009
                      
                      
                      88,700
                      
                      
                      $
                      2.78Granted
                      
                      
                      -
                      
                      
                      
                      -Vested
                      
                      
                      3,500
                      
                      
                      
                      2.39Forfeited
                      
                      
                      10,000
                      
                      
                      
                      2.01Nonvested
      at June 30, 2009
                      
                      
                      75,200
                      
                      
                      $
                      2.90




As of
June 30, 2009, there was approximately $198,000 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements to
be recognized over the vesting period.




NOTE 13. STOCK WARRANTS





The
Company had two stock warrant plans at June 30, 2009 and December 31, 2008. As
previously disclosed, the Board of Directors of the Company amended the
shareholder warrants to extend the expiration date of its initial shareholder
warrants to 2:00 p.m., Dallas, Texas time on the earlier of May 2, 2009, or the
occurrence of certain regulatory action.




Initial
shareholders of the Company received warrants to purchase one share of common
stock for every five shares of common stock purchased in the initial public
offering. A total of 336,000 warrants were issued, and zero and 323,199
respectively, were outstanding at June 30, 2009 and December 31, 2008. These
warrants were exercisable at a price of $12.50 per share at any time until May
2, 2009. During the six months ended June 30, 2009, no warrants were exercised
by their holders.  The warrants expired on May 2, 2009, and no
warrants were exercised during the three months ended June 30,
2009.


12





The
Company’s organizers advanced funds for organizational and other preopening
expenses. As consideration for the advances, the organizers received warrants to
purchase one share of common stock for every $20 advanced up to a maximum of
$100,000. A total of 96,750 warrants were issued and remain outstanding at June
30, 2009. These warrants are exercisable at a price of $10.00 per share at any
time until November 2, 2014. During the six months ended June 30, 2009, no
warrants were exercised.




There
were no additional warrants issued during the six months ended June 30,
2009. These warrants could potentially dilute earnings per share, but were
not included in the earnings (loss) per share computations because their effect
was anti-dilutive for the respective six months ending June 30, 2009 and
2008.




NOTE 14. COMMITMENTS AND
CONTINGENCIES




The
Company is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the accompanying balance sheets. The
Company's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. At June 30, 2009, the
Company had commitments to extend credit and standby letters of credit of
approximately $3.4 million and $15,000, respectively. At December 31, 2008, the
Company had commitments to extend credit and standby letters of credit of
approximately $6.5 million and $12,000, respectively.




Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments may expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.




Employment
Agreements




The
Company has entered into employment agreements with two officers of the Bank,
Steve Jones and Patrick Howard. The agreements are for an initial one-year term
and are automatically renewable for an additional one-year term unless either
party elects not to renew.




NOTE 15. REGULATORY
MATTERS




The Bank
is subject to various regulatory capital requirements administered by the
federal banking agencies. 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
and, accordingly, the Company’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
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.




Quantitative
measures established by regulations to ensure capital adequacy require the Bank
to maintain minimum amounts and ratios (set forth in the table below) of total
and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier 1 capital (as defined) to average assets (as defined). To
be categorized as well-capitalized, the Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the
table.





On July
9, 2008, the Bank announced that it entered into a Stipulation and Consent to
the Issuance of a Consent Order (the "Stipulation") and a Consent Order (the
"Order") with the Office of the Comptroller of the Currency (the "OCC"). The
Stipulation and the Order were based on the OCC's findings during its
examination as of September 30, 2007. As part of the Order, the Bank has agreed
to strengthen its Bank Secrecy Act ("BSA") internal controls, revise and
implement changes to its internal BSA audit program, maintain specific capital
ratios and correct any violations of law. Therefore, regardless of the Bank’s
capital position, the requirement in the Order to meet and maintain a specific
capital level means that the Bank may not be deemed to be well capitalized under
regulatory requirements as of June 30, 2009.


13


To be
categorized as well-capitalized under prompt corrective action provisions, the
Bank must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1
leverage ratios as set forth in the table.




(000's)
                                            
                                            Actual
                                            
                                            For Capital Adequacy Purposes
                                            
                                            To Be Well Capitalized Under
                                              Prompt Corrective Action
                                              ProvisionsAmount
                                            
                                            Ratio
                                            
                                            Amount
                                            
                                            Ratio
                                            
                                            Amount
                                            
                                            RatioAs
      of June 30, 2009Total
      Capital (to Risk Weighted Assets)
                                            
                                            $
                                            16,248
                                            
                                            13.89
                                            %
                                            $
                                            9,356
                                            ≥
                                            8.00
                                            %
                                            $
                                            11,695
                                            ≥
                                            10.00
                                            %Tier
      1 Capital (to Risk Weighted Assets)
                                            
                                            
                                            14,784
                                            
                                            12.64
                                            %
                                            
                                            4,678
                                            ≥
                                            4.00
                                            %
                                            
                                            7,017
                                            ≥
                                            6.00
                                            %Tier
      1 Capital (to Average Assets)
                                            
                                            
                                            14,784
                                            
                                            9.47
                                            %
                                            
                                            6,244
                                            ≥
                                            4.00
                                            %
                                            
                                            7,806
                                            ≥
                                            5.00
                                            %As
      of December 31, 2008Total
      Capital (to Risk Weighted Assets)
                                            
                                            $
                                            14,400
                                            
                                            12.05
                                            %
                                            $
                                            9,558
                                            ≥
                                            8.00
                                            %
                                            $
                                            11,947
                                            ≥
                                            10.00
                                            %Tier
      1 Capital (to Risk Weighted Assets)
                                            
                                            
                                            12,905
                                            
                                            10.80
                                            %
                                            
                                            4,779
                                            ≥
                                            4.00
                                            %
                                            
                                            7,168
                                            ≥
                                            6.00
                                            %Tier
      1 Capital (to Average Assets)
                                            
                                            
                                            12,905
                                            
                                            9.21
                                            %
                                            
                                            5,603
                                            ≥
                                            4.00
                                            %
                                            
                                            7,004
                                            ≥
                                            5.00
                                            %


14


NOTE 16. PARENT COMPANY CONDENSED FINANCIAL
STATEMENTS




T
BANCSHARES, INC.


CONDENSED
BALANCE SHEETS


(Unaudited)




(000's)
                  
                  June
      30,
                    2009
                  
                  
                  December 31,
                    2008ASSETSCash
      and due from banks
                  
                  $
                  390
                  
                  
                  $
                  333Due
      from subsidiary
                  
                  
                  -
                  
                  
                  
                  333Other
      assets
                  
                  
                  -
                  
                  
                  
                  242Investment
      in subsidiary
                  
                  
                  14,786
                  
                  
                  
                  12,905Total
      Assets
                  
                  $
                  15,176
                  
                  
                  $
                  13,813LIABILITIES
      AND CAPITALOther
      Liabilities
                  
                  
                  3
                  
                  
                  
                  19Capital
                  
                  
                  15,173
                  
                  
                  
                  13,794Total
      Liabilities and Capital
                  
                  $
                  15,176
                  
                  
                  $
                  13,813




T
BANCSHARES, INC.


CONDENSED
STATEMENTS OF INCOME


(Unaudited)





Three Months Ended June 30,
                              
                              
                              Six Months Ended June 30,(000's)
                              
                              2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008Equity
      in income (loss) from subsidiary
                              
                              $
                              28
                              
                              
                              $
                              74
                              
                              
                              $
                              (121
                              )
                              
                              $
                              103Noninterest
      expense:Professional
      and administrative
                              
                              
                              29
                              
                              
                              
                              78
                              
                              
                              
                              24
                              
                              
                              
                              108Stock
      based compensation
                              
                              
                              22
                              
                              
                              
                              21
                              
                              
                              
                              50
                              
                              
                              
                              46Total
      noninterest expenses
                              
                              
                              51
                              
                              
                              
                              99
                              
                              
                              
                              74
                              
                              
                              
                              154Net
      loss
                              
                              $
                              (23
                              )
                              
                              $
                              (25
                              )
                              
                              $
                              (195
                              )
                              
                              $
                              (51
                              )


15





T
BANCSHARES, INC.


CONDENSED
STATEMENTS OF CASH FLOWS


(Unaudited)





Six Months Ended June
      30,(000's)
                
                2009
                
                
                2008Cash
      Flows from Operating ActivitiesNet
      loss
                
                $
                (195
                )
                
                $
                (51
                )Adjustments
      to reconcile net loss to net cash provided (used) by operating
      activities:Equity
      in (earnings) loss of Bank
                
                
                121
                
                
                
                (103
                )Stock
      based compensation
                
                
                50
                
                
                
                46Net
      change in other assets
                
                
                333
                
                
                
                -Net
      change in other liabilities
                
                
                (15
                )
                
                
                54Net
      cash provided (used) by operating activities
                
                
                294
                
                
                
                (54
                )Cash
      Flows from Investing ActivitiesProceeds
      from sale of premises and equipment
                
                
                -
                
                
                
                -Net
      cash used in investing activities
                
                
                -
                
                
                
                -Cash
      Flows from Financing ActivitiesNet
      proceeds from rights offering
                
                
                1,763
                
                
                
                -Contribution
      to bank
                
                
                (2,000
                )
                
                
                -Net
      cash used in financing activities
                
                
                (237
                )
                
                
                -Net
      change in cash and cash equivalents
                
                
                57
                
                
                
                (54
                )Cash
      and cash equivalents at beginning of period
                
                
                333
                
                
                
                743Cash
      and cash equivalents at end of period
                
                $
                390
                
                
                $
                689Supplemental
      disclosures of cash flow informationCash
      paid during the period forInterest
                
                $
                -
                
                
                $
                -Income
      taxes
                
                $
                -
                
                
                $
                -




NOTE
17. Fair Value Measurements




The fair
value of an asset or liability is the price that would be received to sell that
asset or paid to transfer that liability in an orderly transaction occurring in
the principal market (or most advantageous market in the absence of a principal
market) for such asset or liability. In estimating fair value, the Company
utilizes valuation techniques that are consistent with the market approach, the
income approach and/or the cost approach. Such valuation techniques are
consistently applied. Inputs to valuation techniques include the assumptions
that market participants would use in pricing an asset or liability.
SFAS 157, “Fair Value Measurements,” as clarified with several FSP’s,
establishes a fair value hierarchy for valuation inputs that gives the highest
priority to quoted prices in active markets for identical assets or liabilities
and the lowest priority to unobservable inputs. The fair value hierarchy is as
follows:





·
            Level 1 Inputs -
      Unadjusted quoted prices in active markets for identical assets or
      liabilities that the reporting entity has the ability to access at the
      measurement date.





·
            Level 2 Inputs -
      Inputs other than quoted prices included in Level 1 that are
      observable for the asset or liability, either directly or indirectly.
      These might include quoted prices for similar assets or liabilities in
      active markets, quoted prices for identical or similar assets or
      liabilities in markets that are not active, inputs other than quoted
      prices that are observable for the asset or liability (such as interest
      rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that
      are derived principally from or corroborated by market data by correlation
      or other means.


16





·
            Level 3 Inputs -
      Unobservable inputs for determining the fair values of assets or
      liabilities that reflect an entity’s own assumptions about the assumptions
      that market participants would use in pricing the assets or
      liabilities.




In
general, fair value is based upon quoted market prices, where available. If such
quoted market prices are not available, fair value is based upon internally
developed models that primarily use, as inputs, observable market-based
parameters. Valuation adjustments may be made to ensure that financial
instruments are recorded at fair value. The Company’s valuation methodologies
may produce a fair value calculation that may not be indicative of net
realizable value or reflective of future fair values. While management believes
the Company’s valuation methodologies are appropriate and consistent with other
market participants, the use of different methodologies or assumptions to
determine the fair value of certain financial instruments could result in a
different estimate of fair value at the reporting date. Furthermore, the
reported fair value amounts have not been comprehensively revalued since the
presentation dates, and therefore, estimates of fair value after the balance
sheet date may differ significantly from the amounts presented
herein.




The
following table summarizes financial and nonfinancial assets  measured
at fair value as of June 30, 2009, segregated by the level of the valuation
inputs within the fair value hierarchy utilized to measure fair
value:




(000's)
                
                Level 1
                  Inputs
                
                
                Level 2
                  Inputs
                
                
                Level 3
                  Inputs
                
                
                Total
                  Fair ValueSecurities
      available for sale:U.S.
      government agencies and corporations
                
                $
                —
                
                
                $
                5,564
                
                
                $
                —
                
                
                $
                5,564Other
      Assets:OREO
                
                
                —
                
                
                
                562
                
                
                
                —
                
                
                
                562





Non-financial
assets measured at fair value on a non-recurring basis include OREO. During the
first quarter of 2009, certain OREO assets, upon initial recognition, were
remeasured and reported at fair value through a charge-off to the allowance for
possible loan losses based upon the fair value of the OREO asset. The fair value
of an OREO asset, upon initial recognition, is estimated using Level 2
inputs based on observable market data.  In connection with the
measurement and initial recognition of the OREO assets, the Company recognized
charge-offs of the allowance for possible loan losses totaling $157,000, which
has been recorded on the consolidated statement of income as provision for loan
losses.


17




ITEM 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations




The
following discussion and analysis represents our consolidated financial
condition as of June 30, 2009 and December 31, 2008, and our consolidated
results of operations for the six months ended June 30, 2009 and 2008. The
discussion should be read in conjunction with our financial statements and the
notes related thereto, which appear elsewhere in this Quarterly Report on
Form 10-Q.




Statements
contained in this report that are not purely historical are forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, including our expectations, intentions, beliefs, or strategies
regarding the future. Any statements in this document about expectations,
beliefs, plans, objectives, assumptions or future events or performance are not
historical facts and are forward-looking statements. These statements are often,
but not always, made through the use of words or phrases such as “may,”
“should,” “could,” “predict,” “potential,” “believe,” “will likely result,”
“expect,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,”
“would” and “outlook,” and similar expressions. Accordingly, these statements
involve estimates, assumptions and uncertainties, which could cause actual
results to differ materially from those expressed in them. Any forward-looking
statements are qualified in their entirety by reference to the factors discussed
throughout this document. All forward-looking statements concerning economic
conditions, rates of growth, rates of income or values as may be included in
this document are based on information available to us on the dates noted, and
we assume no obligation to update any such forward-looking statements. It is
important to note that our actual results may differ materially from those in
such forward-looking statements due to fluctuations in interest rates,
inflation, government regulations, economic conditions, customer
disintermediation and competitive product and pricing pressures in the
geographic and business areas in which we conduct operations, including our
plans, objectives, expectations and intentions and other factors discussed under
the section entitled “Risk Factors,” in our Annual Report on Form 10-K for the
year ended December 31, 2008, including the following:




·
            we
      have limited operating history upon which to base an estimate of our
      future financial performance;





·
            if
      we are unable to implement our business plan and strategies, we will be
      hampered in our ability to develop business and serve our customers,
      which, in turn, could have an adverse effect on our financial
      performance;





·
            we
      are subject to significant government regulation and legislation that
      increases the cost of doing business and inhibits our ability to
      compete;





·
            if
      we fail to retain our key employees, growth and profitability could be
      adversely affected;





·
            we
      face substantial competition in our primary market
  area;





·
            if
      we fail to sustain attractive investment returns to our Trust customers,
      our growth and profitability in our Trust services could be adversely
      affected;





·
            we
      have a significant dental industry loan concentration in which economic or
      regulatory changes could adversely affect the ability of those customers
      to fulfill their loan obligations;





·
            if
      we fail to adequately address formal administrative actions with the
      Office of the Comptroller of the Currency, this may have an adverse impact
      on the Company’s operating results or financial
  condition;





·
            we
      compete in an industry that continually experiences technological change,
      and we may not be able to compete effectively with other banking
      institutions with greater
resources;





·
            the
      Bank’s current legally mandated lending limits are lower than those of our
      competitors, which may impair our ability to attract
      borrowers;





·
            an
      economic downturn, especially one affecting our primary service area, may
      have an adverse effect on our financial
  performance;





·
            changes
      in governmental economic and monetary policies, the Internal Revenue Code
      and banking and credit regulations, as well as other factors, will affect
      the demand for loans and the ability of the Bank to attract
      deposits;





·
            changes
      in the general level of interest rates and other economic factors can
      affect the Bank’s interest income by affecting the spread between
      interest-earning assets and interest-bearing
  liabilities;


18





·
            we
      have no current intentions of paying cash
  dividends;





·
            we
      may not be able to raise additional capital on terms favorable to us;
      and




·
            our
      directors and executive officers beneficially own a significant portion of
      our outstanding common stock.





These
factors and the risk factors referred to in our Annual Report on Form 10-K for
the year ended December 31, 2008 could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements made by
us, and you should not place undue reliance on any such forward-looking
statements. Any forward-looking statement reflects only information known to us
as of the date on which it is made and we do not undertake any obligation to
update any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time, and it
is not possible for us to predict which will arise.




Executive
Overview




Introduction




The
Company is a bank holding company headquartered in Dallas, Texas, offering a
broad array of banking services through the Bank. Our principal markets include
North Dallas, Addison, Plano, Frisco, Southlake and the neighboring Texas
communities. As of June 30, 2009, we had, on a consolidated basis, total assets
of $139.6 million, net loans of $119.6 million, total deposits of $99.5 million,
and shareholders’ equity of $15.2 million. We currently operate through a main
office located at 16000 Dallas Parkway, Dallas, Texas, and a branch office at
8100 North Dallas Parkway, Plano, Texas.  We also have a loan production
office located at 850 E. State Highway 114, Suite 200, Southlake,
Texas.




We were
incorporated under the laws of the State of Texas on December 23, 2002 to
organize and serve as the holding company for the Bank. In 2004, we completed an
initial public offering of our common stock, issuing 1,680,000 shares at a price
of $10.00 per share. The net proceeds that we received from the offering, after
deducting offering expenses, were approximately $16.4 million. The Bank opened
for business on November 2, 2004.




The
following discussion focuses on our financial condition at June 30, 2009 and
December 31, 2008, and our results of operations for the six months ended June
30, 2009 and 2008.





Recent
Developments





As
previously disclosed, the Company’s Chief Financial Officer resigned to pursue
other opportunities. The Company’s President, Patrick G. Adams, and the
Company’s Controller, Ken Bramlage, are performing indefinitely the duties
required of the Principal Financial Officer and both individuals are jointly
serving in that capacity.  Therefore, we consider these individuals
our acting Co-Principal Financial Officers for purposes of this report, though
no formal appointment has been made.




Results
of Operations




Net
Interest Income and Net Interest Margin




Net
interest income is the difference between interest income, principally from
loan, lease and investment securities portfolios, and interest expense,
principally on customer deposits and borrowed funds. Net interest income is our
principal source of earnings. Changes in net interest income result from changes
in volume and spread and are reflected in the net interest margin. Volume refers
to the average dollar level of interest-earning assets and interest-bearing
liabilities. Spread refers to the difference between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities.
Margin refers to net interest income divided by average interest-earning assets,
and is influenced by the level and relative mix of interest-earning assets and
interest-bearing liabilities.





The
following table presents the changes in net interest income and identifies the
changes due to differences in the average volume of earning assets and
interest–bearing liabilities and the changes due to changes in the average
interest rate on those assets and liabilities.  The changes in net
interest income due to changes in both average volume and average interest rate
have been allocated to the average volume change or the average interest rate
change in proportion to the absolute amounts of the change in
each.


19





June 30, 2009 vs. June 30, 2008Increase (Decrease) Due to
                    Change inRate
                  
                  
                  Volume
                  
                  
                  Days
                  
                  
                  TotalFederal
      Funds Sold
                  
                  $
                  (143
                  )
                  
                  $
                  12
                  
                  
                  $
                  (1
                  )
                  
                  $
                  (132
                  )Securities
                  
                  
                  (4
                  )
                  
                  
                  35
                  
                  
                  
                  -
                  
                  
                  
                  31Loans,
      net of reserve
                  
                  
                  (462
                  )
                  
                  
                  (353
                  )
                  
                  
                  (25
                  )
                  
                  
                  (840
                  )Total
      earning assets
                  
                  
                  (609
                  )
                  
                  
                  (306
                  )
                  
                  
                  (26
                  )
                  
                  
                  (941
                  )NOW
                  
                  
                  (3
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3
                  )Money
      Market
                  
                  
                  (309
                  )
                  
                  
                  (8
                  )
                  
                  
                  (3
                  )
                  
                  
                  (320
                  )Savings
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Certificates
      of deposit $100,000 or less
                  
                  
                  (97
                  )
                  
                  
                  (190
                  )
                  
                  
                  (3
                  )
                  
                  
                  (290
                  )Certificates
      of deposit $100,000 or more
                  
                  
                  (122
                  )
                  
                  
                  (231
                  )
                  
                  
                  (6
                  )
                  
                  
                  (359
                  )Borrowed
      Funds
                  
                  
                  -
                  
                  
                  
                  35
                  
                  
                  
                  -
                  
                  
                  
                  35Total
      Interest-bearing liabilities
                  
                  
                  (531
                  )
                  
                  
                  (394
                  )
                  
                  
                  (12
                  )
                  
                  
                  (937
                  )Changes
      in net interest income
                  
                  $
                  (78
                  )
                  
                  $
                  88
                  
                  
                  $
                  (14
                  )
                  
                  $
                  (4
                  )





Net
interest income for the six months ended June 30, 2009 decreased $4,000, or
0.2%, compared to the same period in the prior year.  The decrease was
due to a decline in both the average interest yield and volume for earning
assets, which was partially offset by both a decrease in average interest yield
and volume for interest bearing deposits.  The components of net
interest income are discussed below.





Total
interest income decreased $941,000, or 18.1%, to $4.2 million for the six months
ended June 30, 2009, compared to $5.2 million for the same period in the prior
year.  The decrease is due to a decrease in the average interest yield
for average earning assets and a decrease in earning asset
volume.  The average interest yield fell to 5.9%, or 15.7%, for the
six months ended June 30, 2009, compared to 7.0% for the same period in the
prior year.  Average earning asset volume fell $4.2 million, or 2.8%,
to $143.6 million for the six months ended June 30, 2009, compared to $147.8
million for the same period in the prior year.




Total
interest expense decreased by $937,000, or 35.9%, to $1.7 million for the six
months ended June 30, 2009, compared to $2.6 million for the six months ended
June 30, 2008.  The decrease in interest expense is due to a decrease
in the average rate paid for interest bearing deposits and to a decrease in the
volume of average interest earning deposits.  For the six month period
ended June 30, 2009, the average rate paid for interest earning deposits fell to
2.7% as compared to 4.2% for the same period in the prior
year.  Average interest bearing deposit volume fell $2.0 million, or
1.6%, to $122.4 million for the six months ended June 30, 2009, compared to
$124.4 million for the same period in the prior year.  However, the
decrease in interest bearing deposits was offset by the use of borrowed
funds.  Borrowed funds averaged $18.6 million and had an average rate
of 0.4% for the six months ended June 30, 2009.  By comparison, the
Company had no borrowed funds in the same period in the prior year.




Key
Performance Indicators at June 30, 2009




The
following were key indicators of our performance and results of operations
through the first two quarters of 2009:




·
            total
      assets increased to $139.6 million at the end of the second quarter of
      2009, representing an increase of $3.4 million, or 2.4%, from $136.2
      million at the end of 2008;




·
            total
      loans, net of allowance for loan losses, decreased to $119.6 million at
      the end of the second quarter of 2009, representing a decrease
      of  $3.8 million, or 3.1%, from $123.4 million at the end of
      2008;




·
            total
      deposits decreased to $99.5 million at the end of the second quarter of
      2009, representing a decrease of $11.6 million, or 10.5%, from $111.1
      million at the end of 2008;




·
            total
      revenue was $7.5 million for the six months ended June 30, 2009, compared
      to $10.9 million for the same period in the prior year, representing a
      decrease of 31.5%, or $3.4
million.


20




·
            net
      loss was $195,000 for the six months ended June 30, 2009, compared to net
      loss of $51,000 for the same period in the prior
  year.




The
following table sets forth our average balances of assets, liabilities and
shareholders’ equity, in addition to the major components of net interest income
and our net interest margin for the six months ended June 30, 2009 and
2008.


21





FINANCIAL
SUMMARY


Consolidated
Daily Average Balances, Average Yields and Rates





Six Months Ended June 30,2009
                      
                      
                      2008(000's) except earnings per share
                      
                      Average
                        Balance
                      
                      
                      Interest
                      
                      
                      Average
                        Yield
                      
                      
                      Average
                        Balance
                      
                      
                      Interest
                      
                      
                      Average
                        YieldInterest-earning
      assetsLoans,
      net of reserve
                      
                      $
                      120,897
                      
                      
                      $
                      4,131
                      
                      
                      
                      6.8
                      %
                      
                      $
                      131,274
                      
                      
                      $
                      4,972
                      
                      
                      
                      7.3
                      %Federal
      funds sold
                      
                      
                      18,579
                      
                      
                      
                      61
                      
                      
                      
                      0.7
                      %
                      
                      
                      15,056
                      
                      
                      
                      193
                      
                      
                      
                      1.8
                      %Securities
                      
                      
                      4,143
                      
                      
                      
                      55
                      
                      
                      
                      2.7
                      %
                      
                      
                      1,502
                      
                      
                      
                      24
                      
                      
                      
                      3.8
                      %Total
      earning assets
                      
                      
                      143,619
                      
                      
                      
                      4,247
                      
                      
                      
                      5.9
                      %
                      
                      
                      147,832
                      
                      
                      
                      5,189
                      
                      
                      
                      7.0
                      %Cash
      and other assets
                      
                      
                      4,316
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      4,650Total
      assets
                      
                      $
                      147,935
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      152,482Interest-bearing
      liabilitiesNOW
      accounts
                      
                      $
                      1,817
                      
                      
                      $
                      7
                      
                      
                      
                      0.8
                      %
                      
                      $
                      1,823
                      
                      
                      $
                      10
                      
                      
                      
                      1.1
                      %Money
      market accounts
                      
                      
                      45,142
                      
                      
                      
                      351
                      
                      
                      
                      1.6
                      %
                      
                      
                      46,900
                      
                      
                      
                      671
                      
                      
                      
                      2.9
                      %Savings
      accounts
                      
                      
                      186
                      
                      
                      
                      1
                      
                      
                      
                      1.2
                      %
                      
                      
                      156
                      
                      
                      
                      1
                      
                      
                      
                      1.4
                      %Certificates
      of deposit less than $100,000
                      
                      
                      19,612
                      
                      
                      
                      428
                      
                      
                      
                      4.4
                      %
                      
                      
                      28,390
                      
                      
                      
                      721
                      
                      
                      
                      5.1
                      %Certificates
      of deposit $100,000 or greater
                      
                      
                      37,090
                      
                      
                      
                      851
                      
                      
                      
                      4.6
                      %
                      
                      
                      47,139
                      
                      
                      
                      1,208
                      
                      
                      
                      5.1
                      %Total
      interest bearing deposits
                      
                      
                      103,847
                      
                      
                      
                      1,638
                      
                      
                      
                      3.2
                      %
                      
                      
                      124,408
                      
                      
                      
                      2,611
                      
                      
                      
                      4.2
                      %Borrowed
      funds
                      
                      
                      18,560
                      
                      
                      
                      35
                      
                      
                      
                      0.4
                      %
                      
                      
                      -
                      
                      
                      
                      -Total
      interest bearing liabilities
                      
                      
                      122,407
                      
                      
                      
                      1,673
                      
                      
                      
                      2.7
                      %
                      
                      
                      124,408
                      
                      
                      
                      2,611
                      
                      
                      
                      4.2
                      %Noninterest
      bearing deposits
                      
                      
                      10,090
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      13,927
                      
                      
                      
                      -Other
      liabilities
                      
                      
                      652
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      932Stockholders
      equity
                      
                      
                      14,786
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      13,215Total
      liabilities and stockholders' equity
                      
                      $
                      147,935
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      152,482Net
      interest income
                      
                      
                      
                      
                      
                      
                      2,574
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2,578Net
      interest spread
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3.2
                      %
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      2.8
                      %Net
      interest margin
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3.6
                      %
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      3.5
                      %Provision
      for loan loss
                      
                      
                      
                      
                      
                      
                      158
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      300Non-interest
      income
                      
                      
                      
                      
                      
                      
                      3,228
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      5,726Non-interest
      expense
                      
                      
                      
                      
                      
                      
                      5,839
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      8,055Loss
      before income taxes
                      
                      
                      
                      
                      
                      
                      (195
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (51
                      )Income
      taxes expense (benefit)
                      
                      
                      
                      
                      
                      
                      -
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -Net
      loss
                      
                      
                      
                      
                      
                      $
                      (195
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      $
                      (51
                      )Earnings
      (loss) per share
                      
                      
                      
                      
                      
                      
                      (0.10
                      )
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (0.03
                      )Return
      on average equity
                      
                      
                      
                      
                      
                      
                      (1.32
                      )%
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (0.77
                      )%Return
      on average assets
                      
                      
                      
                      
                      
                      
                      (0.13
                      )%
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (0.07
                      )%Equity
      to assets ratio
                      
                      
                      
                      
                      
                      
                      9.99
                      %
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      8.67
                      %




22




Provision
for Loan Losses




We
determined a provision for loan losses that we consider sufficient to maintain
an allowance to absorb probable losses inherent in our portfolio as of the
balance sheet date. For additional information concerning this determination,
see the section of this discussion and analysis captioned “Allowance for Loan
Losses.”




For the
six months ended June 30, 2009, our provision for loan losses was $158,000. The
provision amounts are directly related to loan volumes. For the six months ended
June 30, 2008, our provision for loan losses was $300,000. We had charge-offs of
$157,000 and recoveries of $9,000 during the six months ended June 30,
2009.  We had charge-offs of $352,000 and no recoveries for the six
months ended June 30, 2008.




Non-interest
Income




Non-interest
income for the six months ended June 30, 2009 was $3.2 million and was primarily
attributable to fee income generated by the Company for trust services and
service charges on depository accounts. Fee income and service charges for the
same period in the prior year totaled $5.7 million.





Trust
income is earned on the value of managed and non-managed assets held in
custody.  For the six months ended June 30, 2009, trust income
decreased $2.5 million, or 43.9%, to $3.2 million, as compared to $5.7 million
for the same period in the prior year.  The decrease in trust income
is directly attributable to the 30% decline observed in the stock market since
September 2008, resulting in a decrease in the aggregate amount of assets under
management.





Service
fees were $46,000 for the six months ended June 30, 2009, compared to $54,000
for the same period in the prior year.





Noninterest
Expense




Total
noninterest expense was $5.8 million for the six months ended June 30, 2009,
which has decreased from $8.1 million for the six months ended June 30,
2008.




Salaries
and employee benefits increased $88,000, or 6.8%, to $1.6 million for the six
months ended June 30, 2009, which has decreased from $1.5 million for the same
period in the prior year.  The increase in salaries and employee
benefit expenses is attributable to adding three individuals to the executive
team in 2008.  Overall, we had 31 full-time equivalent employees as of
June 30, 2009, compared to 28 employees as of June 30, 2008.




Occupancy
and equipment expenses are primarily lease expenses and depreciation and
amortization of leasehold improvements and furniture, fixtures and
equipment.  For the six months ended June 30, 2009, occupancy and
equipment expense decreased $16,000, or 2.3%, to $682,000, which has decreased
from $698,000 for the same period in the prior year.




Trust
expenses are advisory fees paid to a fund advisor to manage certain assets held
in the trust department and are based on the value of the assets held in
custody.  For the six months ended June 30, 2009, trust expenses
decreased $2.2 million, or 44.4%, to $2.8 million as compared to $5.0 million
for the same period in the prior year.  Similar to trust income, the
decrease in trust expense is directly attributable to the 30% decline observed
in the stock market since September 2008.





Professional
fees were $217,000 for the six months ended June 30, 2009, which has decreased
from $345,000 for the same period in the prior year.





Data
processing fees were $139,000 for the six months ended June 30, 2009, which has
decreased from $176,000 for the same period in the prior year.




Income
Taxes




No
federal income tax expense was recorded for the six months ended June 30, 2009,
due to available operating losses to offset taxable income.  Based
upon the Company’s limited operating history, the federal tax benefit of these
losses has a valuation allowance equal to the benefit.  Cumulative net
operating loss available to carry forward for tax purposes is approximately
$760,000 as of December 31, 2008.




Financial
Condition




Our total assets as of June 30, 2009
were $139.6 million, compared to $136.2 million as of December 31, 2008.
Deposits were $99.5 million as of June 30, 2009, compared to $111.1 million as
of December 31, 2008. Borrowed funds as of June 30, 2009 were $24.0 million,
compared to $10.5 million as of December 31, 2008.  The increase in
borrowed funds and the corresponding decrease in deposits is a result of the
Company replacing higher cost deposits on a short term basis with lower rate
advances from the Federal Reserve Bank and the Federal Home Loan
Bank.


23


As of
June 30, 2009, our shareholders’ equity was $15.2 million, compared to $13.8
million as of December 31, 2008.  The $1.4 million increase in equity
is due to net proceeds of $1.5 million raised in rights offering completed at
the beginning of 2009 and the $195,000 loss recognized through the first six
months of 2009.





Short-Term
Investments and Interest-bearing Deposits in Other Financial
Institutions




At June
30, 2009, we had $7.9 million in federal funds sold. At December 31, 2008, we
had $7.2 million in federal funds sold. Federal funds sold allow us to meet
liquidity requirements and provide temporary interest-bearing holdings until the
funds can be otherwise deployed or invested.





Investment
Securities




Our
investment portfolio primarily serves as a source of interest income and,
secondarily, as a source of liquidity and a management tool for our interest
rate sensitivity. We manage our investment portfolio according to a written
investment policy established by our Board of Directors and implemented by our
Investment/Asset-Liability Committee.




At June
30, 2009, our securities included Federal Reserve Bank of Dallas stock and
Federal Home Loan Bank of Dallas stock at cost of $420,000 and $779,000,
respectively, with an estimated fair value that approximated cost. The increase
in Federal Home Loan Bank of Dallas stock, as compared to $302,000 as of
December 31, 2008,  was to facilitate additional borrowings. We also
had government agency securities with amortized cost of $6.5 million and fair
value of $6.6 million. Weighted average yield of the securities portfolio at
June 30, 2009 was 2.7%.  Securities with market value of $3.4 million
were pledged against borrowed funds at the FHLB, and one security with market
value of $928,000 was pledged against trust deposit balances held at the
bank.





At
December 31, 2008, our securities consisted of Federal Reserve Bank of Dallas
stock and Federal Home Loan Bank of Dallas stock at cost and fair value of
$420,000 and $302,000, respectively. We also had a government agency security
with amortized cost of $981,000 and fair value of $1,012,000.  Weighted
average yield of the securities portfolio at December 31, 2008 was
3.3%





Loan
Portfolio




Our
primary source of income is interest on loans. The following table presents the
composition of our loan portfolio by category as of the dates
indicated:




As of
                  
                  
                  As of(000's)
                  
                  June 30, 2009
                  
                  
                  December 31, 2008Commercial
      and industrial
                  
                  $
                  82,573
                  
                  
                  $
                  81,342Consumer
      installment
                  
                  
                  2,295
                  
                  
                  
                  3,799Real
      estate — mortgage
                  
                  
                  26,032
                  
                  
                  
                  20,543Real
      estate — construction
                  
                  
                  10,338
                  
                  
                  
                  19,481Other
                  
                  
                  107
                  
                  
                  
                  12Total
      loans
                  
                  
                  121,345
                  
                  
                  
                  125,177Less
      allowance for loan losses
                  
                  
                  1,648
                  
                  
                  
                  1,638Less
      deferred loan fees
                  
                  
                  146
                  
                  
                  
                  146Total
      net loans
                  
                  $
                  119,551
                  
                  
                  $
                  123,393




As of
June 30, 2009 and December 31, 2008, our total net loans were $119.6 million and
$123.4 million, respectively. Total loans, net of reserves and deferred fees, as
a percentage of total assets were 85.7% as of June 30, 2009, and 90.6% as of
December 31, 2008.




Our
commercial loan portfolio is composed of lines of credit for working capital and
term loans to finance equipment and other business assets. Our lines of credit
typically are limited to a percentage of the value of the assets securing the
line. Lines of credit and term loans typically are reviewed annually and are
supported by accounts receivable, inventory, equipment and other assets of our
clients businesses. At June 30, 2009 and December 31, 2008, commercial loans
totaled $82.6 million and $81.3 million, representing approximately 68.0% and
65.0% of our total funded loans, respectively.




Our
consumer loan portfolio consists of personal lines of credit and loans to
acquire personal assets such as automobiles and boats. Our lines of credit
generally have terms of one year and our term loans generally have terms of
three to five years. Our lines of credit typically have floating rates. At June
30, 2009 and December 31, 2008, consumer loans totaled $2.3 million and $3.8
million, approximately 1.9% and 3.0% of our total funded loans,
respectively.


24


Our real
estate loan portfolio is composed of construction loans and short-term mortgage
loans. Construction loans consist primarily of single-family residential
properties, typically have terms of less than one year and have floating rates
and commitment fees. Our construction loans are typically to builders who have
an established record of successful project completion and loan repayment.
Short-term mortgage loans are typically secured by commercial properties
occupied by the borrower; typically have terms of three to ten years with both
fixed and floating rates. At June 30, 2009 and December 31, 2008, real estate
loans totaled $37.3 million and $40.0 million, approximately 30.7% and 32.0% of
our total loans, respectively. The decline in real estate loans is primarily due
to reductions in the construction loan portfolio as a result of loans paying at
or before maturity.  Additionally, current economic conditions have
resulted in fewer requests from credit worthy borrowers.  The $9.1
million reduction in real estate construction loans was partially offset by a
$5.5 million increase in borrower occupied commercial mortgages.





Loan
concentrations are considered to exist when there are amounts loaned to multiple
borrowers engaged in similar activities that would cause them to be similarly
impacted by economic or other conditions. At June 30, 2009, our commercial loan
portfolio included $75.3 million of loans, approximately 62.1% of our total
funded loans, to dental professionals. These loans were to fund practice
acquisitions, practice enhancements, equipment purchases, real estate and
personal borrowing needs. We believe that these loans are well secured to credit
worthy borrowers and are diversified geographically. As new loans are generated
the percentage of the total loan portfolio consisting of the foregoing
concentration may remain constant or increase thereby continuing the risk
associated with industry concentration.




Management
may renew loans at maturity when requested by a customer whose financial
strength appears to support such a renewal or when such a renewal appears to be
in our best interest. We require payment of accrued interest in such instances
and may adjust the rate of interest, require a principal reduction, or modify
other terms of the loan at the time of renewal.




The
following table shows the maturity/reset date distribution and type of loan
within our loan portfolio as of June 30, 2009:





As of June 30, 2009Over 1 Year through
                                                  5 Years
                                                
                                                
                                                Over 5 Years(000's)
                                                
                                                One Year
                                                  or
                                                  Less
                                                
                                                
                                                Fixed Rate
                                                
                                                
                                                Floating or
                                                  Adjustable
                                                  Rate
                                                
                                                
                                                Fixed Rate
                                                
                                                
                                                Floating or
                                                  Adjustable
                                                  Rate
                                                
                                                
                                                TotalCommercial
      and industrial *
                                                
                                                $
                                                13,563
                                                
                                                
                                                $
                                                11,016
                                                
                                                
                                                $
                                                8,624
                                                
                                                
                                                $
                                                49,092
                                                
                                                
                                                $
                                                278
                                                
                                                
                                                $
                                                82,573Consumer
      installment
                                                
                                                
                                                431
                                                
                                                
                                                
                                                973
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                891
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,295Real
      estate — mortgage
                                                
                                                
                                                8,731
                                                
                                                
                                                
                                                7,205
                                                
                                                
                                                
                                                342
                                                
                                                
                                                
                                                7,857
                                                
                                                
                                                
                                                1,898
                                                
                                                
                                                
                                                26,033Real
      estate — construction*
                                                
                                                
                                                9,627
                                                
                                                
                                                
                                                710
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                10,337Other
                                                
                                                
                                                107
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                107Total
                                                
                                                $
                                                32,459
                                                
                                                
                                                $
                                                19,904
                                                
                                                
                                                $
                                                8,966
                                                
                                                
                                                $
                                                57,840
                                                
                                                
                                                $
                                                2,176
                                                
                                                
                                                $
                                                121,345




*Includes
nonaccrual and other loans at June 30, 2009.


25


Nonperforming
Loans and Assets




Nonperforming
assets consist of loans on nonaccrual status, loans 90 days or more past due and
still accruing interest, loans that have been restructured resulting in a
reduction or deferral of interest or principal, other real estate owned
(“OREO”), and other repossessed assets. The impact of foreclosures and
distressed sales is impacting the value of real estate and the overall economy
broadly. This economic downturn has affected our real estate portfolio. As of
June 30, 2009, we had no loans 90 days or more past due and still accruing
interest, $3.4 million in loans on nonaccrual status and $562,000 in OREO. At
December 31, 2008, we had $1.3 million of 90 days or more past due and still
accruing interest, $3.3 million in loans on nonaccrual status and no
OREO.  Total nonperforming assets as of June 30, 2009 was $4.0
million, down 13% compared to $4.6 million as of December 31,
2008.




A
potential problem loan is defined as a loan where information about possible
credit problems of the borrower is known, causing management to have doubts as
to the ability of the borrower to comply with the present loan payment terms and
which may result in the inclusion of such loan in one of the nonperforming asset
categories. We maintain an internally classified loan list that helps management
assess the overall quality of the loan portfolio and the adequacy of the
allowance for loan losses. Loans classified as “special mention” are those that
contain a weakness that, if left unattended, could develop into a problem
affecting the ultimate collectability of the loan. Loans classified as
“substandard” are those loans with clear and defined weaknesses such as highly
leveraged positions, unfavorable financial ratios, uncertain repayment resources
or poor financial condition, which may jeopardize recoverability of the loan.
Loans classified as “doubtful” are those loans that have characteristics similar
to substandard loans, but also have an increased risk that loss may occur or at
least a portion of the loan may require a charge-off if liquidated at present.
Although loans classified as substandard do not duplicate loans classified as
doubtful, both substandard and doubtful loans may include some loans that are
past due at least 90 days, are on nonaccrual status, or have been restructured.
Loans classified as “loss” are those loans that are in the process of being
charged-off. At June 30, 2009 the Company had $6.5 million in special mention
loans, $9.7 million in substandard loans and no loans classified as doubtful,
compared to $8.2 million in special mention loans, $4.8 million in substandard
loans and no loans classified as doubtful loans at December 31,
2008.





Allowance
for Loan Losses




Implicit
in our lending activities is the fact that we will experience loan losses and
that the risk of loss will vary with the type of loan being made and the
creditworthiness of the borrower over the term of the loan. To reflect the
currently perceived risk of loss associated with our loan portfolio, additions
are made to our allowance for loan losses in the form of direct charges against
income and our allowance is available to absorb possible loan losses. The
factors that influence the allowance amount include, among others, the remaining
collateral and/or financial condition of the borrowers, historical loan loss,
changes in the size and composition of the loan portfolio, and general economic
conditions.




The
amount of the allowance equals the cumulative total of the provisions made from
time to time, reduced by loan charge-offs and increased by recoveries of loans
previously charged-off. Our allowance for loan losses was $1.6 million, or 1.4%
of total funded loans, at June 30, 2009, compared to 1.3% at December 31,
2008.




Credit
and loan decisions are made by management and the Board of Directors in
conformity with loan policies established by the Board. Our practice is to
charge-off any loan or portion of a loan when the loan is determined by
management to be fully or partially uncollectible due to the borrower’s failure
to meet repayment terms, the borrower’s deteriorating or deteriorated financial
condition, the depreciation of the underlying collateral, the loan’s
classification as a loss by regulatory examiners, or other reasons. With the
current downturn in the economy, charge-offs in our portfolio have increased. We
had charge-offs of $157,000 and recoveries of $9,000 during the six months ended
June 30, 2009. During the year ended December 31, 2008, we had charge-offs of
$451,000 and recoveries of $72,000.


26


The
following table sets forth the specific allocation of the allowance for the
periods indicated and the percentage of allocated possible loan losses in each
category to total gross loans. An allocation for a loan classification is only
for internal analysis of the adequacy of the allowance and is not an indication
of expected or anticipated losses. Although we believe we use the best
information available to make loan loss allowance determinations, future
adjustments could be necessary if circumstances or economic conditions differ
substantially from the assumptions used in making our initial determinations.
The current downturn in the economy or higher unemployment could result in
increased levels of nonperforming assets and charge-offs, increased loan loss
provisions and reductions in income. Additionally, as an integral part of their
examination process, bank regulatory agencies periodically review our allowance
for loan losses. The banking agencies could require the recognition of additions
to the loan loss allowance based on their judgment of information available to
them at the time of their examination




(000's)
                
                As of
                  June 30, 2009
                
                
                As of
                  December 31, 2008Allocated:
                
                Amount
                
                
                Loan
                  Category to
                  Gross Loans
                
                
                Amount
                
                
                Loan
                  Category to
                  Gross LoansCommercial
      and industrial
                
                $
                1,121
                
                
                
                68.0
                %
                
                $
                1,064
                
                
                
                65.0
                %Consumer
      installment
                
                
                33
                
                
                
                2.0
                %
                
                
                49
                
                
                
                3.0
                %Real
      estate — mortgage
                
                
                354
                
                
                
                21.5
                %
                
                
                269
                
                
                
                16.4
                %Real
      estate — construction
                
                
                140
                
                
                
                8.5
                %
                
                
                256
                
                
                
                15.6
                %Total
      allowance for loan losses
                
                $
                1,648
                
                
                
                100.0
                %
                
                $
                1,638
                
                
                
                100.0
                %




Nonearning
Assets




Premises,
leasehold improvements and equipment, net of accumulated depreciation and
amortization, totaled $1.0 million at June 30, 2009 and $1.2 million at December
31, 2008.





Deposits




Deposits
are our primary source of funding. Total average deposits at June 30, 2009 and
December 31, 2008 were $113.9 million and $135.9 million, respectively,
representing a decrease of $22.0 million, or 16.2%, during the six month period
ending June 30, 2009. We continue to seek ways to attract additional deposits.
The following table sets forth, for the periods indicated, the distribution of
our average deposit account balances and average cost of funds on each category
of deposits:





For the six months ended(000's)
                
                June 30, 2009
                
                
                June 30, 2008Average
                  Balance
                
                
                Percent of
                  Deposits
                
                
                Average
                  Rate
                
                
                Average
                  Balance
                
                
                Percent of
                  Deposits
                
                
                Average
                  RateNoninterest
      bearing deposits
                
                $
                10,090
                
                
                
                8.9
                %
                
                
                0.0
                %
                
                $
                13,927
                
                
                
                10.1
                %
                
                
                0.0
                %NOW
      accounts
                
                
                1,817
                
                
                
                1.6
                %
                
                
                0.8
                %
                
                
                1,823
                
                
                
                1.3
                %
                
                
                1.1
                %Money
      market accounts
                
                
                45,142
                
                
                
                39.6
                %
                
                
                1.6
                %
                
                
                46,900
                
                
                
                33.9
                %
                
                
                2.9
                %Savings
      accounts
                
                
                186
                
                
                
                .2
                %
                
                
                1.2
                %
                
                
                156
                
                
                
                0.1
                %
                
                
                1.4
                %Certificates
      of deposit, less than $100,000
                
                
                19,612
                
                
                
                17.2
                %
                
                
                4.4
                %
                
                
                28,390
                
                
                
                20.5
                %
                
                
                5.1
                %Certificates
      of deposit, $100,000 or greater
                
                
                37,090
                
                
                
                32.5
                %
                
                
                4.6
                %
                
                
                47,139
                
                
                
                34.1
                %
                
                
                5.1
                %Total
      deposits
                
                $
                113,937
                
                
                
                100.00
                %
                
                
                3.2
                %
                
                $
                138,335
                
                
                
                100.00
                %
                
                
                4.2
                %


27


The
following table sets forth the amount and maturities of the certificates of
deposit of $100,000 or more as of the dates indicated:




(000's)
                  
                  June 30,
                    2009
                  
                  
                  December 31,
                    2008Three
      months or less
                  
                  $
                  2,765
                  
                  
                  $
                  3,345Over
      three months through 12 months
                  
                  
                  15,753
                  
                  
                  
                  7,557Over
      one year through three years
                  
                  
                  16,308
                  
                  
                  
                  21,031Over
      three years
                  
                  
                  3,057
                  
                  
                  
                  5,307Total
                  
                  $
                  37,883
                  
                  
                  $
                  37,240




Off-Balance
Sheet Arrangements




Neither
the Company nor the Bank has any material off-balance sheet arrangements other
than the Bank’s commitments to extend credit at June 30, 2009. See Note 14 to
the financial statements included in this report. In addition to the on balance
sheet liquidity available, the Bank has a line of credit with the Federal Home
Loan Bank of Dallas and the Federal Reserve Bank of Dallas, which provides us
with a source of off-balance sheet liquidity. As of June 30, 2009, our
established credit line with the Federal Home Loan Bank was $17.1 million, or
12.2% of assets, of which $17.0 million was utilized. As of June 30, 2009, our
established credit line with the Federal Reserve Bank was $23.9 million, or
17.2% of assets, of which $7.0 million was utilized. We also have access to
federal funds purchased for $5.1 million or 3.6% of assets. Additionally, we
serve as trustee or custodian for $84.4 million in cash deposits held in a
Blackrock money market mutual fund, of which approximately $49.8 million could
be held at the Bank fully insured by the FDIC.





Capital Resources
and Capital Adequacy Requirements




The
risk-based capital regulations established and administered by the banking
regulatory agencies discussed previously are applicable to the Bank. Risk-based
capital guidelines are designed to make regulatory capital requirements more
sensitive to differences in risk profiles among banks, to account for
off-balance sheet exposure, and to minimize disincentives for holding liquid
assets. Under the regulations, assets and off-balance sheet items are assigned
to broad risk categories, each with appropriate weights. The resulting capital
ratios represent capital as a percentage of total risk weighted assets and
off-balance sheet items. Under the prompt corrective action regulations, to be
adequately capitalized a bank must maintain minimum ratios of total capital to
risk-weighted assets of 8.00%, Tier 1 capital to risk-weighted assets of 4.00%,
and Tier 1 capital to total assets of 4.00%. Failure to meet these 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. A well-capitalized
institution must maintain a minimum ratio of total capital to risk-weighted
assets of at least 10.00%, a minimum ratio of Tier 1 capital to risk weighted
assets of at least 6.00%, and a minimum ratio of Tier 1 capital to total assets
of at least 5.00% and must not be subject to any written order, agreement, or
directive requiring it to meet or maintain a specific capital
level.




On July
9, 2008, the Bank announced that it entered into a Stipulation and Consent to
the Issuance of a Consent Order (the "Stipulation") and a Consent Order (the
"Order") with the Office of the Comptroller of the Currency (the "OCC"). The
Stipulation and the Order were based on the OCC's findings during its
examination as of September 30, 2007. As part of the Order, the Bank has agreed
to strengthen its Bank Secrecy Act ("BSA") internal controls, revise and
implement changes to its internal BSA audit program, maintain specific capital
ratios and correct any violations of law. Regardless of the Bank’s capital
position, the requirement in the Order to meet and maintain a specific capital
level means that the Bank may not be deemed to be well capitalized under
regulatory requirements, irrespective of the Bank’s actual capital ratios. The
Bank has been in compliance with this requirement.


28





Actual
                                                  
                                                  
                                                  For Capital Adequacy
                                                    Purposes
                                                  
                                                  
                                                  To Be Well Capitalized
                                                    Under Prompt Corrective
                                                    Action Provisions(000's)
                                                  
                                                  Amount
                                                  
                                                  
                                                  Ratio
                                                  
                                                  
                                                  Amount
                                                  
                                                  
                                                  Ratio
                                                  
                                                  
                                                  Amount
                                                  
                                                  
                                                  RatioAs
      of June 30, 2009Total
      Capital (to Risk Weighted Assets)
                                                  
                                                  $
                                                  16,248
                                                  
                                                  
                                                  
                                                  13.89
                                                  %
                                                  
                                                  $
                                                  9,356
                                                  ≥
                                                  
                                                  
                                                  8.00
                                                  %
                                                  
                                                  $
                                                  11,695
                                                  ≥
                                                  
                                                  
                                                  10.00
                                                  %Tier
      1 Capital (to Risk Weighted Assets)
                                                  
                                                  
                                                  14,784
                                                  
                                                  
                                                  
                                                  12.64
                                                  %
                                                  
                                                  
                                                  4,678
                                                  ≥
                                                  
                                                  
                                                  4.00
                                                  %
                                                  
                                                  
                                                  7,017
                                                  ≥
                                                  
                                                  
                                                  6.00
                                                  %Tier
      1 Capital (to Average Assets)
                                                  
                                                  
                                                  14,784
                                                  
                                                  
                                                  
                                                  9.47
                                                  %
                                                  
                                                  
                                                  6,244
                                                  ≥
                                                  
                                                  
                                                  4.00
                                                  %
                                                  
                                                  
                                                  7,806
                                                  ≥
                                                  
                                                  
                                                  5.00
                                                  %As
      of December 31, 2008Total
      Capital (to Risk Weighted Assets)
                                                  
                                                  $
                                                  14,400
                                                  
                                                  
                                                  
                                                  12.05
                                                  %
                                                  
                                                  $
                                                  9,558
                                                  ≥
                                                  
                                                  
                                                  8.00
                                                  %
                                                  
                                                  $
                                                  11,947
                                                  ≥
                                                  
                                                  
                                                  10.00
                                                  %Tier
      1 Capital (to Risk Weighted Assets)
                                                  
                                                  
                                                  12,905
                                                  
                                                  
                                                  
                                                  10.80
                                                  %
                                                  
                                                  
                                                  4,779
                                                  ≥
                                                  
                                                  
                                                  4.00
                                                  %
                                                  
                                                  7,168
                                                  ≥
                                                  
                                                  
                                                  6.00
                                                  %Tier
      1 Capital (to Average Assets)
                                                  
                                                  
                                                  12,905
                                                  
                                                  
                                                  
                                                  9.21
                                                  %
                                                  
                                                  
                                                  5,603
                                                  ≥
                                                  
                                                  
                                                  4.00
                                                  %
                                                  
                                                  7,004
                                                  ≥
                                                  
                                                  
                                                  5.00
                                                  %




Liquidity
Management




At June
30, 2009, the Company (excluding the Bank) had approximately $390,000 in cash
proceeds, which includes $108,000 of initial shareholder warrant and option
exercises. These funds can be used for Company operations, investment and for
later infusion into the Bank and other corporate activities. The primary source
of liquidity for the Company will be dividends paid by the Bank. The Bank is
currently restricted from paying dividends without regulatory approval, which
will not be granted until the Bank’s accumulated deficit has been
eliminated.




The
Bank’s liquidity is monitored by its staff, the Investment/Asset-Liability
Committee and the Board of Directors, who review historical funding
requirements, current liquidity position, sources and stability of funding,
marketability of assets, options for attracting additional funds, and
anticipated future funding needs, including the level of unfunded
commitments.




The
Bank’s primary sources of funds will be retail and commercial deposits, loan
repayments, maturity of investment securities, other short-term borrowings, and
other funds provided by operations. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and loan prepayments are
more influenced by interest rates, general economic conditions, and competition.
The Bank will maintain investments in liquid assets based upon management’s
assessment of (1) the need for funds, (2) expected deposit flows, (3) yields
available on short-term liquid assets, and (4) objectives of the asset/liability
management program.




At June
30, 2009, we had outstanding loan origination commitments and unused commercial
and retail lines of credit of $3.4 million and $15,000 in standby letters of
credit. Certificates of deposit that are scheduled to mature within one year
totaled $28.6 million at June 30, 2009.





The
Bank’s significant contractual obligations and other potential funding needs at
June 30, 2009 consist of:




As of June 30, 2009(000's)
                  Less than
                    One
                    Year
                  
                  One to Three
                    Years
                  
                  Over Three to
                    Five Years
                  
                  Over Five
                    YearsOperating
      leases
                  
                  $
                  291
                  
                  
                  $
                  588
                  
                  
                  $
                  443
                  
                  
                  $
                  179Certificates
      of deposit
                  
                  $
                  28,611
                  
                  
                  $
                  23,074
                  
                  
                  $
                  5,107
                  
                  
                  $
                  -




29





The Bank
had cash and cash equivalents of $9.5 million, or 6.8% of total assets, at June
30, 2009. In addition to the on balance sheet liquidity available, the Bank has
a line of credit with the FHLB and the FRB, which provides the Bank with a
source of off-balance sheet liquidity. As of June 30, 2009, the Bank’s
established credit line with the FHLB was $17.1 million or 12.2% of assets, of
which $17.0 million was utilized.  The established credit line with
the FRB was $23.9 million, or 17.2% of assets, of which $5.0 million was
utilized at June 30, 2009.  The Bank also has access to federal funds
purchased for $5.1 million or 3.6% of assets.





As loan
demand increases, greater pressure will be exerted on the Bank’s liquidity. As
of June 30, 2009, the loan to deposit ratio was 122%.  Although this
deposit ratio is high, it is not reflective of the Bank’s liquidity
position.  With the low rates available from the Federal Home Loan
Bank and the Federal Reserve Bank ranging from 0.10% to 0.50% and money market
deposits available to the Bank through the Bank’s Trust department, the Bank is
able to move higher rate deposits to alternate trust investment funds and
replace them with lower rate borrowed funds from the Federal Home Loan Bank and
Federal Reserve Bank.  With additional advances available from the
Federal Home Loan Bank and Federal Reserve Bank and the money market deposits
available through the Bank’s Trust department, the Bank has off-balance sheet
liquidity available of no less than 40% of total assets as of June 30,
2009.  We believe that the Bank has adequate liquidity to meet
anticipated future funding needs.




The Bank
is subject to various regulatory capital requirements administered by federal
banking agencies, which could affect its ability to pay dividends to the
Company. Failure to meet minimum capital requirements can initiate certain
mandatory and discretionary actions by regulators that, if undertaken, could
have a direct material adverse effect on our financial statements. The minimum
ratios required for the Bank to be considered “well-capitalized” for regulatory
purposes, and therefore eligible to consider the payment of dividends to the
Company, will be 10% total capital to risk weighted assets, 6% tier 1 capital to
risk weighted assets and 5% tier 1 capital to average assets. As noted in
theCapital
Resources and Capital Adequacy Requirements  section of this
discussion, regardless of the Bank’s capital position, the requirement in the
Order to meet and maintain a specific capital level means that the Bank may not
be deemed to be well capitalized under regulatory
requirements.


30





ITEM
3. Quantitative and Qualitative Disclosures about Market Risk





Because
the registrant is a small business issuer, disclosure under this item is not
required.





ITEM 4. Controls and
Procedures




As of the
end of the period covered by this Quarterly Report on Form 10-Q, our principal
executive officer/acting co-principal financial officer and acting co-principal
financial officer have evaluated the effectiveness of our “disclosure controls
and procedures” (“Disclosure Controls”).  Disclosure Controls, as defined
in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), are procedures that are designed with the objective of ensuring
that information required to be disclosed in our reports filed under the
Exchange Act, such as this Annual Report, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms.  Disclosure Controls are also designed with
the objective of ensuring that such information is accumulated and communicated
to our management, including the chief executive officer and chief financial
officer, as appropriate to allow timely decisions regarding required disclosure.





Our
management, including the principal executive officer/acting co-principal
financial officer and acting co-principal financial officer, does not expect
that our Disclosure Controls will prevent all error and all fraud.  A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met.  Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs.  Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the company have
been detected.  These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake.  The design of any system of controls
also is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions.





Based
upon their controls evaluation, our principal executive officer/acting
co-principal financial officer and acting co-principal financial officer have
concluded that our Disclosure Controls are effective at a reasonable assurance
level.





Changes
in Internal Control over Financial Reporting





There
were no changes in our internal controls over financial reporting during the
quarter ended June 30, 2009 that materially affected, or were reasonably likely
to materially affect, our internal controls over financial
reporting.




PART II. OTHER INFORMATION




ITEM 1. Legal Proceedings




In the
ordinary course of its operations, the Company is a party to various legal
proceedings. Based on the information presently available, management believes
that the ultimate outcome in such proceedings, in the aggregate, will not have a
material adverse effect on the business’s financial condition or results of
operations of the Company.




ITEM
2. Unregistered Sales of Equity Securities and Use of Proceeds




None.




ITEM 3. Defaults Upon Senior
Securities




None.


31





ITEM 4. Submission of Matters to a Vote of
Security Holders




The 2009
Annual Meeting of Shareholders of the Bank was held at Bent Tree Country Club,
5201 Westgrove Drive, Dallas, Texas 75248 on June 24, 2009.





Routine items included the election of
fifteen directors, and the vote was as set forth below.





Nominee
                
                Votes For
                
                Votes Against
                
                Votes WithheldPatrick
      Adams
                
                1,189,356
                
                0
                
                4,000Stanley
      Allred
                
                1,189,356
                
                0
                
                4,000Dan
      Basso
                
                1,189,356
                
                0
                
                4,000Frankie
      Basso
                
                1,189,356
                
                0
                
                4,000David
      Carstens
                
                1,189,356
                
                0
                
                4,000Ron
      Denheyer
                
                1,189,356
                
                0
                
                4,000Patrick
      Howard
                
                1,188,356
                
                0
                
                5,000Steven
      Jones
                
                1,183,706
                
                0
                
                9,650Eric
      Langford
                
                1,189,356
                
                0
                
                4,000Steven
      Lugar
                
                1,189,356
                
                0
                
                4,000Charles
      Mapes
                
                1,189,356
                
                0
                
                4,000Thomas
      McDougal
                
                1,189,356
                
                0
                
                4,000Cyvia
      Noble
                
                1,189,356
                
                0
                
                4,000Anthony
      Pusateri
                
                1,189,356
                
                0
                
                4,000Gordon
      Youngblood
                
                1,189,356
                
                0
                
                4,000




In
addition, the shareholders of the Company ratified the appointment of Weaver
& Tidwell, LLP as the independent registered public accounting firm of the
Company for the fiscal year ending December 31, 2009 with 1,191,356 shares
voting in favor, 0 shares voting against, and 2,000 shares abstaining from
voting.




ITEM 5. Other Information




None.


32


ITEM 6. Exhibits




Exhibit Number
              
              Description of Exhibit3.1
              
              Articles of Incorporation
      (1)3.2
              
              Bylaws of Registrant
      (1)31.1
              
              Rule
      13a-14(a) Certification of Principal Executive Officer and Acting
      Co-Principal Financial Officer.31.2
              
              Rule
      13a-14(a) Certification of Acting Co-Principal Financial
      Officer.32.1
              
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002.





(1)
            Incorporated
      by reference from the Registration Statement on Form SB-2 filed by the
      Registrant with the SEC on December 15, 2003 and as amended on June 11,
      2007 (file no. 333-111153).


33


SIGNATURES




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




T
      BANCSHARES, INC.Date:
      August 14, 2009
                By:
                /s/
      Patrick G. AdamsPatrick
      G. Adams
                  President
      and Chief Executive Officer
                  Principal
      Executive Officer
                  Acting
      Co-Principal Financial
Officer




Date:
      August 14, 2009
                By:
                /s/
      Ken BramlageKen
      Bramlage
                  Vice
      President and Controller
                  Acting
      Co-Principal Financial
Officer




34