**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


**Washington,
D.C. 20549**




**FORM
10 - QSB**




**QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D)**


**OF
THE SECURITIES EXCHANGE ACT OF 1934**




**For
the quarterly period ended March 31, 2005**




Commission
File Number 000-51297




**FIRST
METROPLEX CAPITAL, INC.**


(Exact
name of registrant as specified in its charter)




**Texas**
    
    **71-0919962**(State
      or other jurisdiction of
    
    (I.R.S.
      Employerincorporation
      or organization)
    
    Identification
      No.)16000
      Dallas Parkway, Suite 125, Dallas, Texas(Address
      of principal executive offices, including zip code)(972)
      720- 9000(Registrant’s
      telephone number, including area code)


Indicate
by check mark whether the registrant: (i) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (ii) has been subject to such filing requirements for
the past 90 days.


Yes xNo o




The
number of shares outstanding of the issuer’s Common Stock as of May 9, 2005, was
1,680,000 shares.










**FIRST
METROPLEX CAPITAL, INC.**




INDEX




PAGE**PART
      I -**
    **FINANCIAL
      INFORMATION**
    **2**ITEM
      1.
    FINANCIAL
      STATEMENTS
    2ITEM
      2.
    MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.
    16ITEM
      3.
    QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    29ITEM
      4.
    CONTROLS
      AND PROCEDURES
    29**PART
      II -**
    **OTHER
      INFORMATION**
    **29**ITEM
      1.
    LEGAL
      PROCEEDINGS
    29ITEM
      2.
    UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    30ITEM
      3.
    DEFAULTS
      UPON SENIOR SECURITIES
    30ITEM
      4.
    SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
    30ITEM
      5.
    OTHER
      INFORMATION
    30ITEM
      6.
    EXHIBITS
    30





**PART
I -** **FINANCIAL
INFORMATION**





**ITEM
1.**  **Financial
Statements**





**FIRST
      METROPLEX CAPITAL INC****CONSOLIDATED
      BALANCE SHEETS**MARCH
      31,
    
    DECEMBER
      31,2005
    
    2004(Unadudited)ASSETSCash
      and due from banks
    
    $
    1,795,000
    
    $
    843,000Federal
      funds sold
    
    
    10,625,000
    
    
    11,565,000Total
      cash and cash equivalents
    
    
    12,420,000
    
    
    12,408,000InvestmentsRestricted
    
    
    420,000
    
    
    420,000Loans,
      less allowance for credit losses of $174,000 and $100,000
    
    
    11,420,000
    
    
    6,559,000Bank
      premises and equipment, net
    
    
    1,211,000
    
    
    1,181,000Other
      assets
    
    
    31,000
    
    
    115,000TOTAL
      ASSETS
    
    $
    25,502,000
    
    $
    20,683,000LIABILITIES
      AND STOCKHOLDERS' EQUITYLIABILITIESDemand
      depositsNoninterest
      bearing
    
    $
    2,508,000
    
    $
    1,739,000Interest
      bearing
    
    
    5,447,000
    
    
    2,996,000Time
      deposits $100,000 and over
    
    
    1,553,000
    
    
    1,200,000Other
      time deposits
    
    
    1,980,000
    
    
    284,000Total
      deposits
    
    
    11,488,000
    
    
    6,219,000Other
      liabilities
    
    
    31,000
    
    
    9,000Total
      liabilities
    
    
    11,519,000
    
    
    6,228,000STOCKHOLDERS'
      EQUITYCommon
      stock, $0.01 par value10,000,000
      shares authorized1,680,000
      shares issued and outstanding
    
    
    17,000
    
    
    17,000Additional
      paid-in capital
    
    
    16,380,000
    
    
    16,380,000Retained
      deficit
    
    
    (
      2,414,000
    )
    
    (
      1,942,000
    )Accumulated
      comprehensive income
    
    
    -
    
    
    -Total
      stockholders' equity
    
    
    13,983,000
    
    
    14,455,000TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
    
    **$**
    **25,502,000**
    ****
    **$**
    **20,683,000**
    ****


2




**FIRST
      METROPLEX CAPITAL, INC.****STATEMENT
      OF OPERATIONS****(Unaudited)**3
      MONTHS
    
    3
      MOSENDED
    
    ENDEDMAR
      31, 2005
    
    MAR
      31, 2004INTEREST
      INCOMEInterest
      and fees on loans
    
    $
    158,000
    
    $
    -Investment
      securitiesRestricted
    
    
    6,000
    
    
    -Federal
      funds sold
    
    
    62,000
    
    
    -Total
      interest income
    
    
    226,000
    
    
    -INTEREST
      EXPENSEDeposits
    
    
    30,000
    
    
    -Interest
      income, net
    
    
    196,000
    
    
    -PROVISION
      FOR CREDIT LOSSES
    
    
    74,000
    
    
    -Interest
      income afterprovision
      for credit losses
    
    
    122,000
    
    
    -OTHER
      INCOMEService
      fees
    
    
    3,000
    
    
    -3,000
    
    
    -OTHER
      EXPENSESSalaries
      and employee benefits
    
    
    352,000
    
    
    -Occupancy
      expense
    
    
    105,000
    
    
    -Professional
      fees
    
    
    32,000
    
    
    -Other
      operating expenses
    
    
    108,000
    
    
    -597,000
    
    
    -Loss
      from operations
    
    
    (
      472,000
    )
    
    -Preopening
      costs
    
    
    -
    
    
    (
      248,000
    )NET
      LOSS
    
    
    ($
      472,000
    )
    
    ($
      248,000
    )Net
      loss per weighted average share
    
    
    ($
      0.28
    )
    $
    -Weighted
      average shares outstanding
    
    
    1,680,000
    
    
    -


3




**FIRST
      METROPLEX CAPITAL, INC.****STATEMENT
      OF CHANGES IN STOCKHOLDERS' EQUITY****THREE
      MONTHS ENDED MARCH 31, 2005****(Unaudited)**AccumulatedAdditional
    
    
    
    OtherCommon
    
    Paid-in
    
    Retained
    
    ComprehensiveStock
    
    Capital
    
    Deficit
    
    Income
    
    TotalBALANCE,
      December 31, 2004
    
    
    17,000
    
    
    16,380,000
    
    
    (
      1,942,000
    )
    
    -
    
    
    14,455,000Comprehensive
      incomeNet
      loss - YTD
    
    
    
    
    
    
    
    
    (
      472,000
    )Total
      comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (
      472,000
    )BALANCE,
      March 31, 2005
    
    
    17,000
    
    
    16,380,000
    
    
    (
      2,414,000
    )
    
    -
    
    
    13,983,000


4
 ****


**FIRST
      METROPLEX CAPITAL, INC.****STATEMENT
      OF CASH FLOWS****(Unaudited)**3
      MONTHS
    
    3
      MOSENDED
    
    ENDEDMAR
      31, 2005
    
    MAR
      31, 2004CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
    
    
    ($
      472,000
    )
    
    ($
      248,000
    )Adjustments
      to reconcile net lossto
      net cash used in operating activitiesProvision
      for credit losses
    
    
    74,000
    
    
    -Depreciation
      expense
    
    
    39,000
    
    
    2,000Changes
      in operating assets and liabilities:Other
      assets
    
    
    84,000
    
    
    (
      25,000
    )Other
      liabilities
    
    
    22,000
    
    
    (
      14,000
    )Net
      cash used in operating activities
    
    
    (
      253,000
    )
    
    (
      285,000
    )CASH
      FLOWS FROM INVESTING ACTIVITIESNet
      change in loans
    
    
    (
      4,935,000
    )
    
    -Purchases
      of bank premises and equipment
    
    
    (
      69,000
    )
    
    (
      23,000
    )Net
      cash used in investing activities
    
    
    (
      5,004,000
    )
    
    (
      23,000
    )CASH
      FLOWS FROM FINANCING ACTIVITIESAdvances
      from organizers
    
    
    -
    
    
    317,000Net
      change in demand deposits
    
    
    3,220,000
    
    
    -Net
      change in time deposits
    
    
    2,049,000
    
    
    -Net
      cash provided by financing activities
    
    
    5,269,000
    
    
    317,000Net
      increase in cash and cash equivalents
    
    
    12,000
    
    
    9,000CASH
      AND CASH EQUIVALENTS,beginning
      of year
    
    
    12,408,000
    
    
    343,000CASH
      AND CASH EQUIVALENTS,end
      of year
    
    $
    12,420,000
    
    $
    352,000SUPPLEMENTAL
      DISCLOSURE OFCASH
      FLOW INFORMATIONInterest
      paid
    
    $
    29,892
    
    $
    -Income
      taxes paid
    
    $
    -
    
    $
    -
 5
 
 **FIRST
METROPLEX CAPITAL, INC.**


**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
  **NOTE
1.**  **SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES**
  **Organization
and Nature of Operations**
  First
Metroplex Capital, Inc. (“the Company) was incorporated on December 23, 2002 for
the purpose of holding the common stock of T Bank, N.A. (“the Bank”). For the
period from December 23, 2002 (date of inception) to November 2, 2004, the
Company was in a development stage engaging in the preparation of applications
for regulatory approvals, raising capital, financial planning, and systems
development, acquisition of equipment and facilities and recruiting activities.
On October 29, 2004 the Company completed an offering of 1,680,000 shares of its
common stock at a price of $10 per share. The gross proceeds from the offering
totaled $16,800,000.
  The Bank
began operations on November 2, 2004. The Bank provides a full range of banking
services to individuals and corporate customers with two banking facilities
serving North Dallas, Addison, Plano, Frisco and surrounding Texas communities.
The bank is subject to competition from other local, regional, and national
financial institutions and is also subject to the regulations of certain federal
agencies.
  The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, T Bank N.A. All significant
intercompany transactions have been eliminated in consolidation.
  In the
opinion of management, all adjustments consisting only of normal recurring
adjustments, necessary to present fairly the assets, liabilities, and equity of
the Bank and the operations and changes in stockholders equity for the three
months ended March 31, 2005 have been included.
  **Cash
Equivalents and Statement of Cash Flows**
  Due from
banks, cash on hand, federal funds sold and all other highly liquid investments
purchased with an original maturity of three months or less are considered to be
cash and cash equivalents. Generally, federal funds are purchased and sold for
one day periods. From time to time, deposits with correspondent banks will
exceed amounts insured by the FDIC. Management does not anticipate any losses
and evaluates the correspondent bank's financial status on a regular basis.
Advances from organizers of $2,605,000 were converted to common stock upon
closing of the stock offering.
  **Loans**
  Loans
that management has the intent and ability to hold for the foreseeable future or
until maturity or pay-off are stated at the principal amount outstanding, net of
unearned interest, deferred loan fees and the allowance for credit losses.
Interest earned, both fixed and variable rates, is credited to operations based
on the principal balances outstanding. Unearned interest and deferred loan fees
are capitalized and recognized as income over the terms of the loan using the
effective interest method.
  The
Company grants commercial, real estate and consumer loans to customers. Although
the Company anticipates having a diversified loan portfolio, a substantial
portion of its debtors' ability to honor their loan contracts is dependent upon
the local economy. The Company's loan policy for requiring collateral is based
upon a number of factors including amount and purpose of loan, length of term,
past credit history, financial strength and liquidity of the borrower.
  Loan
origination and commitment fees, as well as certain direct loan origination and
commitment costs, are deferred and amortized as a yield adjustment over the
lives of the related loans using the interest method.
  Impaired
loans are accounted for at the net present value of expected future cash flows,
discounted at the loan’s effective interest rate, the observable market price of
the loan or at the fair value of the collateral if the loan is collateral
dependent.
  6
 ****
 **Allowance
for Credit Losses**
  The
allowance for credit losses is maintained at a level considered adequate to
provide for losses that can be reasonably anticipated. Until management has
adequate historical data upon which to base the estimate of the allowance for
credit losses, a balance of approximately one and one half percent of the
outstanding principal is used unless additional information regarding the
ability of the borrower to repay the loan, current economic conditions or other
pertinent factors indicate a different allowance is needed. Credits deemed
uncollectible are charged to the allowance. Provisions for credit losses and
recoveries on loans previously charged off are added to the allowance. Because
of uncertainties associated with regional economic conditions, collateral
values, and future cash flows on impaired loans, it is reasonably possible that
management's estimate of credit losses inherent in the loan portfolio and the
related allowance may change materially in the near term.
  Accrual
of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of interest is doubtful.
When accrual of interest is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received in excess of principal due.
  **Investment
Securities**
  The Bank
has investments in stock of the Federal Reserve System and is required for
participation in the services offered. These investments are classified as
restricted and are recorded at cost.
  **Leasehold
improvements, Furniture and Equipment**
  Leasehold
improvements, furniture and equipment are stated at cost less accumulated
depreciation. Depreciation is computed by the straight-line method at rates
based on the estimated useful lives of the related assets. Useful lives for
equipment is normally between 3 and 10 years. Leasehold improvements are
depreciated over the lease term or estimated life, whichever is shorter. Repair
and maintenance costs are expensed as incurred.
  **Income
Taxes**
  Deferred
taxes are recognized for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income.
  **Use
of Estimates**
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
  **Stock
Based Compensation**
  The
Company applies the provisions of Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” and related interpretations, in
accounting for its stock-based compensation plans. Under Opinion 25,
compensation cost is measured as the excess, if any, of the market price of the
Company’s stock at the date of the grant above the amount an employee must pay
to acquire the stock. No compensation expense is recognized when the exercise
price is equal to the market value of the stock on the day of grant. The
Financial Accounting Standards Board (“FASB”) published SFAS No. 123,
“Accounting for Stock-Based Compensation” (SFAS No. 123) on January 1, 1996
which encourages, but does not require, companies to recognize compensation
expense for grants of stock, stock options and other equity instruments to
employees based on fair value accounting rules. Companies that do not adopt the
fair value rules will continue to apply the existing rules, but are required to
disclose pro forma net income or loss under the new method.
  7
 
 There
were no common stock equivalents issued during the three months ended March 31,
2005 and all previously issued warrants were fully vested at December 31,
2004.
  **Earnings
Per Share**
  Earnings
per share are computed in accordance with SFAS No. 128, which requires dual
presentation of basic and diluted earnings per share (EPS) for entities with
complex capital structures. Basic EPS is based on net income divided by the
weighted-average number of shares outstanding during the period. Diluted EPS
includes the dilutive effect of potential common stock using the treasury stock
method only if the effect on earnings per share is dilutive.
  Earnings
per common share are computed by dividing net income by the weighted-average
number of shares outstanding for the year. The weighted-average number of common
shares outstanding for basic and diluted earnings per share computations was
1,680,000 for the three months ended March 31, 2005.
  The
Company reported a net losses for the three months ended March 31, 2005 and
2004. Accordingly, the dilutive effect of stock options and warrants is not
considered in the net loss per share calculations for this period as the impact
would have been antidilutive.
  **Comprehensive
Income**
  Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Although certain changes in assets and liabilities,
such as unrealized gains and losses on available for sale securities, are
reported as a separate component of the equity section of the balance sheet,
such items, along with net income, are components of comprehensive
income.
  **New
Accounting Pronouncements**
  FASB
Statement 123R - On December 16, 2004, the Financial Accounting Standards Board
(FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payments which
is a revision of FASB No. 123, Accounting for Stock-Based Compensation,
Statement 123 (R) supersedes APB opinion No. 25, Accounting for Stock Issued to
Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally,
the approach in Statement 123 (R) is similar to the approach described in
Statement 123. However, Statement 123 (R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative. The provisions of this statement become effective for our first
interim period of 2006. Management has not yet determined the impact that this
statement will have on our consolidated financial statements.
  **NOTE
2.**  **LOANS**
  The
components of loans at March 31, 2005 are summarized as follows:
  Commercial
    
    $
    4,503,000Consumer
      installment
    
    
    232,000Real
      estate
    
    
    6,859,00011,594,000Less
      allowance for loan losses
    
    
    174,000$
    11,420,000
 
 8
 
 The
change in the allowance for credit losses for 2005 is as follows:
  Balance
      at beginning of year
    
    $
    100,000Provision
      charged to operations
    
    $
    74,000Loans
      charged off
    
    
    3⁄4Recoveries
      of loans previously charged off
    
    
    3⁄4Balance
      at March 31, 2005
    
    $
    174,000
 
 The
components of loans at December 31, 2004 are summarized as follows:
  Commercial
    
    $
    3,415,000Consumer
      installment
    
    
    176,000Real
      estate
    
    
    3,068,0006,659,000100,000Less
      allowance for loan losses
    
    $
    6,559,000
 
 At March
31, 2005, there were no loans which were contractually delinquent over ninety
days that were continuing to accrue interest. In addition, there were no loans
considered impaired, which should have been recognized
in conformity with SFAS No. 114 and SFAS No. 118. No interest income on impaired
loans was recognized for cash payments during the period ended March 31,
2005.
  **NOTE
3.**  **SECURITIES**
  At March
31, 2005 and December 31, 2004 securities consisted of the
following:
  Amortized
      Cost
    
    Gross
      Unrealized Gains
    
    Gross
      Unrealized (Losses)
    
    Estimated
      Fair ValueFederal
      Reserve Bank Stock
    
    $
    420,000
    
    $
    3⁄4
    
    $
    3⁄4
    
    $
    420,000
 ****
 **NOTE
4.**  **RELATED
PARTIES**
  Certain
Directors and Officers of the Bank have depository accounts with the Bank. None
of those deposit accounts have terms more favorable than those available to any
other depositor.
  9
 ****
 **NOTE
5.**  **BANK
PREMISES AND EQUIPMENT**
  The
original cost and related accumulated depreciation at March 31, 2005 and
December 31, 2004 is as follows:
  March
      31
    
    December
      31Leasehold
      improvements
    
    $
    505,000
    
    $
    504,000Furniture
      and equipment
    
    
    766,000
    
    
    698,0001,271,000
    
    
    1,202,000Less
      accumulated depreciation
    
    
    60,000
    
    
    21,000$
    1,211,000
    
    $
    1,181,000
 ****
 **NOTE
6.**  **DEPOSITS**
  Deposits
at March 31, 2005 are summarized as follows:
  Amount
    
    PercentNoninterest
      bearing demand
    
    $
    2,508,000
    
    
    22
    %Interest
      bearing demand (NOW)
    
    
    1,202,000
    
    
    10
    %Money
      market accounts
    
    
    5,447,000
    
    
    47
    %Savings
      accounts
    
    
    235,000
    
    
    2
    %Certificates
      of deposit, less than $100,000
    
    
    543,000
    
    
    5
    %Certificates
      of deposit, $100,000 or greater
    
    
    1,553,000
    
    
    14
    %$
    11,488,000
    
    
    100
    %
 Deposits
at December 31, 2004 are summarized as follows:
  Noninterest
      bearing demand
    
    $
    1,739,000
    
    
    28
    %Interest
      bearing demand (NOW)
    
    
    758,000
    
    
    12
    %Money
      market accounts
    
    
    1,996,000
    
    
    32
    %Savings
      accounts
    
    
    242,000
    
    
    4
    %Certificates
      of deposit, less than $100,000
    
    
    284,000
    
    
    5
    %Certificates
      of deposit, $100,000 or greater
    
    
    1,200,000
    
    
    19
    %$
    6,219,000
    
    
    100
    %
 
 At March
31, 2005, the scheduled maturities of certificates of deposit were as
follows:
  2005
    
    $
    1,940,0002006
    
    
    6,0002007
    
    
    02008
    
    
    02009
    
    
    02010
    
    
    150,000Total
    
    $
    2,096,000
 
 10
 
 At
December 31, 2004, the scheduled maturities of certificates of deposit were as
follows:
  2005
    
    
    478,0002006
    
    
    6,000Total
    
    $
    1,484,000
 ****
 **NOTE
7.**  **INCOME
TAXES**
  Management
has provided a 100% valuation allowance for its net deferred tax asset due to
uncertainty of realization during the carry forward period.
  As of
December 31, 2004, the Company had net tax operating loss carry forwards of
approximately $191,000 that will ultimately expire in 2024 if not
used.
  **NOTE
8.**  **STOCK
OPTIONS**
  The
Company is currently preparing a stock incentive plan designed to provide it
with the flexibility to grant incentive stock options and non-qualified stock
options to its executive and other officers. The purpose of the plan will be to
provide increased incentive for key employees to render services and to exert
maximum effort for the success of the Company. The plan will have a term of 10
years. The plan will be administered by the Board of Directors who will reserve
260,000 shares for issuance. There are contractual obligations outstanding at
March 31, 2005 and December 31, 2004 to issue options to purchase 150,000
shares. The plan is subject to shareholder approval.
  **NOTE
9.**  **STOCK
WARRANTS**
  The
Company has two stock warrant plans at March 31, 2005 and December 31, 2004.
  Initial
shareholders in the Company received warrants to purchase one share of common
stock for every five shares of common stock purchases in the offering. A total
of 336,000 warrants were issued. These warrants are exercisable at a price of
$12.50 per share at any time until November 2, 2007.
  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 limit of
$100,000. A total of 96,750 warrants were issued. These warrants are exercisable
at a price of $10.00 per share at any time until November 2, 2014.
  There
were no additional warrants issued during the three months ended March 31,
2005.
  **NOTE
10.**  **ADVANCES
FROM ORGANIZERS**
  The
Company’s organizers advanced funds for organizational and other preopening
expenses. The advances were non interest bearing and had no stated maturity. The
Company repaid the advances by issuing shares of common stock at $10 per share.
  **NOTE
11.**  **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 March 31, 2005, the
Company had commitments to extend credit and standby letters of credit of
approximately $4,227,000 and $0, respectively. At December 31, 2004, the Company
had commitments to extend credit and standby letters of credit of approximately
$2,124,000 and $0, respectively.
  11
 
 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 and the Bank have entered into employment agreements with the three
officers of the Bank. The agreements are for an initial three-year term and are
automatically renewable for an additional three years unless either party elects
not to renew.
  The
agreements provide for compensation and benefits including the issuance of
options to acquire up to 140,000 shares of the Company’s common stock at $10 per
share, exercisable within ten years from the date of grant. At March 31, 2005
and December 31, 2004, these options had not been issued.
  The
agreements further provide for termination payments in the event of a change in
control, as defined.
  **NOTE
12.**  **REGULATORY
MATTERS**
  The
Company 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
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company'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
Company to maintain minimum amounts and ratios (set forth in the table below) of
total and Tier I capital (as defined in the regulations) to risk-weighted assets
(as defined), and of
  Tier I
capital (as defined) to average assets (as defined). Management believes, as of
March 31, 2005 and December 31, 2004, that the Bank meets all capital adequacy
requirements to which it is subject.
  As of
March 31, 2005 and December 31, 2004, the most recent notification from the
Bank’s regulators categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the institution's
category.
  12
  Actual
    
    For
      Capital Adequacy Purposes
    
    To
      Be Well Capitalized Under Prompt Corrective Action
    ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(000’s)
    
    
    
    (000’s)
    
    
    
    (000’s)**As
      of March 31, 2005**Total
      Capital (to Risk Weighted Assets)
    
    $
    13,334
    
    
    96.07
    %
    $
    1,111
    
    
    38.00
    %
    $
    1,389
    
    
    310.00
    %Holding
      Company Bank
    
    $
    13,334
    
    
    96.07
    %
    $
    1,111
    
    
    38.00
    %
    $
    1,389
    
    
    310.00
    %Tier
      I Capital (to Risk Weighted Assets)
    
    
    13,170
    
    
    94.82
    %
    
    555
    
    
    34.00
    %
    
    833
    
    
    36.00
    %Holding
      Company Bank
    
    
    13,170
    
    
    94.82
    %
    
    555
    
    
    34.00
    %
    
    833
    
    
    36.00
    %Tier
      I Capital (to Average Assets)
    
    
    13,170
    
    
    61.80
    %
    
    852
    
    
    34.00
    %
    
    1,065
    
    
    35.00
    %Holding
      Company Bank
    
    
    13,170
    
    
    61.80
    %
    
    852
    
    
    34.00
    %
    
    1,065
    
    
    35.00
    %
 
 Actual
    
    For
      Capital Adequacy Purposes
    
    To
      Be Well Capitalized Under Prompt Corrective Action
    ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(000’s)
    
    
    
    (000’s)
    
    
    
    (000’s)**As
      of December 31, 2004**Total
      Capital (to Risk Weighted Assets)
    
    $
    14,555
    
    
    147.98
    %
    $
    787
    
    
    38.00
    %
    $
    984
    
    
    310.00
    %Holding
      Company Bank
    
    $
    13,725
    
    
    150.77
    %
    $
    1,098
    
    
    38.00
    %
    $
    910
    
    
    310.00
    %Total
      Capital (to Risk Weighted Assets)
    
    
    14,455
    
    
    146.96
    %
    
    393
    
    
    34.00
    %
    
    590
    
    
    36.00
    %Holding
      Company Bank
    
    
    13,625
    
    
    149.68
    %
    
    364
    
    
    34.00
    %
    
    546
    
    
    36.00
    %Total
      Capital (to Risk Weighted Assets)
    
    
    14,455
    
    
    82.94
    %
    
    669
    
    
    34.00
    %
    
    836
    
    
    35.00
    %Holding
      Company Bank
    
    
    13,625
    
    
    82.94
    %
    
    657
    
    
    34.00
    %
    
    921
    
    
    35.00
    %
 ****
 **NOTE
13.**  **PREREOPENING
EXPENSES**
  As
explained in Note 1, the Bank was in a development stage from December 23, 2002
to November 1, 2004 and incurred certain preopening costs. The preopening costs
consisted of the following:
  Regulatory
      fees
    
    $
    0Professional
      fees
    
    
    59,000Consulting
      fees
    
    
    123,000Preoffering
      consulting fees
    
    
    0Preopening
      operation expenses
    
    
    66,000$
    248,000
 ****
 13
 ****
 **NOTE
14.**  **PARENT
COMPANY CONDENSED FINANCIAL STATEMENTS**
  FIRST
      METROPLEX CAPITAL, INC.
      CONDENSED
      BALANCE SHEET
      MARCH
      31, 2005ASSETSCash
      and due from banks
    
    $
    813,000Investment
      in subsidiary
    
    
    13,170,000Total
      Assets
    
    $
    13,983,000LIABILITIES
      AND CAPITALCapital
    
    
    13,983,000Total
      Liabilities and Capital
    
    $
    13,983,000
 
 FIRST
      METROPLEX CAPITAL, INC.
      CONDENSED
      INCOME STATEMENT
      FOR
      THE THREE MONTHS ENDED MARCH 31, 2005Equity
      in loss from Bank
    
    $
    (455,000
    )Noninterest
      expense:Professional
      and administrative expenses
    
    
    17,000Total
    
    
    17,000Net
      Loss
    
    $
    (472,000
    )
 
 FIRST
      METROPLEX CAPITAL, INC.
      CONDENSED
      STATEMENT OF CASH FLOWS
      FOR
      THE THREE MONTHS ENDED MARCH 31, 2005Cash
      Flows from Operating Activities:Net
      Loss
    
    $
    (472,000
    )Adjustments
      to reconcile net lossTo
      net cash provided by operating activitiesEquity
      in loss of Bank
    
    
    455,000Changes
      in operating assets and liabilities:Other
      assets
    
    
    734,000Net
      cash provided by operating activities
    
    
    717,000Cash
      Flows from Investing ActivitiesNet
      cash used in investing activities
    
    
    0Cash
      Flows from Financing Activities
    
    
    0Net
      cash provided from financing activities
    
    
    0Net
      change in cash and cash equivalents
    
    
    717,000Cash
      and cash equivalents, beginning of year
    
    
    96,000Cash
      and cash equivalents, end of year
    
    $
    813,000Supplemental
      Disclosure of Cash Flow InformationInterest
      paid
    
    $
    3⁄4Income
      tax paid
    
    $
    3⁄4
 
 14
  FIRST
      METROPLEX CAPITAL, INC.
      CONDENSED
      STATEMENT OF CASH FLOWS
      FOR
      THE THREE MONTHS ENDED MARCH 31, 2005ASSETSCash
      and due from banks
    
    $
    96,000Bank
      premises and equipment, net
    
    
    457,000Accounts
      receivable
    
    
    276,000Other
      assets
    
    
    13,626,000Total
      Assets
    
    $
    14,445,000LIABILITIES
      AND CAPITALCapital
    
    
    14,455,000Total
      Liabilities and Capital
    
    $
    14,455,000
 
 FIRST
      METROPLEX CAPITAL, INC.
      CONDENSED
      INCOME STATEMENT
      FOR
      THE THREE MONTHS ENDED MARCH 31, 2005Equity
      in loss from Bank
    
    $
    (374,000
    )Noninterest
      expense:Preopening
      expenses
    
    
    948,000Total
    
    
    948,000Net
      Loss
    
    $
    (1,322,000
    )
 
 FIRST
      METROPLEX CAPITAL, INC.
      CONDENSED
      STATEMENT OF CASH FLOWS
      FOR
      THE THREE MONTHS ENDED MARCH 31, 2005Cash
      Flows from Operating Activities:Net
      Loss
    
    $
    (1,322,000
    )Adjustments
      to reconcile net lossTo
      net cash provided by operating activitiesEquity
      in loss of Bank
    
    
    374,000Changes
      in operating assets and liabilities:Other
      assets
    
    
    (191,000
    )Other
      liabilities
    
    
    (14,000
    )Net
      cash used in operating expenses
    
    
    (1,153,000
    )Cash
      Flows from Investing ActivitiesPurchases
      of bank premises and equipment
    
    
    (428,000
    )Investment
      in T Bank NA
    
    
    (14,000,000
    )Net
      cash used in investing activities
    
    
    (14,428,000
    )Cash
      Flows from Financing Activities:Sale
      of common stock
    
    
    14,195,000Offering
      costs
    
    
    (403,000
    )Advance
      from organizers
    
    
    1,542,000Net
      cash provided from financing activities
    
    
    15,334,000Net
      decrease in cash and cash equivalents
    
    
    (247,000
    )Cash
      and cash equivalents, beginning of year
    
    
    343,000$
    96,000Supplemental
      Disclosure of Cash Flow InformationInterest
      paid
    
    $
    3⁄4Income
      tax paid
    
    $
    3⁄4
 ****
 15
 ****
 **ITEM
2.** **Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.**




**MANAGEMENT’S
DISCUSSION AND ANALYSIS**




**OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS**




The
following discussion and analysis presents our consolidated financial condition
and results of operations for the three months ended March 31, 2005. 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-QSB.




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,” “will continue,”
“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-KSB for the year ended December 31, 2004, including the
following:




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




●
    we
      have incurred substantial start-up expenses associated with our
      organization and our recent public offering and expect to sustain losses
      or achieve minimal profitability during our initial years of
      operations;




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




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




●
    we
      face substantial competition in our primary market
area;




●
    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;




16




●
    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;




●
    we
      have no current intentions of paying cash
dividends;




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




●
    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-KSB for
the year ended December 31, 2004 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 speaks only 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. In addition, we cannot assess the impact of each
factor on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.




**Executive
Overview**




***Introduction***




We are a
bank holding company headquartered in Dallas, Texas, offering a broad array of
banking services through our wholly owned banking subsidiary, T Bank. Our
principal markets include North Dallas, Addison, Plano, Frisco and the
neighboring Texas communities. As of March 31, 2005, we had, on a consolidated
basis, total assets of $25.5 million, net loans of $11.4 million, total deposits
of $11.5 million, and shareholders’ equity of $14 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 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 and results of
operations for the three months ended March 31, 2005. Since the Bank did not
open until November 2, 2004, comparison to the same period in 2004 would not be
meaningful. While comparisons are provided to the fiscal year ended December 31,
2004, those comparisons are affected significantly by the fact that the Bank did
not begin operations until November 2004. There can be no assurance that the
growth experienced by the Bank in its initial stage of development will be
maintained.




***Key
Performance Indicators at March 31, 2005***




We
believe the following were key
indicators of our performance and results of operations through the first
quarter of 2005:




●
    our
      total assets grew to $25.5 million at the end of the first quarter of
      2005, representing an increase of 23%, from $20.7 million at the end of
      2004;




●
    our
      total loans grew to $11.4 million at the end of the first quarter of 2005,
      representing an increase of 70%, from $6.6 million at the end of
      2004;




●
    our
      total deposits grew to $11.5 million at the end of the first quarter of
      2005, representing an increase of 85%, from $6.2 million at the end of
      2004;




●
    our
      total revenue grew to $228,000 in the first quarter of 2005, representing
      an increase of 145%, from the fourth quarter of 2004;
  and




17




●
    our
      net loss was $472,000 in the first quarter of 2005, representing an
      increase of 60%, from $294,000 in the fourth quarter of
    2004.




These
items, as well as other factors, are discussed in further detail throughout this *“Management’s
Discussion and Analysis of Financial Condition and Results of Operations”* section
of this Quarterly Report on Form 10-QSB.




**Results
of Operations as of and for the Three Months Ended March 31,
2005**




***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 borrowings. Net interest income is our
principal source of earnings. Changes in net interest income result from changes
in volume, spread and 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.




Net
interest income increased by 125%, or $109,000, to $196,000 in the first quarter
of 2005 from $87,000 for the fourth quarter of 2004. Our net interest margin
increased to 4.0% from 3.6%. Our net interest spread also increased to 2.65%
from 2.16%. These increases primarily resulted from redeploying money invested
in overnight fed funds into higher earning loans.




Total
interest income increased by 125% to $226,000 for the first quarter of 2005, as
compared to $5,000 for the fourth quarter of 2004. This increase is attributable
primarily to the fact that the Bank opened November 2, 2004 and therefore
operated for only two months of the fourth quarter of 2004. We also benefited
from increases in average interest-earning assets. Average net loans increased
by $.3.7 million (75%), to $8.6 million, as compared to $4.9 million for the
fourth quarter of 2004. We attributed this growth in loans to our ongoing
marketing efforts.




Total
interest expense increased by 500% to $30,000 in the first quarter of 2005,
compared to $5,000 in the fourth quarter of 2004. These increases resulted
primarily from our ongoing marketing efforts to attract new deposits. The
average interest rate we paid for interest-bearing deposits for the first
quarter of 2005 was 1.9%, compared to 1.6% for the fourth quarter of 2004.
Average interest-bearing liabilities increased by 244% to $6.2 million in the
first quarter of 2005, compared to $1.8 million in the fourth quarter of 2004.




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 quarters ended December 31, 2004 and March
31, 2005.




18




**For
      the Three Months Ended****March
      31, 2005**
    
    **December
      31, 2004****Average
      Balance**
    
    **Interest**
    
    **Average
      Rate/ Yield****(1)**
    
    **Average
      Balance**
    
    **Interest**
    
    **Average
      Rate/ Yield****(1)**ASSETS:Interest-earning
      assets:Net
      loans and leases(2)
    
    $
    8,714,000
    
    $
    157,000
    
    
    2.0
    %
    $
    4,903,000
    
    $
    56,000
    
    
    6.83
    %Securities
      of U.S. government agencies
    
    
    420,000
    
    
    6,000
    
    
    5.7
    
    
    577,000
    
    
    5,000
    
    
    5.19Other
      investment securities
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0Securities
      purchased under agreements to resell and federal funds
sold
    
    
    10,582,000
    
    
    62,000
    
    
    2.3
    
    
    9,074,000
    
    
    31,000
    
    
    2.04Interest-earning
      deposits
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0Total
      interest-earning assets
    
    $
    19,716,000
    
    $
    226,000
    
    
    4.6
    %
    $
    14,554,000
    
    $
    92,000
    
    
    3.85
    %Total
      noninterest-earning assets
    
    
    1,594,000
    
    
    
    
    
    
    
    
    1,365,000TOTAL
      ASSETS
    
    $
    21,310,000
    
    
    
    
    
    
    
    $
    15,919,000LIABILITIES
      AND STOCKHOLDERS’ EQUITY:Interest-bearing
      liabilities:Money
      market deposits
    
    $
    3,448,000
    
    $
    17,000
    
    
    2.0
    %
    $
    701,000
    
    $
    1,966
    
    
    1.71
    %NOW
      deposits
    
    
    824,000
    
    
    1,000
    
    
    0.5
    
    
    440,000
    
    
    370
    
    
    0.50Savings
      deposits
    
    
    231,000
    
    
    1,000
    
    
    1.7
    
    
    131,000
    
    
    289
    
    
    1.34Time
      certificates of deposit in denominations of $100,000 or
    more
    
    
    1,251,000
    
    
    8,000
    
    
    2.6
    
    
    405,000
    
    
    1,675
    
    
    2.52Other
      time deposits
    
    
    444,000
    
    
    3,000
    
    
    2.7
    
    
    165,000
    
    
    735
    
    
    2.71Other
      borrowings
    
    
    0
    
    
    0
    
    
    
    
    
    0
    
    
    0
    
    
    0Total
      interest-bearing liabilities
    
    $
    6,198,000
    
    $
    30,000
    
    
    1.9
    %
    $
    1,842,000
    
    $
    5,035
    
    
    1.66
    %Noninterest-bearing
      liabilities:Noninterest-bearing
      deposits
    
    
    1,661,000
    
    
    
    
    
    
    
    
    644,000Other
      liabilities
    
    
    19,000
    
    
    
    
    
    
    
    
    0Total
      noninterest-bearing liabilities
    
    
    1,680,000
    
    
    
    
    
    
    
    
    644,000SHAREHOLDERS’
      EQUITY
    
    
    13,432,000
    
    
    
    
    
    
    
    
    13,433,000TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
    
    $
    21,310,000
    
    
    
    
    
    
    
    $
    15,919,000Net
      interest income(3)
    
    
    
    
    $
    196,000
    
    
    
    
    
    
    
    $
    87,000Net
      interest spread(4)
    
    
    
    
    
    
    
    
    2.7
    %
    
    
    
    
    
    
    
    2.12
    %Net
      interest margin(5)
    
    
    
    
    
    
    
    
    4.0
    %
    
    
    
    
    
    
    
    3.58
    %





Changes
in volume and changes in interest rates affect our interest income and interest
expense. The effect of these changes is typically displayed in a volume, mix and
rate analysis table which compares the changes in income and expense over
periods. Since the Company has a limited operating history, data to analyze
these changes is not currently available.




***Provision
for Loan Losses***




We
determine 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.”*




19





In the
first quarter of 2005, our provision for loan and lease losses was $74,000
compared to $100,000 for the fourth quarter of 2004. The provision amounts are
directly related to loan volumes. Because the Bank recently opened, as with the
fourth quarter of 2004, we did not have any charge-offs or non-performing loans
during the first quarter of 2005.




***Noninterest
Income***




As with
the fourth quarter of 2004, our noninterest income for the quarter ended March
31, 2005 was attributable solely to service charges on depository accounts.
Services charges for the first quarter of 2005 totaled $3,000, compared to
$1,000 for the fourth quarter of 2004. The increase in income from service
charges is attributable to the increase in our number of transactional and
savings accounts.




***Noninterest
Expense***




The
following tables set forth a summary of noninterest expenses for the periods
indicated:




**Three
      Months Ended******
    
    **March
      31, 2005**
    
    **December
      31, 2004****(Amount)**
    
    **(%)**
    
    **(Amount)**
    
    **(%)**Salaries
      and employee benefits
    
    $
    352,000
    
    
    59
    %
    $
    239,000
    
    
    66
    %Occupancy
      and equipment
    
    
    105,000
    
    
    18
    
    
    60,000
    
    
    17Office
      expenses
    
    
    16,000
    
    
    3
    
    
    13,000
    
    
    4Data
      processing/ATM expense
    
    
    28,000
    
    
    5
    
    
    23,000
    
    
    6Professional
      fees
    
    
    20,000
    
    
    3
    
    
    8,000
    
    
    2Advertising/promotional
    
    
    23,000
    
    
    4
    
    
    4,000
    
    
    1Other
      noninterest expense
    
    
    37,000
    
    
    6
    
    
    16,000
    
    
    4Holding
      company administrative expense
    
    
    16,000
    
    
    2
    
    
    0
    
    
    0Total
      noninterest expense
    
    $
    597,000
    
    
    100
    %
    $
    362,000
    
    
    100
    %





Our total
noninterest expense increased to $596,000 in the first quarter of 2005, as
compared to $362,000 for the fourth quarter of 2004, representing a decrease of
64%. This difference is attributable primarily to the expanded personnel and
occupancy costs associated with the opening of the Bank and our initial business
growth. While we anticipate that the overall volume of our noninterest expense
will continue to increase as we grow, we are committed to controlling costs and
efficiency and expect to moderate these increases relative to our revenue
growth.




Salaries
and employee benefits totaled $352,000 for the first quarter of 2005. We had 15
full-time equivalent employees as of March 31, 2005. Our volume of assets per
employee as of the end of the first quarter of 2005 was $580,000.




Occupancy
and equipment expenses totaled $105,000 for the first quarter of 2005,
attributable primarily to lease expense and depreciation and amortization of
leasehold improvements and furniture, fixtures and equipment.




Holding
company administrative expenses were $16,000, or 2% of total noninterest
expenses, for the first quarter of 2005. This is attributable primarily to fees
associated with public reporting and other expenses generally associated with
publicly-traded companies.




***Income
Taxes***




No
federal tax expense has been recorded for the quarter ended March 31, 2005,
based upon net operating losses. Based upon the Company’s limited operating
history, the federal tax benefit of these losses has been fully
reserved.




**Financial
Condition**




Our total
assets as of March 31, 2005 were $25.5 million, compared to $20.7 million as of
December 31, 2004. The increase in our total assets during the first quarter of
2005 were primarily the result of an increase in deposits.




20





Our total
deposits increased to $11.4 million as of March 31, 2005, compared to $6.6
million as of December 31, 2004. Our asset growth during the first quarter of
2005 was primarily the result of our continued marketing efforts to attract new
clients.




As of
March 31, 2005, our shareholders’ equity was $14.0 million, compared to $14.5
million as of December 31, 2004. This decrease was the result of operating
losses in the first quarter of 2005.




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




At March
31, 2005, the Bank had $10.6 million in federal funds sold. At December 31, 2004
the Bank had $11.6 million. Federal funds sold, compared to $11.6 million at
December 31, 2004. Federal funds sold allow the Bank to meet liquidity
requirements and provide temporary holdings until the funds can be otherwise
deployed or invested.




***Investment
Securities***




Our
investment portfolio will primarily serve 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 March
31, 2005 and December 31, 2004, the Bank’s securities consisted solely of
Federal Reserve Bank Stock, having an amortized cost of $420,000 an estimate
fair value of $420,000, and a weighted average yield of 5.7%.




***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****March
      31,**
    
    
    **As
      of December 31,****2005**
    
    
    **2004**Real
      estate - mortgage
    
    $
    4,559,000
    
    $
    1,732,000Commercial
      and industrial
    
    
    4,503,000
    
    
    3,415,000Consumer
    
    
    232,000
    
    
    176,000Real
      estate - construction
    
    
    2,300,000
    
    
    1,336,000Other
      loans
    
    
    0
    
    
    0Gross
      loans and leases
    
    $
    11,594,000
    
    $
    6,659,000Less:
      Allowance for loan and lease losses
    
    
    174,000
    
    
    100,000Loans,
      net
    
    $
    11,420,000
    
    $
    6,559,000





As of
March 31, 2005 and December 31, 2004, our total loans were $11.4 million and
$6.6 million, respectively. The increase in our loan volume during the first
quarter of 2005 resulted from the continued growth of our operations. Our total
loans as a percentage of total assets increased to 45% as of March 31, 2005 from
32% as of December 31, 2004.




Our
commercial loan portfolio is comprised 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
client’s businesses. At March 31, 2005 and December 31, 2004, funded loans
totaled $4.5 million and $3.4 million, approximately 39% and 51% of our total
funded loans, respectively.




21





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 March
31, 2005 and December 31, 2004, funded consumer loans totaled $232,000 and
$176,000, approximately 2% and 2.6% of our total funded loans,
respectively.




Our real
estate loan portfolio is comprised of construction loans and short term mortgage
loans. Construction loans consist primarily of single-family residential
properties, have a term of less than one year and have floating rates and
commitment fees. We typically make construction loans to builders that have an
established record of successful project completion and loan repayment. Short
term mortgage loans typically are secured by commercial properties occupied by
the borrower, have terms of three to seven years with both fixed and floating
rates. At March 31, 2005 and December 31, 2004, funded real estate loans totaled
$6.9 million and $3.1 million, approximately 59% and 46% of our total funded
loans, respectively.




Loan
concentrations are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities that would cause them
to be similarly impacted by economic or other conditions. At March 31, 2005, our
commercial loan portfolio included $3.0 million of loans, approximately 26% of
our total funded loans, to fund the purchase of dental practices. We believe
that these loans are well secured to credit worthy borrowers and are diversified
geographically. As new loans are generated and the Bank continues to grow, the
percentage of the total loan portfolio creating the foregoing concentration may
remain constant 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 the best interest of the Bank. The Bank requires 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.




Our loan
terms vary according to loan type. The following table shows our maturity
distribution of loans and leases as of March 31, 2005:




**As of March 31,
      2005****Over
      1 Year**
      **through
      5 Years**
    
    
    **Over
      5 Years****One
      Year**
      **or
      Less**
    
    
    **Fixed**
      **Rate**
    
    
    **Floating
      or Adjustable Rate**
    
    
    **Fixed**
      **Rate**
    
    
    **Floating
      or Adjustable Rate**
    
    
    **Total****(In
      thousands)**Real
      estate — construction
    
    $
    2,001,000
    
    $
    0
    
    $
    299,000
    
    $
    0
    
    $
    0
    
    $
    2,300,000Real
      estate — secured
    
    
    1,343,000
    
    
    3,216,000
    
    
    0
    
    
    0
    
    
    0
    
    
    4,559,000Commercial
      and industrial
    
    
    1,782,000
    
    
    2,015,000
    
    
    0
    
    
    706,000
    
    
    0
    
    
    4,503,000Consumer
    
    
    115,000
    
    
    117,000
    
    
    0
    
    
    0
    
    
    0
    
    
    232,000Leases
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0Other
      loans
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0Total
    
    $
    5,241,000
    
    $
    5,348,000
    
    $
    299,000
    
    $
    706,000
    
    $
    0
    
    $
    11,594,000


******


***Nonperforming
Loans, Leases and Assets***




Nonperforming
assets consist of loans and leases 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, OREO, and other
repossessed assets. As of March 31, 2005, we had no nonperforming
assets.




A
potential problem loan is defined as a loan where information about possible
credit problems of the borrower is known, causing management to have serious
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 collectibility 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. The Bank had no loans classified in these categories at March 31,
2005.




22


******


***Allowance
for Loan Losses***




Implicit
in our lending activities is the fact that loan losses will be experienced 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 allowance is available to absorb possible loan losses. The factors
that influence the 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. Until management has adequate historical data upon which
to base the estimate of the allowance for loan losses, a balance of
approximately 1.5% of the outstanding principal will be used unless additional
information regarding the ability of the borrower to repay the loan, current
economic conditions or other pertinent factors indicate a different allowance is
needed. Thus, our allowance was $174,000 and $100,000 of outstanding principal
as of March 31, 2005 and December 31, 2004, respectively.




Credit
and loan decisions are made by management and the Board of Directors in
conformity with loan policies established by the board of directors. The Bank’s
practice is to charge-off any loan or portion of a loan when the loan is
determined by management to be 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. During the
year ended December 31, 2004 and first quarter of 2005, we did not incur any
charge-offs.




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:




**As
      of March 31,**
      **2005**
    
    **As
      of December 31,**
      **2004****Amt.**
    
    **Loan
      Category to Gross Loans**
    
    **Amt.**
    
    **Loan
      Category to Gross Loans****Allocated:**Real
      estate3⁄4construction
    
    $
    35,000
    
    
    20
    %
    
    20,000
    
    
    20
    %Real
      estate3⁄4secured
    
    
    68,000
    
    
    39
    
    
    26,000
    
    
    26Commercial
      and industrial
    
    
    67,000
    
    
    39
    
    
    51,000
    
    
    51Consumers
    
    
    4,000
    
    
    2
    
    
    3,000
    
    
    3Leases
    
    
    0
    
    
    
    
    
    0Other
      loans
    
    
    0
    
    
    
    
    
    0Total
      allowance for loan and lease losses
    
    $
    174,000
    
    
    100
    %
    
    100,000
    
    
    100


******


23


******


***Nonearning
Assets***




Premises,
leasehold improvements and equipment, net of accumulated depreciation and
amortization, totaled $1.21 million at March 31, 2005 and $1.18 million at
December 31, 2004. We have no definitive agreements regarding acquisition or
disposition of owned or leased facilities and, for the near-term future, we do
not expect significant changes in our total occupancy expense.




***Deposits***




Deposits
are our primary source of funds. 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:




**Three
      Months Ended March 31,**
    **Year
      Ended December 31,******
    **2005**
    **2004******
      ****
    **Average
      Balance**
    **Percent
      of Deposits**
    **Average
      Rate**
    **Average
      Balance**
    **Percent
      of Deposits**
    **Average
      Rate****(Dollars
      in thousands)**





Noninterest-bearing
      demand deposits
    
    $
    1,661,000
    
    
    21
    %
    
    0
    %
    $
    644,000
    
    
    30
    %
    
    0
    %Money
      market deposits
    
    
    3,448,000
    
    
    44
    
    
    2.0
    
    
    701,000
    
    
    28
    
    
    1.7NOW
      deposits
    
    
    824,000
    
    
    10
    
    
    0.5
    
    
    441,000
    
    
    18
    
    
    0.5Savings
      deposits
    
    
    231,000
    
    
    3
    
    
    1.5
    
    
    131,000
    
    
    5
    
    
    1.3Time
      certificates of deposit in denominations of $100,000 or
    more
    
    
    1,251,000
    
    
    16
    
    
    2.6
    
    
    404,000
    
    
    16
    
    
    2.7Brokered
      certificates of deposits
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0Other
      time deposits
    
    
    444,000
    
    
    6
    
    
    2.6
    
    
    165,000
    
    
    0
    
    
    2.7Total
      deposits
    
    $
    7,879,000
    
    
    100
    %
    
    
    
    $
    2,486,000
    
    
    100
    %





Total
deposits at March 31, 2005 and December 31, 2004 were $11.5 million
and




$6.6
million respectively, representing an increase of $5 million, or 77%, during the
first quarter of 2005. Average deposits for the first quarter of 2005 were $7.9
million, as compared to $2.5 million for the fourth quarter of 2004. The Bank is
constantly searching for ways to attract additional deposits.




The
following table sets forth the amount and maturities of the time deposits of
$100,000 or more as of the periods indicated:




**March
      31,**
      **2005**
    
    **December
      31,**
      **2004**Three
      months or less
    
    $
    351,000
    
    $
    250,000Over
      three months through six months
    
    
    252,000
    
    
    950,000Over
      six months through 12 months
    
    
    850,000
    
    
    0Over
      12 months
    
    
    100,000
    
    
    0Total
    
    $
    1,553,000
    
    $
    1,200,000


******


***Return
on Equity and Assets***




The
following table sets forth certain information regarding the Company’s return on
equity and assets for the periods indicated:




24




**At
      March 31, 2005**
    
    **December
      31, 2004**Return
      of assets
    
    
    -8.5
    %
    
    -8.3
    %Return
      on equity
    
    
    -13.6
    %
    
    -11.9
    %Dividend
      payout ratio
    
    
    0
    %
    
    0
    %Equity
      to assets ratio
    
    
    52
    %
    
    70
    %


******


***Off-Balance
Sheet Arrangements***




Neither
the Company nor the Bank has any material off-balance sheet
arrangements.




***Borrowings***




The
Company has access to a variety of borrowing sources including federal funds
purchased




At March
31, 2005 and December 31, 2004, the Company had outstanding loan origination
commitments and unused commercial and retail lines of credit of $2.7 million and
$2.1 million, respectively, and no standby letters of credit. Management
believes the Bank has sufficient funds available to meet current origination and
other lending commitments. Certificates of deposit that are scheduled to mature
within one year totaled $1.9 million and $1.5 million at March 31, 2005 and
December 31, 2004, respectively.




The
following table summarizes the Bank’s significant contractual obligations and
other potential funding needs at March 31, 2005:




**As
      of March 31, 2005****Less
      than One Year**
    
    
    **One
      Year to Three Years**
    
    
    **Over
      Three Years to Five Years**
    
    
    **Over
      Five Years**Time
      deposits
    
    $
    1,940,000
    
    $
    6,000
    
    $
    150,000
    
    $
    0Operating
      leases
    
    
    164,000
    
    
    328,000
    
    
    335,000
    
    
    580,000Total
    
    $
    2,104,000
    
    $
    334,000
    
    $
    485,000
    
    $
    580,000


******


***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.




As of
March 31, 2005, the Bank was categorized as well-capitalized. 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.




25




**Actual**
    
    **For
      Capital Adequacy Purposes**
    
    **To
      Be Well Capitalized Under Prompt Corrective Action
      Problems****Amount**
    
    **Ratio**
    
    **Amount**
    
    **Ratio**
    
    **Amount**
    
    **Ratio****(Dollars
      in Thousands)****As
      of March 31, 2005**Total
      Capital (to risk-weighted assets)
    
    $
    13,344,000
    
    
    96.07
    %
    $
    1,111,000
    
    
    >8
    %
    $
    1,389,000
    
    
    >10
    %Tier
      1 capital (to risk-weighted assets)
    
    
    13,170,000
    
    
    94.82
    %
    
    555,000
    
    
    >4
    %
    
    833,000
    
    
    >6
    %Tier
      1 capital (to average assets)
    
    
    13,170,000
    
    
    61.8
    %
    
    852,000
    
    
    >4
    %
    
    1,065,00
    
    
    >5
    %**As
      of December 31, 2004**Total
      Capital (to risk-weighted assets)
    
    $
    13,725,000
    
    
    150.77
    %
    $
    1,098,000
    
    
    >8
    %
    $
    910
    
    
    >10
    %Tier
      1 capital (to risk-weighted assets)
    
    $
    13,625,000
    
    
    149.68
    %
    $
    364,000
    
    
    >4
    %
    $
    546
    
    
    >6
    %Tier
      1 capital (to average assets)
    
    $
    13,625,000
    
    
    82.94
    %
    $
    657,000
    
    
    >4
    %
    $
    821
    
    
    >5
    %


******


***Liquidity
Management***




Our stock
offering closed October 29, 2004 with 1,680,000 shares sold representing $16.8
million in gross total capital raised. Of this sum $403,000 was used for
offering expenses and $14 million was injected into the Bank. Pre-opening costs
totaled $1.6 million and consisted of professional fees of $282,000, consulting
fees of $763,000 and operational expenses of $523,000. In addition the Company
funded certain expenses and the purchase of certain capital assets totaling
$733,000 that was reimbursed and purchased by the Bank in early 2005. At March
31, 2005 the Company (excluding the Bank) had approximately $813,000 in
remaining cash proceeds. 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 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 will 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 and
securities repayments, other short-term borrowings, and other funds provided by
operations. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early 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. We anticipate eliminating the need for borrowed funds upon
infusion of additional cash and cash equivalents.




As loan
demand increases, greater pressure will be exerted on the Bank’s liquidity.
However, it is our intention to maintain a conservative loan to deposit ratio in
the range of 70% over time. Given this goal, we will not aggressively pursue
lending opportunities if sufficient funding sources ( *i.e.* ,
deposits, Fed Funds, etc.) are not available, nor will we seek to attract
transient volatile, non-local deposits with above market interest rates. As of
March 31, 2005, the loan to deposit ratio was 94%.




The Bank
had cash and cash equivalents of $12.7 million, or 49% of total Bank assets, at
March 31, 2005. We believe that, with the capital injection from the proceeds of
the offering, the Bank should have more than adequate liquidity to meet
anticipated future funding needs.




26





The Bank
is subject to various regulatory capital requirements administered by federal
and state 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. At March 31, 2005,
the Bank was considered “well capitalized” by regulatory standards.




***Quantitative
and Qualitative Disclosure About Market Risks***




Interest
rate risk is the most significant market risk affecting us. Other types of
market risk, such as foreign currency risk and commodity price risk, do not
arise in the normal course of our business activities. Interest rate risk can be
defined as the exposure to a movement in interest rates that could have an
adverse effect on our net interest income or the market value of our financial
instruments. The ongoing monitoring and management of this risk is an important
component of our asset and liability management process, which is governed by
policies established by the Company’s Board of Directors and carried out by the
Bank’s Investment/Asset-liability Committee. The Investment/Asset-liability
Committee’s objectives are to manage our exposure to interest rate risk over
both the one year planning cycle and the longer term strategic horizon and, at
the same time, to provide a stable and steadily increasing flow of net interest
income.




Our
primary measurement of interest rate risk is earnings at risk, which is
determined through computerized simulation modeling. The primary simulation
model assumes a static balance sheet, using the balances, rates, maturities and
repricing characteristics of all of the Bank’s existing assets and liabilities.
Net interest income is computed by the model assuming market rates remaining
unchanged and compares those results to other interest rate scenarios with
changes in the magnitude, timing and relationship between various interest
rates. At March 31, 2005, we modeled rising ramp and declining interest rate
simulations in 100 basis point increments over a 12-month period. The impact of
imbedded options in such products as callable and mortgage-backed securities,
real estate mortgage loans and callable borrowings were considered. Changes in
net interest income in the rising and declining rate scenarios are then measured
against the net interest income in the rates unchanged scenario. The
Investment/Asset-liability Committee utilizes the results of the model to
quantify the estimated exposure of net interest income to sustained interest
rate changes.




In the
March 31, 2005 simulation, our model indicated an exposure in the level of net
interest income to rising rates for a 12-month period. The hypothetical rate
scenarios consider an up or down change of 100, 200, 300 and 400 basis points
during a 12-month period. At March 31, 2005, the net interest income at risk for
year one in the 100 basis point falling rate scenario was calculated at $81,000,
or 8.9% lower than the net interest income in the rates unchanged scenario, and
$164,000, or 18%, lower than the net interest income in the rates unchanged
scenario at the March 31, 2005 simulation with a 200 basis point decrease. These
exposures are well within our policy guidelines of 20%. At March 31, 2005, the
net interest income for year one in the 100 basis point rising rate scenario was
calculated to be $78,000, or 8.6%, higher than the net interest income in the
rates unchanged scenario, and $155,000, or 17%, higher than the net interest
income in the rate unchanged scenario at the March 31, 2005 simulation with a
200 basis point increase. Computation of prospective effects of hypothetical
interest rate changes are based on numerous assumptions, including relative
levels of market interest rates, loan and security prepayments, deposit run-offs
and pricing and reinvestment strategies and should not be relied upon as
indicative of actual results. Further, the computations do not contemplate any
actions we may take in response to changes in interest rates. We cannot assure
you that our actual net interest income would increase or decrease by the
amounts computed by the simulations. The following table indicates the estimated
impact on net interest income under various interest rate scenarios as of March
31, 2005:




**Change
      in Future Net Interest Income****At
      March 31, 2005****Dollar
      Change**
    
    **Percentage
      Change****(Dollars
      in thousands)**+400
      basis points over one year
    
    $
    309,000
    
    
    33.9
    %+300
      basis points over one year+
    
    
    232,000
    
    
    25.4
    %+200
      basis points over one year
    
    
    155,000
    
    
    17.0
    %+100
      basis points over one year
    
    
    78,000
    
    
    8.6
    %—100
      basis points over one year
    
    
    -81,000
    
    
    -8.9
    %—200
      basis points over one year
    
    
    -164,000
    
    
    -18.0
    %—300
      basis points over one year
    
    
    -247,000
    
    
    -27.1
    %—400
      basis points over one year
    
    
    -330,000
    
    
    -36.2
    %





27





We also
monitor the repricing terms of our assets and liabilities through gap matrix
reports for the rates in unchanged, rising and falling interest rate scenarios.
The reports illustrate, at designated time frames, the dollar amount of assets
and liabilities maturing or repricing.




The
following table sets forth, on a stand-alone basis, the Bank’s amounts of
interest-earning assets, interest-bearing liabilities and the nominal amount of
interest rate swaps outstanding at March 31, 2005, which we anticipate, based
upon certain assumptions, to reprice or mature in each of the future time
periods shown. The projected repricing of assets and liabilities anticipates
prepayments and scheduled rate adjustments, as well as contractual maturities
under an interest rate unchanged scenario within the selected time intervals.
While we believe such assumptions are reasonable, we cannot assure you that
assumed repricing rates will approximate our actual future deposit activity.




**As
      of March 31, 2005****Volumes
      Subject to Repricing Within****0-1
      Days**
    
    **2-90
      Days**
    
    **91-365
      Days**
    
    **1-3
      Years**
    
    **Over
      3 Years**
    
    **Non-Interest
      Sensitive**
    
    **Total****(Dollars
      in Thousand****Assets:**
  Short-term
      investments and federal funds sold
    
    $
    10,625,000
    
    $
    0
    
    $
    0
    
    $
    0
    
    $
    0
    
    $
    0
    
    $
    10,625,000Investment
      securities
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    420,000
    
    
    0
    
    
    420,000Loans
    
    
    3,465,000
    
    
    1,140,000
    
    
    2,828,000
    
    
    2,154,000
    
    
    1,957,000
    
    
    50,000
    
    
    11,594,000Fixed
      and other assets
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    2,863,000
    
    
    2,863,000Total
      Assets
    
    $
    1
      4,090,000
    
    $
    1,140,000
    
    $
    2,828,000
    
    $
    2,154,000
    
    $
    2,377,000
    
    $
    2,913,000
    
    $
    25,502,000**Liabilities
      and Stockholders’ Equity:**Interest-bearing
      checking, savings and money market accounts
    
    
    454,000
    
    
    0
    
    
    0
    
    
    6,430,000
    
    
    0
    
    
    2,508,000
    
    
    9,392,000Certificates
      of deposit
    
    
    0
    
    
    352,000
    
    
    1,588,000
    
    
    6,000
    
    
    150,000
    
    
    0
    
    
    2,096,000Borrowed
      funds
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0Other
      liabilities
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    31,000
    
    
    31,000Stockholders’
      equity
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    0
    
    
    13,983,000
    
    
    13,983,000
 
 Total
      liabilities and stockholders’ equity
    
    $
    454,000
    
    $
    352,000
    
    $
    1,588,000
    
    $
    6,436,000
    
    $
    150,0000
    
    $
    16,522,000
    
    $
    25,502,0000Period
      Gap
    
    $
    13,636,000
    
    $
    788,000
    
    $
    1,240,000
    
    $
    -4,282,000
    
    $
    2,227,0000Cumulative
      gap
    
    $
    13,636,000
    
    $
    14,424,000
    
    $
    15,664,000
    
    $
    11,382,000
    
    $
    11,382,0000Period
      gap to total assets
    
    
    53
    %
    
    3
    %
    
    5
    %
    
    -17
    %
    
    9
    %Cumulative
      gap to total assets
    
    
    53
    %
    
    57
    %
    
    61
    %
    
    45
    %
    
    53
    %
  28
 
 Certain
shortcomings are inherent in the method of analysis presented in the gap table.
For example, although certain assets and liabilities may have similar maturities
or periods of repricing, they may react in different degrees to changes in
market interest rates. Additionally, certain assets, such as adjustable-rate
loans, have features that restrict changes in interest rates, both on a
short-term basis and over the life of the asset. More importantly, changes in
interest rates, prepayments and early withdrawal levels may deviate
significantly from those assumed in the calculations in the table. As a result
of these shortcomings, we focus more on earnings at risk simulation modeling
than on gap analysis. Even though the gap analysis reflects a ratio of
cumulative gap to total assets within acceptable limits, the earnings at risk
simulation modeling is considered by management to be more informative in
forecasting future income at risk.




Finally,
we also monitor core funding utilization in each interest rate scenario as well
as market value of equity. These measures are used to evaluate long-term
interest rate risk beyond the two-year planning horizon.




***Aggregate
Contractual Obligations***




The
following table represents our on and off-balance sheet aggregate contractual
obligations, other than deposit liabilities, to make future payments to third
parties as of the date specified:


**As
      of March 31, 2005****Less
      than One Year**
    
    **One
      Year to Three Years**
    
    **Over
      Three Years to Five Years**
    
    **Over
      Five Years**Operating Leases
    
    $
    164,000
    
    $
    326,000
    
    $
    335,000
    
    $
    580,000Total
    
    $
    164,000
    
    $
    328,000
    
    $
    335,000
    
    $
    580,000


****


**ITEM
3.**  **Quantitative
and Qualitative Disclosures about Market Risk**




The
information contained in the section captioned “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” as set forth in Part
I, Item 2 of this Quarterly Report on Form 10-QSB is incorporated herein by
reference.




**ITEM
4.**  **Controls
and Procedures**




As of the
end of the period covered by this Quarterly Report on Form 10-QSB for the
quarter ended March 31, 2005, we carried out an evaluation, under the
supervision and with the participation of our management, including our chief
executive officer and chief financial officer, of the effectiveness of the
design and operation of our “disclosure controls and procedures,” as such term
is defined under Exchange Act Rule 13a-15(e).




Based on
this evaluation, our chief executive officer and chief financial officer
concluded that, as of the end of the fiscal quarter covered by this report, such
disclosure controls and procedures were reasonably designed to ensure that
information required to be disclosed by us in the reports we file or submit
under the Exchange Act is: (a) recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission, and (b) accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as
appropriate to allow timely decisions regarding required
disclosure.




In
designing and evaluating the disclosure controls and procedures, our management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives and in reaching a reasonable level of assurance our management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.




There
were no changes in our internal controls over financial reporting during the
quarter ended March 31, 2005 that materially affected, or were reasonably likely
to materially affect, our internal controls over financial
reporting.




**PART
II -** **OTHER
INFORMATION**




**ITEM
1.**  **Legal
Proceedings**




There are
no material pending legal proceedings to which the Company or the Bank is a
party or to which any of our properties are subject; nor are there material
proceedings known to the Company, in which any director, officer or affiliate or
any principal shareholder is a party or has an interest adverse to the Company
or the Bank.




29


****


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




On April
30, 2004, the Securities and Exchange Commission declared effective our
Registration Statement on Form SB-2 (File No. 333-111153) related to our initial
public offering our common stock, $0.01 par value. In addition, on December 1,
2004, we filed a Form SB-2 MEF under Rule 462 registering additional shares of
common stock and warrants to purchase our common stock under our public
offering. We registered a total of 2,116,000 shares of our common stock, of
which 436,000 shares are issuable under registered common stock warrants
(warrants to purchase an aggregate of 336,000 shares of common stock at an
exercise price of $12.50 per share issued to the initial shareholders of the
Company in connection with the offering, and warrants to purchase an aggregate
of 100,000 shares of common stock at an exercise price of $10.00 per share
issued to the organizers of the Company). On October 29, 2004, we completed our
initial public offering having sold 1,680,000 shares at $10.00 per share, for an
aggregate of $16.8 million.




The
Company incurred $403,000 in offering expenses, none of which was paid to
directors, officers, ten percent or greater shareholders, any of their
associates, or affiliates of the Company. None of those expenses were paid to
underwriters or for underwriting discounts and commissions or finders’ fees. The
net offering proceeds to the Company after deducting the foregoing expenses were
approximately $16.4 million.




The
following is a reasonable estimate of the application of net offering proceeds
through March 31, 2005:




Gross
      proceeds from sale of shares
    
    $
    16,800,000Offering
      expenses
    
    $
    403,000Organizational
      expenses
    
    $
    1,568,000Contribution
      to the capital of the Bank
    
    $
    14,000,000Remaining
      net proceeds
    
    $
    829,000





**ITEM
3.**  **Defaults
Upon Senior Securities**




None.




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




None.




**ITEM
5.**  **Other
Information**




Not
applicable.




**ITEM
6.**  **Exhibits**




**Exhibit
      Number**
    
    **Description
      of Exhibit**31.1
    
    Rule
      13a-14(a) Certification of Chief Executive Officer.31.2
    
    Rule
      13a-14(a) Certification of Chief Financial Officer.32
    
    Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.




30





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.




FIRST METROPLEX CAPITAL, INC.Date: May 16, 2005
    By:
    /s/ Patrick G. AdamsPatrick
      G. Adams
      President
      and Chief Executive Officer






31