**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 September 30, 2006**





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 75248(Address
                of principal executive offices)(972)
                720-9000(Issuer’s
                telephone number, including area code)


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





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





The
      number of shares outstanding of the issuer’s Common Stock as of October 31,
      2006, was 1,680,150 shares.











**FIRST
      METROPLEX CAPITAL, INC.**





INDEX





PAGEPART I. FINANCIAL INFORMATION
            3ITEM
              1.
              Financial Statements
            3ITEM
              2.
              Management’s Discussion and Analysis or Plan of Operation
            15ITEM
              3.
              Controls and Procedures
            30PART II. OTHER INFORMATION
            31ITEM
              1.
              Legal Proceedings
            31ITEM
              2.
              Unregistered Sales of Equity Securities and Use of Proceeds
            31ITEM
              3.
              Defaults Upon Senior Securities
            31ITEM
              4.
              Submission of Matters to a Vote of Security Holders
            31ITEM
              5. Other
              Information
            31ITEM
              6.
              Exhibits
            31




2


**PART
      I.**  **FINANCIAL
      INFORMATION**


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




**FIRST
                METROPLEX CAPITAL,
                INC****CONSOLIDATED
                BALANCE SHEETS****SEPTEMBER
                30,**
              **2006**
            
            
            **DECEMBER
                31,**
              **2005**(Unaudited)ASSETSCash
                and due from banks
            
            $
            1,880,000
            
            $
            2,933,000Federal
                funds sold
            
            
            12,925,000
            
            
            17,485,000Total
                cash and cash equivalents
            
            
            14,805,000
            
            
            20,418,000Investments
                restricted
            
            
            468,000
            
            
            420,000Loans,
                less allowance for credit losses of $875,000 and $400,000
                respectively
            
            
            65,603,000
            
            
            25,789,000Bank
                premises and equipment, net
            
            
            1,786,000
            
            
            1,100,000Other
                assets
            
            
            911,000
            
            
            289,000TOTAL
                ASSETS
            
            $
            83,573,000
            
            $
            48,016,000LIABILITIES
                AND SHAREHOLDERS’ EQUITYLIABILITIESDemand
                depositsNoninterest
                bearing
            
            $
            15,116,000
            
            $
            7,119,000Interest
                bearing
            
            
            31,617,000
            
            
            16,390,000Time
                deposits $100,000 and over
            
            
            16,548,000
            
            
            8,216,000Other
                time deposits
            
            
            7,758,000
            
            
            3,339,000Total
                deposits
            
            
            71,039,000
            
            
            35,064,000Other
                liabilities
            
            
            143,000
            
            
            76,000Total
                liabilities
            
            
            71,182,000
            
            
            35,140,000SHAREHOLDERS’
                EQUITYCommon
                stock, $0.01 par value10,000,000
                shares authorized1,680,150
                and 1,680,150 shares issued and outstanding, respectively
            
            
            17,000
            
            
            17,000Additional
                paid-in capital
            
            
            16,439,000
            
            
            16,382,000Retained
                deficit
            
            
            (4,065,000
            )
            
            (3,523,000
            )Total
                shareholders’ equity
            
            
            12,391,000
            
            
            12,876,000TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            83,573,000
            
            $
            48,016,000


The
      Notes
      to Financial Statements are an integral part of these statements.




3





**FIRST
                METROPLEX CAPITAL, INC.**
              **STATEMENT
                OF OPERATIONS**
              **(Unaudited)****3
                MONTHS**
              **ENDED**
              **SEPT.
                30, 2006**
            
            **3
                MONTHS**
              **ENDED**
              **SEPT.
                30, 2005**
            
            **9
                MONTHS**
              **ENDED**
              **SEPT.
                30, 2006**
            
            **9
                MONTHS**
              **ENDED**
              **SEPT.
                30, 2005**INTEREST
                INCOMEInterest
                and fees on loans
            
            $
            1,342,000
            
            $
            411,000
            
            $
            2,810,000
            
            $
            867,000Restricted
                investments
            
            
            6,000
            
            
            6,000
            
            
            19,000
            
            
            19,000Federal
                funds sold
            
            
            108,000
            
            
            89,000
            
            
            553,000
            
            
            216,000Total
                interest income
            
            
            1,456,000
            
            
            506,000
            
            
            3,382,000
            
            
            1,102,000INTEREST
                EXPENSEDeposits
            
            
            489,000
            
            
            120,000
            
            
            1,055,000
            
            
            210,000Interest
                income, net
            
            
            967,000
            
            
            386,000
            
            
            2,327,000
            
            
            892,000PROVISION
                FOR CREDIT LOSSES
            
            
            150,000
            
            
            106,000
            
            
            475,000
            
            
            256,000Interest
                income afterprovision
                for credit losses
            
            
            817,000
            
            
            280,000
            
            
            1,852,000
            
            
            636,000OTHER
                INCOMEService
                fees
            
            
            307,000
            
            
            9,000
            
            
            493,000
            
            
            19,000OTHER
                EXPENSESSalaries
                and employee benefits
            
            
            574,000
            
            
            325,000
            
            
            1,672,000
            
            
            1,027,000Occupancy
                expense
            
            
            185,000
            
            
            127,000
            
            
            461,000
            
            
            347,000Professional
                fees
            
            
            45,000
            
            
            46,000
            
            
            125,000
            
            
            135,000Other
                operating expenses
            
            
            237,000
            
            
            145,000
            
            
            629,000
            
            
            427,0001,041,000
            
            
            643,000
            
            
            2,887,000
            
            
            1,936,000NET
                INCOME (LOSS)
            
            $
            83,000
            
            $
            (354,000
            )
            $
            (542,000
            )
            $
            (1,281,000
            )Net
                loss per weighted average share
            
            $
            0.05
            
            $
            (0.21
            )
            $
            (0.32
            )
            $
            (0.76
            )Weighted
                average shares outstanding
            
            
            1,680,150
            
            
            1,680,000
            
            
            1,680,150
            
            
            1,680,000




The
      Notes
      to Financial Statements are an integral part of these statements.




4


**FIRST
          METROPLEX CAPITAL, INC.**
 **STATEMENT
          OF CHANGES IN SHAREHOLDERS’ EQUITY**
 **NINE
          MONTHS ENDED SEPTEMBER 30, 2006**
 **(Unaudited)**
 **Common
                  Stock**
              
              **Additional
                  Paid-in**
                **Capital**
              
              
              **Retained
                  Deficit**
              
              
              **Accumulated**
                **Other**
                **Comprehensive**
                **Income**
              
              
              **Total**BALANCE,
                  December 31, 2005
              
              $
              17,000
              
              $
              16,382,000
              
              $
              (3,523,000
              )
              $
              -
              
              $
              12,876,000Comprehensive
                  incomeNet
                  loss - YTD
              
              
              
              
              
              
              
              
              (542,000
              )Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (542,000
              )Stock
                  based compensation
              
              
              
              
              
              57,000
              
              
              
              
              
              
              
              
              57,000BALANCE,
                  September 30, 2006
              
              $
              17,000
              
              $
              16,439,000
              
              $
              (4,065,000
              )
              
              -
              
              $
              12,391,000


5




**FIRST
                    METROPLEX CAPITAL, INC.**STATEMENT OF CASH FLOWS
                **(Unaudited)****NINE**
                **MONTHS
                  ENDED SEPT. 30, 2006**
              
              **NINE**
                **MONTHS
                  ENDED SEPT. 30, 2005**CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (542,000
              )
              $
              (1,281,000Adjustments
                  to reconcile net lossto
                  net cash used in operating activitiesProvision
                  for credit losses
              
              
              475,000
              
              
              256,000Depreciation
                  expense
              
              
              214,000
              
              
              146,000Stock
                  based compensation
              
              
              57,000
              
              
              -Changes
                  in operating assets and liabilities:Other
                  assets
              
              
              (622,000
              )
              
              87,000Other
                  liabilities
              
              
              67,000
              
              
              52,000Net
                  cash used in operating activities
              
              
              (351,000
              )
              
              (740,000CASH
                  FLOWS FROM INVESTING ACTIVITIESPurchase
                  of investments - restricted
              
              
              (48,000
              )
              
              -Net
                  change in loans
              
              
              (40,288,000
              )
              
              (17,799,000Purchases
                  of bank premises and equipment
              
              
              (901,000
              )
              
              (90,000Net
                  cash used in investing activities
              
              
              (41,237,000
              )
              
              (17,889,000CASH
                  FLOWS FROM FINANCING ACTIVITIESCash
                  received upon exercise of warrants
              
              
              -
              
              
              2,000Net
                  change in demand deposits
              
              
              7,997,000
              
              
              13,223,000Net
                  change in time deposits
              
              
              27,978,000
              
              
              5,408,000Net
                  cash provided by financing activities
              
              
              35,975,000
              
              
              18,633,000Net
                  change in cash and cash equivalents
              
              
              (5,613,000
              )
              
              4,000CASH
                  AND CASH EQUIVALENTS,beginning
                  of period
              
              
              20,418,000
              
              
              12,408,000CASH
                  AND CASH EQUIVALENTS,end
                  of period
              
              $
              14,805,000
              
              $
              12,412,000SUPPLEMENTAL
                  DISCLOSURE OFCASH
                  FLOW INFORMATIONInterest
                  paid
              
              $
              1,022,000
              
              $
              210,000Income
                  taxes paid
              
              $
              —
              
              $
              —
 The
          Notes
          to Financial Statements are an integral part of these statements .


6






**FIRST
      METROPLEX CAPITAL, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      1.**  **BASIS
      OF PRESENTATION**





**Organization
      and Nature of Operations**





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





We
      made
      certain reclassifications to the 2005 consolidated financial statements to
      conform to the 2006 presentation. These reclassifications did not change the
      net
      loss. Revenues, expenses, assets and liabilities can vary during each quarter
      of
      the year. Therefore, the results and trends in these interim financial
      statements may not be representative of those for the full year.





We
      are
      responsible for the unaudited financial statements included in this document.
      The financial statements include all normal and recurring adjustments that
      are
      considered necessary for the fair presentation of our financial position and
      operating results.





The
      information included in this Quarterly Report on Form 10-QSB should be read
      in
      conjunction with the consolidated financial statements and accompanying notes
      included in First Metroplex Capital's Annual Report on Form 10-KSB for the
      year
      ended December 31, 2005.





Basic
      earnings per share is based on the weighted average number of shares outstanding
      during the three and nine month periods ending September 30, 2006 and 2005.
      Diluted earnings per share have not been presented since the inclusion of
      potential common shares would be antidilutive.





**Note
      2.**  **ADOPTION
      OF NEW ACCOUNTING POLICIES**




On
      January 1, 2006, we adopted the provisions of Statement of Financial Accounting
      Standards (SFAS) No. 123R *,
      Share-Based Payment,* as
      supplemented by the interpretation provided by SEC Staff Accounting Bulletin
      (SAB) No. 107, issued in March 2005. (SFAS 123R replaced SFAS 123, *Stock-Based
      Compensation* ,
      issued
      in 1995.) We have elected the modified prospective application transition method
      of adoption and, as such, prior period financial statements have not been
      restated. Under this method, the fair value of all stock options granted or
      modified after adoption must be recognized in the consolidated statement of
      income and total compensation cost related to nonvested awards not yet
      recognized, determined under the original provisions of SFAS 123, must also
      be
      recognized in the consolidated statement of income.


Prior
      to
      January 1, 2006, we accounted for stock options under Accounting Principle
      Board
      Opinion (APB) No. 25, *Accounting
      for Stock Issued to Employees* ,
      an
      elective accounting policy permitted by SFAS 123. Under this standard, since
      the
      exercise price of our stock options granted is set equal to the market price
      on
      the date of the grant, we did not record any expense to the condensed
      consolidated statement of income related to stock options, unless certain
      original grant date terms were subsequently modified. However, as required,
      we
      disclosed, in the Notes to Consolidated Financial Statements, the pro forma
      expense impact of the stock option grants as if we had applied the
      fair-value-based recognition provisions of SFAS 123. The adoption of SFAS 123R
      primarily impacted our accounting for stock options (See Note 9, *Stock
      Options* ).





In
      March,
      2006 the FASB issued FASB No. 156 “Accounting for Servicing of Financial Assets
      - an amendment of FASB Statement No. 140.” FASB No. 156 permits the Company to
      choose either the amortization method of fair value measurement method to
      measure servicing assets or liabilities. FASB No. 156 is effective January
      1,
      2007 and management does not expect its adoption to have a material impact
      on
      the Company’s financial position, results of operations, or
      liquidity.





In
      July,
      2006 the FASB issued Interpretation No. 48 which clarifies the “Accounting for
      Uncertainty in Income Taxes” in accordance with FASB Statement No. 109
“Accounting for Income Taxes.” FIN No. 48 prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return. FIN No. 48 is
      effective for fiscal years beginning after December 15, 2006. The Company is
      reviewing the interpretation; however, it is anticipated that it will not have
      a
      material impact on the Company’s financial position, results of operation, or
      liquidity.




7




**Note
      3.**  **LOANS**





The
      components of loans at September 30, 2006 are summarized as
      follows:




Commercial
            
            $
            34,006,000Consumer
                installment
            
            
            3,380,000Real
                estate
            
            
            29,300,00066,686,000Less
                allowance for loan losses
            
            
            875,000Less
                deferred loan fees
            
            
            208,000$
            65,603,000








The
      change in the allowance for credit losses for 2006 is as follows:




**Three
                Months Ended September 30,**
            
            
            **Nine
                Months Ended September 30,****2006**
            
            
            **2005**
            
            
            **2006**
            
            
            **2005**Balance
                at beginning of period
            
            $
            725,000
            
            $
            250,000
            
            $
            400,000
            
            $
            100,000Provision
                charged to operations
            
            
            150,000
            
            
            106,000
            
            
            475,000
            
            
            256,000Loans
                charged off
            
            
            -
            
            
            -
            
            
            -
            
            
            -Recoveries
                of loans previously charged off
            
            
            -
            
            
            -
            
            
            -
            
            
            -Balance
                at end of period
            
            $
            875,000
            
            $
            356,000
            
            $
            875,000
            
            $
            356,000




The
      components of loans at December 31, 2005 are summarized as follows:




Commercial
            
            $
            11,572,000Consumer
                installment
            
            
            753,000Real
                estate
            
            
            13,961,000Total
            
            
            26,286,000Less
                allowance for loan losses
            
            
            400,000Less
                deferred loan fees
            
            
            97,000Total
            
            $
            25,789,000




At
      September 30, 2006, there were no loans which were contractually delinquent
      over
      ninety days that were continuing to accrue interest. In addition, there were
      two
      loans totaling $79,000 considered impaired, which has 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 September 30,
      2006.




8




**Note
      4.**  **SECURITIES**





At
      December 31, 2005 securities consisted of the Federal Reserve Bank Stock only.
      At September 30, 2006 securities consisted of the following:


**Amortized
                Cost**
            
            **Gross
                Unrealized Gains**
            
            **Gross
                Unrealized (Losses)**
            
            **Estimated
                Fair Value**Federal
                Reserve Bank Stock
            
            $
            420,000
            
            $
            —
            
            $
            —
            
            $
            420,000Federal
                Home Loan Bank Stock
            
            
            48,000
            
            
            —
            
            
            —
            
            
            48,000$
            468,000
            
            $
            —
            
            $
            —
            
            $
            468,000




**NOTE
      5.**  **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.





**Note
      6.**  **BANK
      PREMISES AND EQUIPMENT**





The
      original cost and related accumulated depreciation at September 30, 2006 and
      December 31, 2005 were as follows:




**Sept.
                30,**
              **2006**
            
            **December
                31,**
              **2005**Leasehold
                improvements
            
            $
            743,000
            
            $
            505,000Furniture
                and equipment
            
            
            1,477,000
            
            
            816,0002,220,000
            
            
            1,321,000Less
                accumulated depreciation
            
            
            434,000
            
            
            221,000$
            1,786,000
            
            $
            1,100,000




**NOTE
      7.**  **DEPOSITS**





Deposits
      at September 30, 2006 are summarized as follows:


**Amount**
            
            **Percent******Noninterest
                bearing demand
            
            $
            15,116,000
            
            
            21
            %Interest
                bearing demand (NOW)
            
            
            1,748,000
            
            
            2
            %Money
                market accounts
            
            
            29,869,000
            
            
            42
            %Savings
                accounts
            
            
            264,000
            
            
            0
            %Certificates
                of deposit, less than $100,000
            
            
            7,494,000
            
            
            11
            %Certificates
                of deposit, $100,000 or greater
            
            
            16,548,000
            
            
            23
            %$
            71,039,000
            
            
            100
            %




9




Deposits
      at December 31, 2005 are summarized as follows:




Noninterest
                bearing demand
            
            $
            7,119,000
            
            
            20
            %Interest
                bearing demand (NOW)
            
            
            1,145,000
            
            
            3
            %Money
                market accounts
            
            
            15,245,000
            
            
            44
            %Savings
                accounts
            
            
            249,000
            
            
            1
            %Certificates
                of deposit, less than $100,000
            
            
            3,090,000
            
            
            9
            %Certificates
                of deposit, $100,000 or greater
            
            
            8,216,000
            
            
            23
            %Total
            
            $
            35,064,000
            
            
            100
            %




At
      September 30, 2006, the scheduled maturities of certificates of deposit were
      as
      follows:


2006
            
            $
            6,045,0002007
            
            
            8,425,0002008
            
            
            305,0002009
            
            
            457,0002010
            
            
            2,075,0002011
            
            
            6,735,000Total
            
            $
            24,042,000




**NOTE
      8.**  **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, 2005, the Company had net tax operating loss carry forwards of
      approximately $2,300,000 that will ultimately expire in 2025 if not
      used.





**Note
      9.**  **STOCK
      OPTIONS**





The
      shareholders of the Company approved the 2005 Stock Incentive Plan at the annual
      shareholder meeting held on June 2, 2005. The plan authorizes the granting
      of up
      to 260,000 shares to employees of the Company. The plan is designed to provide
      the Company with the flexibility to grant incentive stock options and
      non-qualified stock options to its executive and other officers. The purpose
      of
      the plan is to provide increased incentive for key employees to render services
      and to exert maximum effort for the success of the Company. The plan has a
      term
      of 10 years. The plan is administered by the Board of Directors. As of September
      30, 2006 and December 31, 2005, a total of 201,000 and 184,500 options
      respectively had been issued with a weighted average exercise price of $10.05
      per share. These options vest each year through 2011.





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




10




Prior
      to
      the effective date of SFAS 123R, the Company applied APB 25, and related
      interpretations for our stock option grants. APB 25 provides that the
      compensation expense relative to our stock options is measured based on the
      intrinsic value of the stock option at date of grant.





As
      a
      result of adopting SFAS 123R on January 1, 2006, our income before income taxes
      and net income for the three and nine months ended September 30, 2006 is $19,000
      and $57,000 lower respectively than if we had continued to account for
      stock-based compensation under APB 25.





There
      was
      no stock based compensation issued in the first nine months of 2005. As a
      result, pro forma information to reflect the impact of stock based compensation
      for the first nine months of 2005 is not presented.





The
      following is a summary of activity in the Company’s stock option plan for
      2006.


**Number
                of Shares Underlying Options**
            
            **Weighted
                Average Exercise Prices**Outstanding
                at beginning of the year
            
            
            184,500
            
            $
            10.00Granted
            
            
            17,500
            
            
            10.58Exercised
            
            
            —
            
            
            —Expired/forfeited
            
            
            1,000
            
            
            10.00Outstanding
                at end of period
            
            
            201,000
            
            $
            10.05Exercisable
                at end of period
            
            
            36,700
            
            $
            10.00Available
                for grant at end of period
            
            
            59,000




As
      of
      September 30, 2006 the weighted average remaining contractual life of options
      outstanding was 9.1 years and the weighted average exercise price was $10.05.
      Options issued in 2006 have a weighted average exercise price of
      $10.58.





The
      weighted average value per option granted during 2006 and 2005 was $2.28 and
      $2.11, respectively. The fair value of options granted was estimated on the
      date
      of grant using the Black-Scholes option pricing model with the following
      weighted average assumptions dividend yield of 0% expected volatility of 10%,
      risk-free interest rate of 2% and an expected life of 8.8 and 10 years for
      the
      options granted in 2005 and 2006, respectively.





The
      following is a summary of the Company’s nonvested options for 2006.




**Shares**
            
            **Weighted
                Average Grant Date Fair Value**Nonvested
                at January 1, 2006
            
            147,600
            
            $2.11Granted
            
            17,500
            
            2.28Vested
            
            —
            
            —Forfeited
            
            
            800
            
            
            2.11Nonvested
                at September 30, 2006
            
            
            164,300
            
            $
            2.13




11




As
      of
      September 30, 2006, there was approximately $281,000 of total unrecognized
      compensation cost related to nonvested share based compensation arrangements
      to
      be recognized over the vesting period.





**Note
      10.**  **STOCK
      WARRANTS**





The
      Company had two stock warrant plans at September 30, 2006 and December 31,
      2005.





Initial
      shareholders in the Company received warrants to purchase one share of common
      stock for every five shares of common stock purchased 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. During the three and nine
      months ended September 30, 2006, no warrants were exercised. At September 30,
      2006, 335,850 warrants were outstanding.





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 and are outstanding. These
      warrants are exercisable at a price of $10.00 per share at any time until
      November 2, 2014. During the three and nine months ended September 30, 2006,
      no
      warrants were exercised. There were no additional warrants issued during the
      three or nine months ended September 30, 2006.





**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 September 30,
      2006, the Company had commitments to extend credit of approximately $9,473,000
      and no standby letters of credit. At December 31, 2005, the Company had
      commitments to extend credit of approximately $8,207,000 and no standby letters
      of credit.





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 September 30,
      2006, these options were issued and outstanding under the stock option plan
      disclosed in Note 9.





The
      agreements further provide for termination payments in the event of a change
      in
      control, as defined in the employment agreements.




12




**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
      Bank
      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 September 30, 2006 and December 31, 2005, that the
      Bank meets all capital adequacy requirements to which it is subject.





As
      of
      September 30, 2006 and December 31, 2005, 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.




**Actual**
            
            **For
                Capital Adequacy Purposes**
            
            **To
                Be Well Capitalized Under Prompt Corrective Action
                Provisions****Amount**
            
            **Ratio**
            
            **Amount**
            
            **Ratio**
            
            **Amount**
            
            **Ratio****(000’s**
            **)**
            
            
            
            
            **(000’s**
            **)**
            
            
            
            
            **(000’s**
            **)****As
                of September 30, 2006**Total
                Capital (to Risk Weighted Assets)
            
            $
            12,630
            
            
            17.6
            %
            
            5,754
            
            
            8.0
            %
            $
            7,192
            
            
            10.0
            %Tier
                I Capital (to Risk Weighted Assets)
            
            
            11,755
            
            
            16.3
            %
            
            2,877
            
            
            4.0
            %
            
            4,316
            
            
            6.0
            %Tier
                I Capital (to Average Assets)
            
            
            11,755
            
            
            16.5
            %
            
            2,848
            
            
            4.0
            %
            
            3,560
            
            
            5.0
            %





**Actual**
              
              **For
                  Capital Adequacy Purposes**
              
              **To
                  Be Well Capitalized Under Prompt Corrective Action
                  Provisions****Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio**
              
              **Amount**
              
              **Ratio****(000’s**
              **)**
              
              
              
              
              **(000’s**
              **)**
              
              
              
              
              **(000’s**
              **)**


**As
                of December 31, 2005**Total
                Capital (to Risk Weighted Assets)
            
            $
            12,584
            
            
            39.9
            %
            $
            2,521
            
            
            8.0
            %
            $
            3,151
            
            
            10.0
            %Tier
                I Capital (to Risk Weighted Assets)
            
            
            12,190
            
            
            38.6
            %
            
            1,260
            
            
            4.0
            %
            
            1,890
            
            
            6.0
            %Tier
                I Capital (to Average Assets)
            
            
            12,190
            
            
            29.6
            %
            
            1,647
            
            
            4.0
            %
            
            2,059
            
            
            5.0
            %




13




**NOTE
      13.**  **PARENT
      COMPANY CONDENSED FINANCIAL STATEMENTS**





**FIRST
      METROPLEX CAPITAL, INC.**


**CONDENSED
      BALANCE SHEET**





**September
                30,**
              **2006**
            
            **December
                31,**
              **2005**ASSETSCash
                and due from banks
            
            $
            632,000
            
            $
            674,000Fixed
                assets
            
            
            4,000
            
            
            11,000Investment
                in subsidiary
            
            
            11,755,000
            
            
            12,191,000Total
                Assets
            
            $
            12,391,000
            
            $
            12,876,000LIABILITIES
                AND CAPITALCapital
            
            
            12,391,000
            
            
            12,876,000Total
                Liabilities and Capital
            
            $
            12,391,000
            
            $
            12,876,000






**FIRST
      METROPLEX CAPITAL, INC.**


**CONDENSED
      INCOME STATEMENT**





**3
                Months Ended**
              **Sept.
                30, 2006**
            
            **3
                Months Ended**
              **Sept.
                30, 2005**
            
            **9
                Months**
              **Ended**
              **Sept.
                30, 2006**
            
            **9
                Months Ended**
              **Sept.
                30, 2005**Equity
                in income (loss) from Bank
            
            $
            109,000
            
            $
            (334,000
            )
            $
            (435,000
            
            
            $(1,158,000
            ))Noninterest
                expense:
              Stock
                related compensation
            
            
            19,000
            
            
            
            
            
            57,000Professional
                and administrative expenses
            
            
            7,000
            
            
            20,000
            
            
            50,000
            
            
            123,000Total
            
            
            26,000
            
            
            20,000
            
            
            107,000
            
            
            123,000Net
                Income (Loss)
            
            $
            83,000
            
            $
            (354,000
            )
            $
            (542,000
            
            
            $(1,281,000
            ))




14




**FIRST
        METROPLEX CAPITAL, INC.**
 **CONDENSED
        STATEMENT OF CASH FLOWS**
 **FOR
        THE NINE MONTHS ENDED SEPTEMBER 30,**


**2006**
            
            
            **2005**Cash
                Flows from Operating Activities:Net
                Loss
            
            $
            (542,000
            )
            $
            (1,281,000
            )Adjustments
                to reconcile net lossTo
                net cash provided by operating activitiesEquity
                in loss of Bank
            
            
            435,000
            
            
            1,158,000Stock
                related compensation
            
            
            57,000
            
            
            -Changes
                in operating assets and liabilities:Other
                assets
            
            
            8,000
            
            
            721,000Net
                cash provided by (used in) operating activities
            
            
            (42,000
            )
            
            598,000Cash
                Flows from Investing ActivitiesSales
                of equipment
            
            
            -
            
            
            -Net
                cash provided by investing activities
            
            
            -
            
            
            -Cash
                Flows from Financing ActivitiesCash
                received upon exercise of warrants
            
            
            -
            
            
            2,000Net
                cash provided from financing activities
            
            
            -
            
            
            2,000Net
                change in cash and cash equivalents
            
            
            (42,000
            )
            
            600,000Cash
                and cash equivalents, beginning of year
            
            
            674,000
            
            
            96,000Cash
                and cash equivalents, end of period
            
            $
            632,000
            
            $
            696,000Supplemental
                Disclosure of Cash Flow InformationInterest
                paid
            
            $
            —
            
            $
            —Income
                tax paid
            
            $
            —
            
            $
            —




**ITEM
      2.**  **Management’s
      Discussion and Analysis or Plan of Operation**





The
      following discussion and analysis presents our consolidated financial condition
      as of September 30, 2006 and December 31, 2005, and our consolidated results
      of
      operations for the three months and nine months ended September 30, 2006 and
      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.




15


Statements
      contained in this report that are not purely historical are forward-looking
      statements within the meaning of Section 21E of the Securities Exchange Act
      of
      1934, as amended, including our expectations, intentions, beliefs, or strategies
      regarding the future. Any statements in this document about expectations,
      beliefs, plans, objectives, assumptions or future events or performance are
      not
      historical facts and are forward-looking statements. These statements are often,
      but not always, made through the use of words or phrases such as “may,”
“should,” “could,” “predict,” “potential,” “believe,” “will likely result,”
“expect,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,”
“would,” “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, 2005, 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;





·
            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.




16


These
      factors and the risk factors referred to in our Annual Report on Form 10-KSB
      for
      the year ended December 31, 2005 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, Southlake and
      northeast Tarrant County and the neighboring Texas communities. As of September
      30, 2006, we had, on a consolidated basis, total assets of $83.6 million, net
      loans of $65.6 million, total deposits of $71 million, and shareholders’ equity
      of $12.4 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 for the three and nine
      months ended September 30, 2006 and 2005 and our results of operations as of
      September 30, 2006 and December 31, 2005.





**Recent
      Developments**





In
      February 2006, the Bank received approval from the Office of the Comptroller
      of
      the Currency (the “OCC”) to establish trust powers. The Bank offers traditional
      fiduciary services, such as serving as executor, trustee, agent, administrator
      or custodian for individuals, nonprofit organizations, employee benefit plans
      and corporations.





The
      Bank
      has initially focused on providing fiduciary services to clients of Cain Watters
      & Associates, P.C. (“Cain Watters”). Cain Watters is a registered investment
      advisor and a public accounting firm that specializes in dental practice
      management, including financial planning. Cain Watters currently has over 1,100
      clients in 49 states. Cain Watters and its certified financial planner-employees
      serve as registered investment advisors for their clients. Clients of Cain
      Watters currently have approximately $2 billion in personal and corporate
      taxable and tax deferred investments. The Bank has entered into an advisory
      services agreement with Cain Watters and III:I Financial Management Research,
      L.P. related to the Bank’s proposed trust operations. As of September 30, 2006
      total trust assets under management totaled $471 million.





In
      October, 2006 the Bank filed an application with the OCC to establish a branch
      at 850 East State Highway 114, Suite 200, Southlake, Tarrant County, Texas
      76092. The application is currently under review by the OCC.




17




**Key
      Performance Indicators at September 30, 2006**





We
      believe the following were key indicators of our performance and results of
      operations through the third quarter of 2006:





·
            our
                total assets grew to $83.6 million at the end of the third quarter
                of
                2006, representing an increase of $35.6 million, or 74%, from $48
                million
                at the end of 2005;





·
            our
                total loans grew to $66.7 million at the end of the third quarter
                of 2006,
                representing an increase of $40.4 million, or 153%, from $26.3 million
                at
                the end of 2005;





·
            our
                total deposits grew to $71 million at the end of the third quarter
                of
                2006, representing an increase of $35.9 million, or 102%, from $35.1
                million at the end of 2005;





·
            our
                total revenue was $3.875 million in the first three quarters of 2006
                compared to $1.121 million in the first three quarters of 2005,
                representing an increase of $2.754 million, or 245%;
                and





·
            our
                net loss was $542,000 in the first three quarters of 2006, representing
                a
                decrease of $739,000, or 57%, from a net loss of $1,281,000 in the
                first
                three quarters of 2005. This was the first profitable quarter in
                the
                Company’s history.





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





**Results
      of Operations**





**Net
      Interest Income and Net Interest Margin**





Net
      interest income is the difference between interest income, principally from
      loan, lease and investment securities portfolios, and interest expense,
      principally on customer deposits and 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 150%, or $1,345,000, to $2,327,000 in the first
      three quarters of 2006 compared to $892,000 for the first three quarters of
      2005. Our net interest margin was 5.4% for the first three quarters of 2006
      compared to 4.7% for the first three quarters of 2005. Net interest income
      for
      the three months ended September 30, 2006 was $967,000 compared to $386,000
      for
      the three months ended September 30, 2005. These increases primarily resulted
      from higher loan volumes and higher deposit volumes.





Total
      interest income increased by $2.28 million, or 206%, to $3.38 million for the
      nine months ended September 30, 2006, as compared to $1.1 million for the nine
      months ended September 30, 2005. Total interest income was $1,456,000 for the
      three months ended September 30, 2006 compared to $506,000 for the three months
      ended September 30, 2005. The average interest yield we earned for
      interest-earning assets for the nine months ended September 30, 2006 was 7.8%,
      compared to 5.8% for the nine months ended September 30, 2005. These increases
      are attributable primarily to the market rise in interest rates and to increased
      loan volumes resulting from our ongoing marketing efforts.




18


Total
      interest expense increased by $845,000, or 402%, to $1,055,000 in the first
      three quarters of 2006, compared to $210,000 in the first three quarters of
      2005. Total interest expense was $489,000 for the three months ended September
      30, 2006 compared to $120,000 for the three months ended September 30, 2005.
      These increases resulted primarily from increased deposits resulting from our
      ongoing marketing efforts. The average interest rate we paid for
      interest-bearing deposits for the first three quarters of 2006 was 3.7%,
      compared to 2.5% for the first three quarters of 2005. These increases resulted
      primarily from the market rise in interest rates.





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 nine months ended September 30, 2006 and
      2005 and the year ended December 31, 2005.




**QUARTERLY
      FINANCIAL SUMMARY - UNAUDITED**


Consolidated
        Daily Average Balances, Average Yields and Rates
 (Dollars
        in thousands except per share data)


For
                the nine months ended
            
            For
                the nine months ended
            
            For
                the year endedSeptember
                30, 2006
            
            September
                30, 2005
            
            December
                31, 2005Average
              Balance
            
            Revenue
              Expense
            
            Yield
              Rate
            
            Average
              Balance
            
            Revenue
              Expense
            
            Yield
              Rate
            
            Average
              Balance
            
            Revenue
              Expense
            
            Yield
              Rate**Assets**Interest-earning
                assets:Loans
                net of reserve
            
            $
            41,522
            
            $
            2,810
            
            
            9.0
            %
            $
            14,776
            
            $
            867
            
            
            7.7
            %
            $
            17,231
            
            $
            1,380
            
            
            8.0
            %Federal
                funds sold
            
            
            15,620
            
            
            553
            
            
            4.7
            %
            
            10,023
            
            
            216
            
            
            2.9
            %
            
            10,857
            
            
            347
            
            
            3.2
            %Securities
            
            
            420
            
            
            19
            
            
            6.0
            %
            
            420
            
            
            19
            
            
            6.0
            %
            
            420
            
            
            25
            
            
            6.0
            %Total
                earning assets
            
            
            57,566
            
            
            3,382
            
            
            7.8
            %
            
            25,219
            
            
            1,102
            
            
            5.8
            %
            
            28,508
            
            
            1,752
            
            
            6.1
            %Cash
                and other assets
            
            
            4,100
            
            
            
            
            
            
            
            
            2,213
            
            
            
            
            
            
            
            
            2,390Total
                assets
            
            $
            61,666
            
            
            
            
            
            
            
            $
            27,432
            
            
            
            
            
            
            
            $
            30,898**Liabilities
                and Stockholders' Equity**NOW
                accounts
            
            $
            1,536
            
            $
            13
            
            
            1.1
            %
            $
            822
            
            $
            3
            
            
            0.5
            %
            $
            835
            
            $
            6
            
            
            0.7
            %Money
                market accounts
            
            
            20,853
            
            
            525
            
            
            3.4
            %
            
            6,641
            
            
            121
            
            
            2.4
            %
            
            8,717
            
            
            226
            
            
            2.6
            %Savings
                accounts
            
            
            363
            
            
            4
            
            
            1.5
            %
            
            230
            
            
            2
            
            
            1.2
            %
            
            242
            
            
            4
            
            
            1.7
            %Certificates
                of deposit
            
            
            4,309
            
            
            145
            
            
            4.5
            %
            
            1,131
            
            
            29
            
            
            3.4
            %
            
            1,522
            
            
            54
            
            
            3.5
            %Certificates
                of deposit $100,000 or more
            
            
            11,043
            
            
            368
            
            
            4.4
            %
            
            2,238
            
            
            55
            
            
            3.3
            %
            
            2,799
            
            
            98
            
            
            3.5
            %Total
                interest bearing deposits
            
            
            38,104
            
            
            1,055
            
            
            3.7
            %
            
            11,062
            
            
            210
            
            
            2.5
            %
            
            14,115
            
            
            388
            
            
            2.7
            %Noninterest
                bearing deposits
            
            
            11,661
            
            
            
            
            
            
            
            
            3,308
            
            
            
            
            
            
            
            
            3,875Other
                liabilities
            
            
            111
            
            
            
            
            
            
            
            
            40
            
            
            
            
            
            
            
            
            52Stockholders
                equity
            
            
            11,790
            
            
            
            
            
            
            
            
            13,022
            
            
            
            
            
            
            
            
            12,856Total
                liabilities and stockholders' equity
            
            $
            61,666
            
            
            
            
            
            
            
            $
            27,432
            
            
            
            
            
            
            
            $
            30,898Net
                interest income
            
            
            
            
            
            2,327
            
            
            
            
            
            
            
            
            892
            
            
            
            
            
            
            
            
            1,364Net
                interest spread
            
            
            
            
            
            
            
            
            4.1
            %
            
            
            
            
            
            
            
            3.3
            %
            
            
            
            
            
            
            
            3.4
            %Net
                interest margin
            
            
            
            
            
            
            
            
            5.4
            %
            
            
            
            
            
            
            
            4.7
            %
            
            
            
            
            
            
            
            4.8
            %Provision
                for loan loss
            
            
            
            
            
            475
            
            
            
            
            
            
            
            
            256
            
            
            
            
            
            
            
            
            300Non-interest
                income
            
            
            
            
            
            493
            
            
            
            
            
            
            
            
            19
            
            
            
            
            
            
            
            
            31Non-interest
                expense
            
            
            
            
            
            2,887
            
            
            
            
            
            
            
            
            1,936
            
            
            
            
            
            
            
            
            2,676Income
                (loss) before income taxes
            
            
            
            
            
            (542
            )
            
            
            
            
            
            
            
            (1,281
            )
            
            
            
            
            
            
            
            (1,581
            )Income
                taxes expense (benefit)
            
            
            
            
            
            —
            
            
            
            
            
            
            
            
            —
            
            
            
            
            
            
            
            
            —Net
                loss
            
            
            
            
            $
            (542
            )
            
            
            
            
            
            
            $
            (1,281
            )
            
            
            
            
            
            
            $
            (1,581
            )Earnings
                (Loss) per share
            
            
            
            
            
            (0.32
            )
            
            
            
            
            
            
            
            (0.76
            )
            
            
            
            
            
            
            
            (0.94
            )Return
                on average equity
            
            
            
            
            
            (9.2
            %)
            
            
            
            
            
            
            
            (11.9
            %)
            
            
            
            
            
            
            
            -73.8
            %




19





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.”





In
      the
      first three quarters of 2006, our provision for loan losses was $475,000
      compared to $256,000 for the first three quarters of 2005. The provision for
      loan losses for the three months ended September 30, 2006 and 2005 was $150,000
      and $106,000, respectively. The provision amounts are directly related to loan
      volumes. We did not have any charge-offs during the first three quarters of
      2006.





**Noninterest
      Income**





Noninterest
      income for the nine months ended September 30, 2006 totaled $493,000, compared
      to $19,000 for the nine months ended September 30, 2005. Noninterest income
      for
      the three months ended September 30, 2006 was $307,000 compared to $9,000 for
      the three months ended September 30, 2005. The increase was due primarily to
      increased service charges attributable to the increase in our number of
      transactional and savings accounts, higher volume depository clients and trust
      department income.





**Noninterest
      Expense**





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




**Nine
                months**
              **ended**
              **Sept.
                30,**
              **2006**
            
            **Nine
                months ended**
              **Sept.
                30, 2005**
            
            **Three
                months**
              **ended**
              **Sept.
                30, 2006**
            
            **Three
                months ended**
              **Sept.
                30,**
              **2005**Salaries
                and employee benefits
            
            $
            1,672,000
            
            $
            1,027,000
            
            $
            574,000
            
            $
            325,000Net
                occupancy expense
            
            
            461,000
            
            
            347,000
            
            
            185,000
            
            
            127,000Office
                expenses
            
            
            109,000
            
            
            83,000
            
            
            43,000
            
            
            36,000Data
                processing
            
            
            214,000
            
            
            118,000
            
            
            75,000
            
            
            45,000Professional
                fees
            
            
            125,000
            
            
            135,000
            
            
            45,000
            
            
            46,000Advertising
                and promotional
            
            
            81,000
            
            
            53,000
            
            
            39,000
            
            
            19,000Other
                expenses
            
            
            225,000
            
            
            173,000
            
            
            80,000
            
            
            45,000Total
                noninterest expenses
            
            $
            2,887,000
            
            $
            1,936,000
            
            $
            1,041,000
            
            $
            643,000




Our
      total
      noninterest expense increased $951,000 or 49% to $2.887 million for the nine
      months ended September 30, 2006, as compared to $1.936 million for the nine
      months ended September 30, 2005. Total noninterest expense for the three months
      ended September 30, 2006 was $1,041,000 compared to $643,000 for the three
      months ended September 30, 2005.




20




Salaries
      and employee benefits totaled $1,672,000 for the nine months ended September
      30,
      2006, as compared to $1,027,000 for the nine months ended September 30, 2005.
      Salaries and employee benefits for the three months ended September 30, 2006
      was
      $574,000 compared to $325,000 for the three months ended September 30, 2005.
      We
      had 22 full-time equivalent employees as of September 30, 2006 compared to
      14
      full-time equivalent employees as of September 30, 2005. Also included in the
      three months and nine months ended September 30, 2006 is $19,000 and $57,000,
      respectively, of expense related to stock options.





Occupancy
      and equipment expenses totaled $461,000 for the nine months ended September
      30,
      2006, as compared to $347,000 for the nine months ended September 30, 2005.
      These expenses are attributable primarily to lease expense and depreciation
      and
      amortization of leasehold improvements and furniture, fixtures and equipment.
      Net occupancy expense for the three months ended September 30, 2006 was $185,000
      compared to $127,000 for the three months ended September 30, 2005. The Bank
      leased an additional 2,800 square feet at our Tollway Plaza location at market
      rates effective May 1, 2006 to house our Trust and Operation
      Departments.





Data
      processing expenses were $214,000 for the nine months ended September 30, 2006,
      compared to $118,000 for the nine months ended September 30, 2005. This increase
      is attributable to increased volume and new services. Data processing expenses
      for the three months ended September 30, 2006 were $75,000 compared to $45,000
      for the three months ended September 30, 2005.





**Income
      Taxes**





No
      federal tax expense was recorded for the nine months ended September 30, 2006
      due to 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 September 30, 2006 were $83.6 million, compared to $48.0 million
      as
      of December 31, 2005 and $38.1 million as of September 30, 2005. The increase
      in
      our total assets was primarily the result of increases in deposits.





Our
      total
      deposits increased to $71 million as of September 30, 2006, compared to $35.1
      million as of December 31, 2005 and $24.9 million as of September 30, 2005.
      Our
      asset growth during the first three quarters of 2006 was primarily the result
      of
      our continued marketing efforts to attract new clients.





As
      of
      September 30, 2006, our shareholders’ equity was $12.4 million, compared to
      $12.9 million as of December 31, 2005. The decrease was the result of operating
      losses for the nine-month period ended September 30, 2006.





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





At
      September 30, 2006, the Bank had $12.9 million in federal funds sold. At
      December 31, 2005 the Bank had $17.5 million in federal funds sold. 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 primarily serves as a source of interest income and,
      secondarily, as a source of liquidity and a management tool for our interest
      rate sensitivity. We manage our investment portfolio according to a written
      investment policy established by our Board of Directors and implemented by
      our
      Investment/Asset-liability Committee.





21


At
      September 30, 2006 the Bank’s securities were $468,000, with an estimated fair
      value of $468,000, and a weighted average yield of 6.0%. The securities
      consisted of Federal Reserve Bank Stock, having a cost of $420,000 and Federal
      Home Loan Bank Stock, having a cost of $48,000. At December 31, 2005, the Bank’s
      securities consisted solely of Federal Reserve Bank Stock, having an amortized
      cost of $420,000





**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**
              **Sept.
                30, 2006**
            
            **As
                of**
              **December
                31, 2005**Real
                estate - mortgage
            
            $
            18,854,000
            
            $
            10,342,000Commercial
                and industrial
            
            
            34,006,000
            
            
            11,572,000Consumer
            
            
            3,380,000
            
            
            753,000Real
                estate - construction
            
            
            10,446,000
            
            
            3,619,000Other
                loans
            
            
            0
            
            
            0Gross
                loans and leases
            
            $
            66,686,000
            
            $
            26,286,000Less:
                Allowance for loan and lease losses
            
            
            875,000
            
            
            400,000Less:
                Deferred loan fees
            
            
            208,000
            
            
            97,000Loans,
                net
            
            $
            65,603,000
            
            $
            25,789,000




As
      of
      September 30, 2006 and December 31, 2005, our total loans were $66.7 million
      and
      $26.3 million, respectively. The increase in our loan volume during the first
      nine months of 2006 resulted from the continued growth of our operations. Our
      total net loans as a percentage of total assets were 80% as of September 30,
      2006 compared to 55% as of December 31, 2005.





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 September 30, 2006 and December 31, 2005, commercial
      loans totaled $34.0 million and $11.6 million, approximately 51% and 44% of
      our
      total funded loans, respectively.





Our
      consumer loan portfolio consists of personal lines of credit and loans to
      acquire personal assets such as automobiles and boats. Our lines of credit
      generally have terms of one year and our term loans generally have terms of
      three to five years. Our lines of credit typically have floating rates. At
      September 30, 2006 and December 31, 2005, consumer loans totaled $3,380,000
      and
      $753,000, approximately 5% and 3% 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, and have terms of three to ten years with both fixed and floating
      rates. At September 30, 2006 and December 31, 2005, real estate loans totaled
      $29.3 million and $13.9 million, approximately 44% and 53% of our total loans,
      respectively.




22




Loan
      concentrations are considered to exist when there are amounts loaned to multiple
      borrowers engaged in similar activities that would cause them to be similarly
      impacted by economic or other conditions. At September 30, 2006, our commercial
      loan portfolio included $28 million of loans, approximately 42% of our total
      funded loans, to dental professionals. We believe that these loans are well
      secured to credit worthy borrowers and are diversified geographically. Even
      as
      new loans are generated and the Bank continues to grow, the percentage of the
      total loan portfolio consisting of 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 the maturity
      distribution of our loans by category as of September 30, 2006:




**As
                of September 30, 2006****One
                Year or Less**
            
            
            **Over
                1 Year**
              **through
                5 Years**
            
            
            **Over
                5 Years****Fixed**
              **Rate**
            
            
            **Floating
                or Adjustable Rate**
            
            
            **Fixed**
              **Rate**
            
            
            **Floating
                or Adjustable Rate**
            
            
            **Total**Real
                estate — construction
            
            $
            5,006,000
            
            $
            5,440,000
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            10,446,000Real
                estate — secured
            
            
            10,513,000
            
            
            7,131,000
            
            
            0
            
            
            1,210,000
            
            
            0
            
            
            18,854,000Commercial
                and industrial
            
            
            8,308,000
            
            
            11,870,000
            
            
            4,418,000
            
            
            9,199,000
            
            
            211,000
            
            
            34,006,000Consumer
            
            
            2,820,000
            
            
            560,000
            
            
            0
            
            
            0
            
            
            0
            
            
            3,380,000Total
            
            $
            26,647,000
            
            $
            25,001,000
            
            $
            4,418,000
            
            $
            10,409,000
            
            $
            211,000
            
            $
            66,686,000




***Nonperforming
      Loans and Assets***





Nonperforming
      assets consist of loans on nonaccrual status, loans 90 days or more past due
      and
      still accruing interest, loans that have been restructured resulting in a
      reduction or deferral of interest or principal, OREO, and other repossessed
      assets. As of September 30, 2006, we had nonperforming assets of $76,000
      compared to $96,000 at December 31, 2005.





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 two loans totaling $80,000 classified in these
      categories at September 30, 2006 and loans totaling $96,000 in these categories
      at December 31, 2005.





23


**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 so that our allowance is available to absorb possible loan losses. The
      factors that influence the allowance amount include, among others, the remaining
      collateral and/or financial condition of the borrowers, historical loan loss,
      changes in the size and composition of the loan portfolio, and general economic
      conditions.





The
      amount of the allowance equals the cumulative total of the provisions made
      from
      time to time, reduced by loan charge-offs and increased by recoveries of loans
      previously charged-off. Until management has adequate historical data upon
      which
      to base the estimate of the allowance for loan losses, a balance of
      approximately 1.3% 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 $875,000 and $400,000 as of September 30, 2006
      and December 31, 2005, respectively.





Credit
      and loan decisions are made by management and the Board of Directors in
      conformity with loan policies established by the Board. 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,
      2005 and the first three quarters of 2006, 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 September 30,**
              **2006**
            
            
            **As
                of December 31,**
              **2005****Allocated:**
            
            
            **Amt.**
            
            
            **Loan
                Category to Gross Loans**
            
            
            **Amt.**
            
            
            **Loan
                Category to Gross Loans**Real
                estate - construction
            
            $
            132,000
            
            
            15
            %
            $
            57,000
            
            
            14
            %Real
                estate - secured
            
            
            245,000
            
            
            28
            
            
            143,000
            
            
            36Commercial
                and industrial
            
            
            454,000
            
            
            52
            
            
            189,000
            
            
            47Consumers
            
            
            44,000
            
            
            5
            
            
            11,000
            
            
            3Total
                allowance for loan and lease losses
            
            $
            875,000
            
            
            100
            %
            $
            400,000
            
            
            100
            %




***Nonearning
      Assets***





Nonearning
      assets consist of cash and due from banks, bank premises and equipment and
      other
      assets. Cash and due from banks totaled $1,880,000 at September 30, 2006 and
      $2,933,000 at December 31, 2005. Premises, leasehold improvements and equipment,
      net of accumulated depreciation and amortization, totaled $1,786,000 at
      September 30, 2006 and $1,100,000 at December 31, 2005. Effective May 1,
      2006, the Bank leased an additional 2,800 square feet at our Tollway Plaza
      location at market rates to house our Trust and Operation Departments. Other
      assets, consisting of accrued interest receivable, prepaid expenses and other
      receivables, were $911,000 at September 30, 2006 and $289,000 at December 31,
      2005.




24




**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:




**For
                  the nine months ended**September 30, 2006
            
            
            **For
                  the nine months ended**September 30, 2005
            
            
            **For
                  the year ended**December 31, 2005(000's)
            
            
            AverageBalance
            
            
            Percent
                  ofDeposits
            
            
            Rate
            
            
            Average
              Balance
            
            
            Percent
                  ofDeposits
            
            
            Rate
            
            
            AverageBalance
            
            
            Percent
                  ofDeposits
            
            
            RateNoninterest
                bearing deposits
            
            $
            11,611
            
            
            23.3
            %
            
            0.0
            %
            $
            3,308
            
            
            23.0
            %
            
            0.0
            %
            $
            3,875
            
            
            21.5
            %
            
            0.0
            %NOW
                accounts
            
            
            1,536
            
            
            3.1
            %
            
            1.1
            %
            
            822
            
            
            5.7
            %
            
            0.5
            %
            
            835
            
            
            4.6
            %
            
            0.7
            %Money
                market accounts
            
            
            20,853
            
            
            41.9
            %
            
            3.4
            %
            
            6,641
            
            
            46.2
            %
            
            2.4
            %
            
            8,717
            
            
            48.5
            %
            
            2.6
            %Savings
                accounts
            
            
            363
            
            
            0.7
            %
            
            1.5
            %
            
            230
            
            
            1.6
            %
            
            1.2
            %
            
            242
            
            
            1.3
            %
            
            1.4
            %Certificates
                of deposit
            
            
            4,309
            
            
            8.7
            %
            
            4.5
            %
            
            1,131
            
            
            7.9
            %
            
            3.4
            %
            
            1,523
            
            
            8.5
            %
            
            3.5
            %Certificates
                of deposit $100,000 or more
            
            
            11,043
            
            
            22.3
            %
            
            4.4
            %
            
            2,238
            
            
            15.6
            %
            
            3.3
            %
            
            2,799
            
            
            15.6
            %
            
            3.5
            %Total
                interest bearing deposits
            
            $
            49,765
            
            
            100.0
            %
            
            2.8
            %
            $
            14,370
            
            
            100.0
            %
            
            2.0
            %
            $
            17,991
            
            
            100.0
            %
            
            2.2
            %




Total
      deposits at September 30, 2006 and December 31, 2005 were $71 million and $35.1
      million respectively, representing an increase of $35.9 million, or 102%, during
      the nine months ended September 30, 2006. 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:




**Sept.
                30,**
              **2006**
            
            
            **December
                31,**
              **2005**Three
                months or less
            
            $
            5,318,000
            
            $
            340,000Over
                three months through six months
            
            
            1,788,000
            
            
            4,524,000Over
                six months through 12 months
            
            
            4,121,000
            
            
            1,809,000Over
                12 months
            
            
            5,321,000
            
            
            1,543,000Total
            
            $
            16,548,000
            
            $
            8,216,000




***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:




**Three
                Months Ended**
              **Sept.
                30,**
              **2006**
            
            **Nine
                Months Ended**
              **Sept.
                30,**
              **2006**
            
            **Year
                ended December 31,**
              **2005**Return
                on average assets
            
            
            4.7
            %
            
            (1.2
            %)
            
            (4.6
            %)Return
                on average equity
            
            
            2.7
            %
            
            (6.1
            %)
            
            (11.2
            %)Dividend
                payout ratio
            
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %Equity
                to assets ratio
            
            
            17.2
            %
            
            19.1
            %
            
            41.6
            %




25




***Off-Balance
      Sheet Arrangements***





Neither
      the Company nor the Bank has any material off-balance sheet arrangements other
      than the Bank’s commitments to extend credit.





**Borrowings**





The
      Company has access to a variety of borrowing sources including federal funds
      purchased. At September 30, 2006 and December 31, 2005, the Company had
      outstanding loan origination commitments and unused commercial and retail lines
      of credit of $10,799,000 and $8,207,000, 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 $14,438,000 at September 30,
      2006 and $9,249,000 at December 31, 2005.





The
      following table summarizes the Bank’s significant contractual obligations and
      other potential funding needs at September 30, 2006:




**As
                of September 30, 2006****Less
                than One Year**
            
            **One
                Year to Three Years**
            
            **Over
                Three Years to Five Years**
            
            **Over
                Five Years**Time
                deposits
            
            $
            14,438,000
            
            $
            795,000
            
            $
            8,809,000
            
            $
            0Operating
                leases
            
            
            268,000
            
            
            561,000
            
            
            585,000
            
            
            731,000Total
            
            $
            10,706,000
            
            $
            1,356,000
            
            $
            9,394,000
            
            $
            731,000




***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
      September 30, 2006, 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.




26






**Actual**
            
            
            **For
                Capital Adequacy Purposes**
            
            
            **To
                Be Well Capitalized Under Prompt Corrective Action
                Problems****Amount**
            
            
            **Ratio**
            
            
            **Amount**
            
            
            **Ratio**
            
            
            **Amount**
            
            
            **Ratio****<000’s>**
            
            
            
            
            
            **<000’s>**
            
            
            
            
            
            **<000’s>****As
                of September 30, 2006**Total
                Capital (to risk-weighted assets)
            
            $
            12,630
            
            
            17.6
            %
            $
            5,754
            
            
            >8
            %
            $
            7,192
            
            
            >10
            %Tier
                1 capital (to risk-weighted assets)
            
            
            11,755
            
            
            16.3
            %
            
            2,877
            
            
            >4
            %
            
            4,316
            
            
            >6
            %Tier
                1 capital (to average assets)
            
            
            11,755
            
            
            16.5
            %
            
            2,848
            
            
            >4
            %
            
            3,560
            
            
            >5
            %**As
                of December 31, 2005**Total
                Capital (to risk-weighted assets)
            
            $
            12,584
            
            
            39.9
            %
            
            2,521
            
            
            >8
            %
            
            3,151
            
            
            >10
            %Tier
                1 capital (to risk-weighted assets)
            
            
            12,190
            
            
            38.6
            %
            
            1,260
            
            
            >4
            %
            
            1,890
            
            
            >6
            %Tier
                1 capital (to average assets)
            
            
            12,190
            
            
            29.6
            %
            
            1,647
            
            
            >4
            %
            
            2,059
            
            
            >5
            %




***Liquidity
      Management***





At
      September 30, 2006 the Company (excluding the Bank) had approximately $632,000
      in remaining cash proceeds from the initial public offering. 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 are 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 maintains 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
      September 30, 2006, the loan to deposit ratio was 94%.





The
      Bank
      had cash and cash equivalents of $14.8 million, or 17.7% of total Bank assets,
      at September 30, 2006. We believe that the Bank has adequate liquidity to meet
      anticipated future funding needs.





The
      Bank
      is subject to various regulatory capital requirements administered by federal
      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 September
      30, 2006, the Bank was considered “well capitalized” by regulatory standards.




27




**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 September 30, 2006, 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
      September 30, 2006 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 50, 100, 150 and 200 basis points
      during a 12-month period. At September 30, 2006, the net interest income at
      risk
      for year one in the 100 basis point falling rate scenario was calculated at
      $214,000, or 4.97% lower than the net interest income in the rates unchanged
      scenario, and $436,000, or 10.12%, lower than the net interest income in the
      rates unchanged scenario at the September 30, 2006 simulation with a 200 basis
      point decrease. These exposures are well within our policy guidelines of 20%.
      At
      September 30, 2006, the net interest income for year one in the 100 basis point
      rising rate scenario was calculated to be $54,000, or 1.25%, higher than the
      net
      interest income in the rates unchanged scenario, and $101,000, or 2.35%, higher
      than the net interest income in the rate unchanged scenario at the September
      30,
      2006 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 September 30, 2006:




28




**Change
                in Future Net Interest Income**
              **At
                Sept. 30, 2006****Dollar
                Change**
            
            
            **Percentage
                Change**+200
                basis points over one year
            
            
            101,000
            
            
            2.35
            %+100
                basis points over one year
            
            
            54,000
            
            
            1.25
            %-100
                basis points over one year
            
            
            (214,000
            )
            
            (4.97
            )%-200
                basis points over one year
            
            
            (436,000
            )
            
            (10.12
            )%




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 September 30, 2006, 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 September 30, 2006**
              **Volumes
                Subject to Repricing Within****0-1
                Days**
            
            
            **2-90
                Days**
            
            
            **91-365
                Days**
            
            
            **1-3
                Years**
            
            
            **Over
                3 Years**
            
            
            **Non-Interest
                Sensitive**
            
            
            **Total****Assets:
                <000’s>**Short-term
                investments and federal funds sold
            
            $
            12,925
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            12,925Investment
                securities
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            468
            
            
            0
            
            
            468Loans
            
            
            22,486
            
            
            7,194
            
            
            13,675
            
            
            9,217
            
            
            14,038
            
            
            76
            
            
            66,686Fixed
                and other assets
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            3,494
            
            
            3,494Total
                Assets
            
            $
            35,411
            
            $
            7,194
            
            $
            13,675
            
            $
            9,217
            
            $
            14,506
            
            $
            3,570
            
            $
            83,573**Liabilities
                and Shareholders’ Equity:**Non-interest-bearing,
                interest-bearing checking, savings and money market
                accounts
            
            
            13,560
            
            
            0
            
            
            0
            
            
            18,321
            
            
            0
            
            
            15,116
            
            
            46,997Certificates
                of deposit
            
            
            0
            
            
            5,477
            
            
            8,960
            
            
            795
            
            
            8,810
            
            
            0
            
            
            24,042Borrowed
                funds
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Other
                liabilities
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            143
            
            
            143Shareholders’
                equity
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            12,391
            
            
            12,391Total
                liabilities and shareholders’ equity
            
            
            13,560
            
            
            5,477
            
            
            8,960
            
            
            19,116
            
            
            8,810
            
            
            27,650
            
            
            83,573Period
                gap
            
            
            21,851
            
            
            1,717
            
            
            4,715
            
            
            (9,899
            )
            
            5,696Cumulative
                gap
            
            
            21,851
            
            
            23,568
            
            
            28,283
            
            
            18,384
            
            
            24,080Period
                gap to total assets
            
            
            26
            %
            
            2
            %
            
            6
            %
            
            (12
            %)
            
            7
            %Cumulative
                gap to total assets
            
            
            26
            %
            
            28
            %
            
            34
            %
            
            22
            %
            
            29
            %




29




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 September 30, 2006****Less
                than One Year**
            
            
            **One
                Year to Three Years**
            
            
            **Over
                Three Years to Five Years**
            
            
            **Over
                Five Years**Operating
                Leases
            
            $
            268,000
            
            $
            561,000
            
            $
            585,000
            
            $
            731,000Total
            
            $
            268,000
            
            $
            561,000
            
            $
            585,000
            
            $
            731,000




**ITEM
      3.**  **Controls
      and Procedures**





As
      of the end of the period covered by this Quarterly Report on Form 10-QSB for
      the
      quarter ended September 30, 2006, 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 Rules 13a-15(e) and 15d-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.





There
      were no changes in our internal controls over financial reporting during the
      quarter ended September 30, 2006 that materially affected, or were reasonably
      likely to materially affect, our internal controls over financial
      reporting.




30


**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.


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





None.




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





None.




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





None.




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





None.




**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.




31




**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:
                November 14, 2006
            By:
            /s/
                Patrick G. AdamsPatrick
                G. Adams
              President
                and Chief Executive Officer







32