UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934




For
the quarterly period ended March 31, 2009




Commission
File Number000-51297




T BANCSHARES,
INC.


(Exact
name of registrant as specified in its charter)




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





16000 Dallas Parkway, Suite
125, Dallas, Texas 75248


(Address
of principal executive offices)





(972) 720-
9000


(Issuer’s
telephone number, including area code)




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




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or such shorter period that the
registrant was required to submit and post such files).   Yes rNo  ̈





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





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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ̈    Nox




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





Transitional
Small Business Disclosure Format (check one) Yes ̈No x







T
BANCSHARES, INC.




INDEX




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




2


PART I. FINANCIAL
INFORMATION


ITEM 1. Financial
Statements


T
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION




(000's)
                  
                  March 31,
                    2009
                  
                  
                  December 31,
                    2008(unaudited)ASSETSCash
      and due from banks
                  
                  $
                  1,584
                  
                  
                  $
                  1,242Federal
      funds sold
                  
                  
                  5,760
                  
                  
                  
                  7,215Total
      cash and cash equivalents
                  
                  
                  7,344
                  
                  
                  
                  8,457Securities
      available for sale at estimated fair value
                  
                  
                  1,006
                  
                  
                  
                  -Securities
      held to maturity at amortized cost
                  
                  
                  951
                  
                  
                  
                  981Securities,
      restricted
                  
                  
                  1,124
                  
                  
                  
                  722Total
      investment securities
                  
                  
                  3,081
                  
                  
                  
                  1,703Loans,
      net of allowance for loan losses of $1,617 and $1,638,
      respectively
                  
                  
                  122,194
                  
                  
                  
                  123,393Bank
      premises and equipment, net
                  
                  
                  1,130
                  
                  
                  
                  1,169Other
      assets
                  
                  
                  2,162
                  
                  
                  
                  1,528Total
      assets
                  
                  $
                  135,911
                  
                  
                  $
                  136,250LIABILITIESDemand
      Deposits:Noninterest-bearing
                  
                  $
                  9,299
                  
                  
                  $
                  10,077Interest-bearing
                  
                  
                  32,308
                  
                  
                  
                  42,407Time
      deposits $100,000 and over
                  
                  
                  36,440
                  
                  
                  
                  37,240Other
      time deposits
                  
                  
                  18,800
                  
                  
                  
                  21,372Total
      deposits
                  
                  
                  96,847
                  
                  
                  
                  111,096Borrowed
      Funds
                  
                  
                  23,000
                  
                  
                  
                  10,500Other
      liabilities
                  
                  
                  888
                  
                  
                  
                  860Total
      liabilities
                  
                  
                  120,735
                  
                  
                  
                  122,456Shareholders'
      EquityCommon
      Stock, $ .01 par value; 10,000,000 shares authorized; 1,941,305 and
      1,703,801 shares issued and outstanding at March 31, 2009 and December 31,
      2008, respectively
                  
                  
                  19
                  
                  
                  
                  17Additional
      paid-in capital
                  
                  
                  18,461
                  
                  
                  
                  16,915Retained
      deficit
                  
                  
                  (3,310
                  )
                  
                  
                  (3,138
                  )Accumulated
      other comprehensive income
                  
                  
                  6
                  
                  
                  
                  -Total
      shareholders' equity
                  
                  
                  15,176
                  
                  
                  
                  13,794Total
      liabilities and shareholders' equity
                  
                  $
                  135,911
                  
                  
                  $
                  136,250




See
accompanying notes to consolidated financial statements


3


T
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF INCOME


(Unaudited)





(000's) except earnings per
      share
                                    
                                    Three Months Ended March 31,2009
                                    
                                    
                                    2008Interest
      IncomeLoan,
      including fees
                                    
                                    $
                                    2,073
                                    
                                    
                                    $
                                    2,501Securities
                                    
                                    
                                    19
                                    
                                    
                                    
                                    15Federal
      funds sold
                                    
                                    
                                    20
                                    
                                    
                                    
                                    120Total
      interest income
                                    
                                    
                                    2,112
                                    
                                    
                                    
                                    2,636Interest
      ExpenseDeposits
                                    
                                    
                                    836
                                    
                                    
                                    
                                    1,327Borrowed
      funds
                                    
                                    
                                    14
                                    
                                    
                                    
                                    -Total
      interest expense
                                    
                                    
                                    850
                                    
                                    
                                    
                                    1,327Net
      interest income
                                    
                                    
                                    1,262
                                    
                                    
                                    
                                    1,309Provision
      for loan losses
                                    
                                    
                                    118
                                    
                                    
                                    
                                    150Net
      interest income after provision for loan losses
                                    
                                    
                                    1,144
                                    
                                    
                                    
                                    1,159Noninterest
      IncomeTrust
      income
                                    
                                    
                                    1,556
                                    
                                    
                                    
                                    2,463Service
      fees
                                    
                                    
                                    24
                                    
                                    
                                    
                                    25Total
      noninterest income
                                    
                                    
                                    1,580
                                    
                                    
                                    
                                    2,488Noninterest
      ExpenseSalaries
      and employee benefits
                                    
                                    
                                    812
                                    
                                    
                                    
                                    756Occupancy
      and equipment
                                    
                                    
                                    298
                                    
                                    
                                    
                                    336Trust
      expenses
                                    
                                    
                                    1,354
                                    
                                    
                                    
                                    2,136Professional
      fees
                                    
                                    
                                    99
                                    
                                    
                                    
                                    136Data
      processing
                                    
                                    
                                    116
                                    
                                    
                                    
                                    124Other
                                    
                                    
                                    217
                                    
                                    
                                    
                                    185Total
      noninterest expense
                                    
                                    
                                    2,896
                                    
                                    
                                    
                                    3,673Net
      Income (Loss)
                                    
                                    $
                                    (172
                                    )
                                    
                                    $
                                    (26
                                    )Earning
      (loss) per common share:Basic
                                    
                                    
                                    (0.09
                                    )
                                    
                                    
                                    (0.02
                                    )Diluted
                                    
                                    
                                    (0.09
                                    )
                                    
                                    
                                    (0.02
                                    )Weighted
      average common shares outstanding
                                    
                                    
                                    1,920,194
                                    
                                    
                                    
                                    1,703,801Weighted
      average diluted shares outstanding
                                    
                                    
                                    1,920,194
                                    
                                    
                                    
                                    1,703,801





See
accompanying notes to consolidated financial statements


4





T
BANCSHARES, INC.


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


(Unaudited)





(000's)
                  
                  Common
                    Stock
                  
                  
                  Additional
                    Paid-in
                    Capital
                  
                  
                  Retained
                    Deficit
                  
                  
                  Accumulated
                    Other
                    Comprehensive
                    Income
                  
                  
                  TotalBALANCE,
      January 1, 2008
                  
                  $
                  17
                  
                  
                  $
                  16,819
                  
                  
                  $
                  (2,710
                  )
                  
                  $
                  -
                  
                  
                  $
                  14,126Comprehensive
      income:Net
      income — YTD
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (26
                  )
                  
                  
                  
                  
                  
                  
                  (26
                  )Total
      comprehensive income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (26
                  )Stock
      based compensation
                  
                  
                  
                  
                  
                  
                  25
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  25BALANCE,
      March 31, 2008
                  
                  $
                  17
                  
                  
                  $
                  16,844
                  
                  
                  $
                  (2,736
                  )
                  
                  $
                  -
                  
                  
                  $
                  14,125BALANCE,
      January 1, 2009
                  
                  $
                  17
                  
                  
                  $
                  16,915
                  
                  
                  $
                  (3,138
                  )
                  
                  $
                  -
                  
                  
                  $
                  13,794Comprehensive
      loss:Net
      loss — YTD
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (172
                  )
                  
                  
                  
                  
                  
                  
                  (172
                  )Change
      in accumulated gain on securities available for sale
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6
                  
                  
                  
                  6Total
      comprehensive loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (166
                  )Net
      proceeds from rights offering
                  
                  
                  2
                  
                  
                  
                  1,519
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,521Stock
      based compensation
                  
                  
                  
                  
                  
                  
                  27
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  27BALANCE,
      March 31, 2009
                  
                  $
                  19
                  
                  
                  $
                  18,461
                  
                  
                  $
                  (3,310
                  )
                  
                  $
                  6
                  
                  
                  $
                  15,176





See
accompanying notes to consolidated financial statements


5





T
BANCSHARES, INC.


CONSOLIDATED
STATEMENT OF CASH FLOWS


(Unaudited)





Three Months Ended March 31,(000's)
                
                2009
                
                
                2008Cash
      Flows from Operating ActivitiesNet
      Income (loss)
                
                $
                (172
                )
                
                $
                (26
                )Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Provision
      for loan losses
                
                
                118
                
                
                
                150Depreciation
      and amortization
                
                
                118
                
                
                
                135Accretion
      of discount
                
                
                -
                
                
                
                (8
                )Stock
      based compensation
                
                
                27
                
                
                
                25Net
      change in other assets
                
                
                321
                
                
                
                2Net
      change in other liabilities
                
                
                28
                
                
                
                82Net
      cash provided by operating activities
                
                
                440
                
                
                
                360Cash
      Flows from Investing ActivitiesPurchase
      of securities held to maturity
                
                
                -
                
                
                
                (997
                )Proceeds
      from maturity of securities
                
                
                -
                
                
                
                1,000Proceeds
      from principal payments on mortgage-backed securities
                
                
                30
                
                
                
                -Purchase
      of securities available for sale, net
                
                
                (1,000
                )
                
                
                -Purchase
      of securities, restricted, net
                
                
                (402
                )Net
      change in loans
                
                
                126
                
                
                
                (9,995
                )Purchases
      of premises and equipment
                
                
                (79
                )
                
                
                (6
                )Net
      cash used in investing activities
                
                
                (1,325
                )
                
                
                (9,998
                )Cash
      Flows from Financing ActivitiesNet
      change in demand deposits
                
                
                (10,877
                )
                
                
                (1,909
                )Net
      change in time deposits
                
                
                (3,372
                )
                
                
                6,223Proceeds
      from borrowed funds, net
                
                
                12,500
                
                
                
                -Net
      proceeds from rights offering
                
                
                1,521
                
                
                
                -Net
      cash provided (used) by financing activities
                
                
                (228
                )
                
                
                4,314Net
      change in cash and cash equivalents
                
                
                (1,113
                )
                
                
                (5,324
                )Cash
      and cash equivalents at beginning of period
                
                
                8,457
                
                
                
                23,560Cash
      and cash equivalents at end of period
                
                $
                7,344
                
                
                $
                18,236Supplemental
      disclosures of cash flow informationCash
      paid during the period forInterest
                
                $
                810
                
                
                $
                1,221Income
      taxes
                
                $
                -
                
                
                $
                -Non-cash
      transactions:Transfers
      from loans to other real estate owned
                
                $
                955
                
                
                $
                -





See
accompanying notes to consolidated financial statements


6





T
BANCSHARES, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1. BASIS OF
PRESENTATION




Organization
and Nature of Operations




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




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





Certain
reclassifications have been made to the 2008 financial statements from their
original presentation to conform with the 2009 financial statement
presentation.  These reclassifications had no effect on shareholders’
equity or net loss for the quarter ending March 31, 2008




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





NOTE
2. ADOPTION OF NEW ACCOUNTING POLICIES




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





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


7


NOTE 3. LOANS





Loans
held in portfolio consisted of the following:




(000's)
                      
                      March 31,
                        2009
                      
                      
                      December 31,
                        2008Commercial
      and industrial
                      
                      $
                      83,972
                      
                      
                      $
                      81,342Consumer
      installment
                      
                      
                      2,807
                      
                      
                      
                      3,799Real
      estate — mortgage
                      
                      
                      25,920
                      
                      
                      
                      20,543Real
      estate — construction
                      
                      
                      11,248
                      
                      
                      
                      19,481Other
                      
                      
                      1
                      
                      
                      
                      12Total
      loans
                      
                      
                      123,948
                      
                      
                      
                      125,177Less
      allowance for loan losses
                      
                      
                      1,617
                      
                      
                      
                      1,638Less
      deferred loan fees
                      
                      
                      137
                      
                      
                      
                      146Net
      loans
                      
                      $
                      122,194
                      
                      
                      $
                      123,393




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





(000's)
                  
                  March 31,
                    2009
                  
                  
                  December 31,
                    2008Balance
      at beginning of period
                  
                  $
                  1,638
                  
                  
                  $
                  1,600Provision
      charged to operations
                  
                  
                  118
                  
                  
                  
                  417Loans
      charged off
                  
                  
                  (146
                  )
                  
                  
                  (451
                  )Recoveries
      of loans previously charged off
                  
                  
                  7
                  
                  
                  
                  72Balance
      at end of period
                  
                  $
                  1,617
                  
                  
                  $
                  1,638




At March
31, 2009, there were $1,888,000 of nonaccrual loans and no loans contractually
delinquent over ninety days.


8


NOTE 4. SECURITIES




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





March 31, 2009(000's)
                                              
                                              Amortized
                                                Cost
                                              
                                              
                                              Unrealized
                                                Gains
                                              
                                              
                                              Unrealized
                                                Losses
                                              
                                              
                                              Estimated
                                                Fair ValueSecurities Available for
      Sale:U.S.
      Government Agencies
                                              
                                              $
                                              1,000
                                              
                                              
                                              $
                                              6
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              1,006Securities
      Held to Maturity:U.S.
      Government Agencies
                                              
                                              $
                                              951
                                              
                                              
                                              $
                                              47
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              988Securities,
      restrictedOther
                                              
                                              $
                                              1,124
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              1,124




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




Our
subsidiary, T Bank, N.A. (the “Bank”) held Federal Reserve Bank of Dallas stock
of $420,000 at March 31, 2009 and December 31, 2008. The Bank also held Federal
Home Loan Bank of Dallas stock of $703,800 and $302,400 at March 31, 2009 and
December 31, 2008, respectively. Both stocks are carried at cost and are
reported as securities, restricted in the table above.  The securities
held to maturity category consisted of one mortgage back security at March 31,
2009 and December 31, 2008 and was pledged to secure trust
deposits.




NOTE 5. RELATED PARTIES




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




NOTE 6. BANK PREMISES AND
EQUIPMENT




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




(000's)
                  
                  March
      31,
                    2009
                  
                  
                  December 31,
                    2008Leasehold
      improvements
                  
                  $
                  929
                  
                  
                  $
                  929Furniture
      and equipment
                  
                  
                  1,873
                  
                  
                  
                  1,7942,802
                  
                  
                  
                  2,723Less:
      accumulated depreciation
                  
                  
                  1,672
                  
                  
                  
                  1,554Balance
      at end of period
                  
                  $
                  1,130
                  
                  
                  $
                  1,169





9


NOTE
7. OTHER ASSETS




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




(000's)
                      
                      March 31,
                        2009
                      
                      
                      December 31,
                        2008Other
      Real Estate Owned
                      
                      $
                      955
                      
                      
                      $
                      -Accounts
      receivable – trust fees
                      
                      
                      490
                      
                      
                      
                      509Accrued
      interest receivable
                      
                      
                      384
                      
                      
                      
                      472Prepaid
      assets
                      
                      
                      301
                      
                      
                      
                      267Capitalized
      rights offering costs
                      
                      
                      -
                      
                      
                      
                      242Other
                      
                      
                      32
                      
                      
                      
                      38$
                      2,162
                      
                      
                      $
                      1,528




Certain
loans were foreclosed on in the three months ended March 31, 2009, and
reclassified as Other Real Estate Owned (“OREO”) and recorded at fair market
value.  The OREO assets are actively marketed, and disposal of the
assets is anticipated to occur prior to year end, December 31,
2009.





NOTE 8. DEPOSITS




Deposits
are summarized as follows:




(000's)
                    
                    As of March 31, 2009
                    
                    
                    As of December 31, 2008Noninterest
      bearing demand
                    
                    $
                    9,299
                    
                    
                    
                    10
                    %
                    
                    $
                    10,077
                    
                    
                    
                    9
                    %Interest
      bearing demand (NOW)
                    
                    
                    2,200
                    
                    
                    
                    2
                    %
                    
                    
                    1,899
                    
                    
                    
                    2
                    %Money
      market accounts
                    
                    
                    29,912
                    
                    
                    
                    31
                    %
                    
                    
                    40,333
                    
                    
                    
                    36
                    %Savings
      accounts
                    
                    
                    196
                    
                    
                    
                    0
                    %
                    
                    
                    175
                    
                    
                    
                    0
                    %Certificates
      of deposit, less than $100,000
                    
                    
                    18,800
                    
                    
                    
                    19
                    %
                    
                    
                    21,372
                    
                    
                    
                    19
                    %Certificates
      of deposit, $100,000 and greater
                    
                    
                    36,440
                    
                    
                    
                    38
                    %
                    
                    
                    37,240
                    
                    
                    
                    34
                    %$
                    96,847
                    
                    
                    
                    100
                    %
                    
                    $
                    111,096
                    
                    
                    
                    100
                    %




At March
31, 2009 the scheduled maturities of certificates of deposit were as
follows:




(000’s)2009
                    
                    $
                    12,6622010
                    
                    
                    18,7252011
                    
                    
                    15,0792012
                    
                    
                    7,3072013
                    
                    
                    1,3792014
                    
                    
                    88Total
                    
                    $
                    55,240




10





NOTE
9.  BORROWED FUNDS




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





(000's)
                  
                  March 31,
                    2009
                  
                  
                  December 31,
                    2008Federal
      Home Loan Bank Advance
                  
                  $
                  12,000
                  
                  
                  $
                  -Federal
      Reserve Bank Advance
                  
                  
                  11,000
                  
                  
                  
                  10,500Total
                  
                  $
                  23,000
                  
                  
                  $
                  10,500




At March
31, 2009, borrowed funds consisted of loans of $12.0 million and $11.0 million
from the Federal Home Loan Bank and the Federal Reserve Bank. The Federal Home
Loan Bank advance had a rate of .15%, a one day term and matured on April 1,
2009.  The Federal Reserve Bank advance had a rate of .50%, a 28 day
term and matured on April 9, 2009. The Company has a $19.1 million credit line
with the Federal Reserve Bank, which is secured by $25.5 million in pledged
commercial and industrial loans, and $12.6 million credit line with the Federal
Home Loan Bank which is secured by $15.5 million in pledged real estate
loans.




NOTE 10. OTHER LIABLITIES





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




(000's)
                  
                  March 31,
                    2009
                  
                  
                  December 31,
                    2008Trust
      Advisor Fees Payable
                  
                  $
                  432
                  
                  
                  $
                  453Interest
      Payable
                  
                  
                  165
                  
                  
                  
                  125Audit
      Fees
                  
                  
                  83
                  
                  
                  
                  97Incentive
      Compensation
                  
                  
                  41
                  
                  
                  
                  67FDIC
      Assessment Payable
                  
                  
                  56
                  
                  
                  
                  -Franchise
      & Property Taxes
                  
                  
                  15
                  
                  
                  
                  37Other
      Accruals
                  
                  
                  96
                  
                  
                  
                  81$
                  888
                  
                  
                  $
                  860





NOTE 11. INCOME TAXES




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





NOTE 12. STOCK OPTIONS




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




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




11


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 months ended March 31, 2009 is $27,000 lower than
if we had continued to account for stock-based compensation under APB
25.




The
following is a summary of activity in the Company’s stock option plan at March
31, 2009:




Number of
                                                                                    Shares
                                                                                    Underlying
                                                                                    Options
                                                                                  
                                                                                  
                                                                                  Weighted
                                                                                    Average
                                                                                    Exercise
                                                                                    PricesOutstanding
      at beginning of the year
                                                                                  
                                                                                  
                                                                                  205,500
                                                                                  
                                                                                  
                                                                                  $
                                                                                  9.87Granted
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Exercised
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Expired
      / forfeited
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -Outstanding
      at end of period
                                                                                  
                                                                                  
                                                                                  205,500
                                                                                  
                                                                                  
                                                                                  $
                                                                                  9.87Exercisable
      at end of period
                                                                                  
                                                                                  
                                                                                  120,300
                                                                                  
                                                                                  
                                                                                  $
                                                                                  10.17Available
      for grant at end of period
                                                                                  
                                                                                  
                                                                                  43,500




The
weighted average remaining contractual life of options outstanding at March 31,
2009 was 7.2 years. Outstanding options were granted with a weighted average
exercise price of $9.87.




The
following is a summary of the Company’s nonvested options at March 31,
2009:




Shares
                                    
                                    
                                    Weighted
                                      Average
                                      Grant Date
                                      Fair ValueNonvested
      at January 1, 2009
                                    
                                    
                                    88,700
                                    
                                    
                                    $
                                    2.78Granted
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Vested
                                    
                                    
                                    3,500
                                    
                                    
                                    
                                    2.39Forfeited
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Nonvested
      at March 31, 2009
                                    
                                    
                                    85,200
                                    
                                    
                                    $
                                    2.79




As of
March 31, 2009, there was approximately $241,000 of total unrecognized
compensation cost related to nonvested share-based compensation arrangements to
be recognized over the vesting period.




NOTE 13. STOCK WARRANTS





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




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


12





The
Company’s organizers advanced funds for organizational and other preopening
expenses. As consideration for the advances, the organizers received warrants to
purchase one share of common stock for every $20 advanced up to a limit of
$100,000. A total of 96,750 warrants were issued and remain outstanding at March
31, 2009. These warrants are exercisable at a price of $10.00 per share at any
time until November 2, 2014. During the three months ended March 31, 2009, no
warrants were exercised.




There
were no additional warrants issued during the three months ended March 31,
2009. These warrants could potentially dilute earnings per share, but were
not included in the earnings per share computations because their effect was
anti-dilutive for the three months ending March 31, 2009 and 2008.




NOTE 14. COMMITMENTS AND
CONTINGENCIES




The
Company is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the accompanying balance sheets. The
Company's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. At March 31, 2009, the
Company had commitments to extend credit and standby letters of credit of
approximately $4.0 million and $5,000, respectively. At December 31, 2008, the
Company had commitments to extend credit and standby letters of credit of
approximately $6.5 million and $12,000, respectively.




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




Employment
Agreements




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




The
agreement for Mr. Howard provides for compensation and benefits including the
issuance of options to acquire up to 25,000 shares of the Company’s common stock
at $13.00 per share, exercisable within ten years from the date of grant. At
March 31, 2009, these options were issued and outstanding under the stock option
plan disclosed in Note 12.





NOTE 15. REGULATORY
MATTERS




The Bank
is subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken could have a direct material effect on the Bank's
and, accordingly, the Company’s financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank’s assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank’s capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings and other factors.




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





On July
9, 2008, the Bank announced that it entered into a Stipulation and Consent to
the Issuance of a Consent Order (the "Stipulation") and a Consent Order (the
"Order") with the Office of the Comptroller of the Currency (the "OCC"). The
Stipulation and the Order were based on the OCC's findings during its
examination as of September 30, 2007. As part of the Order, the Bank has agreed
to strengthen its Bank Secrecy Act ("BSA") internal controls, revise and
implement changes to its internal BSA audit program, maintain specific capital
ratios and correct any violations of law. Therefore, regardless of the Bank’s
capital position, the requirement in the Order to meet and maintain a specific
capital level means that the Bank may not be deemed to be well capitalized under
regulatory requirements as of March 31, 2009.


13





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




(000's)
                                                                                          
                                                                                          Actual
                                                                                          
                                                                                          For Capital Adequacy Purposes
                                                                                          
                                                                                          To Be Well Capitalized Under
                                                                                            Prompt Corrective Action
                                                                                            ProvisionsAmount
                                                                                          
                                                                                          Ratio
                                                                                          
                                                                                          Amount
                                                                                          
                                                                                          Ratio
                                                                                          
                                                                                          Amount
                                                                                          
                                                                                          RatioAs
      of March 31, 2009Total
      Capital (to Risk Weighted Assets)
                                                                                          
                                                                                          $
                                                                                          16,244
                                                                                          
                                                                                          13.66
                                                                                          %
                                                                                          $
                                                                                          9,514
                                                                                          ≥
                                                                                          8.00
                                                                                          %
                                                                                          $
                                                                                          11,892
                                                                                          ≥
                                                                                          10.00
                                                                                          %Tier
      1 Capital (to Risk Weighted Assets)
                                                                                          
                                                                                          
                                                                                          14,756
                                                                                          
                                                                                          12.41
                                                                                          %
                                                                                          
                                                                                          4,757
                                                                                          ≥
                                                                                          4.00
                                                                                          %
                                                                                          
                                                                                          7,135
                                                                                          ≥
                                                                                          6.00
                                                                                          %Tier
      1 Capital (to Average Assets)
                                                                                          
                                                                                          
                                                                                          14,756
                                                                                          
                                                                                          10.52
                                                                                          %
                                                                                          
                                                                                          5,610
                                                                                          ≥
                                                                                          4.00
                                                                                          %
                                                                                          
                                                                                          7,013
                                                                                          ≥
                                                                                          5.00
                                                                                          %As
      of December 31, 2008Total
      Capital (to Risk Weighted Assets)
                                                                                          
                                                                                          $
                                                                                          14,400
                                                                                          
                                                                                          12.05
                                                                                          %
                                                                                          $
                                                                                          9,558
                                                                                          ≥
                                                                                          8.00
                                                                                          %
                                                                                          $
                                                                                          11,947
                                                                                          ≥
                                                                                          10.00
                                                                                          %Tier
      1 Capital (to Risk Weighted Assets)
                                                                                          
                                                                                          
                                                                                          12,905
                                                                                          
                                                                                          10.80
                                                                                          %
                                                                                          
                                                                                          4,779
                                                                                          ≥
                                                                                          4.00
                                                                                          %
                                                                                          
                                                                                          7,168
                                                                                          ≥
                                                                                          6.00
                                                                                          %Tier
      1 Capital (to Average Assets)
                                                                                          
                                                                                          
                                                                                          12,905
                                                                                          
                                                                                          9.21
                                                                                          %
                                                                                          
                                                                                          5,603
                                                                                          ≥
                                                                                          4.00
                                                                                          %
                                                                                          
                                                                                          7,004
                                                                                          ≥
                                                                                          5.00
                                                                                          %




14


NOTE 16. PARENT COMPANY CONDENSED FINANCIAL
STATEMENTS




T
BANCSHARES, INC.


CONDENSED
BALANCE SHEET


(Unaudited)




(000's)
                                                                  
                                                                  March
      31,
                                                                    2009
                                                                  
                                                                  
                                                                  December 31,
                                                                    2008ASSETSCash
      and due from banks
                                                                  
                                                                  $
                                                                  419
                                                                  
                                                                  
                                                                  $
                                                                  333Due
      from subsidiary
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  333Other
      Assets
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  242Investment
      in subsidiary
                                                                  
                                                                  
                                                                  14,762
                                                                  
                                                                  
                                                                  
                                                                  12,905Total
      Assets
                                                                  
                                                                  $
                                                                  15,181
                                                                  
                                                                  
                                                                  $
                                                                  13,813LIABILITIES
      AND CAPITALOther
      Liabilities
                                                                  
                                                                  
                                                                  5
                                                                  
                                                                  
                                                                  
                                                                  19Capital
                                                                  
                                                                  
                                                                  15,176
                                                                  
                                                                  
                                                                  
                                                                  13,794Total
      Liabilities and Capital
                                                                  
                                                                  $
                                                                  15,181
                                                                  
                                                                  
                                                                  $
                                                                  13,813




T
BANCSHARES, INC.


CONDENSED
STATEMENT OF INCOME


(Unaudited)





Three Months Ended March
      31,(000's)
                          
                          2009
                          
                          
                          2008Equity
      in income (loss) from subsidiary
                          
                          $
                          (149
                          )
                          
                          $
                          29Noninterest
      expense:Professional
      and administrative
                          
                          
                          (4
                          )
                          
                          
                          30Stock
      options
                          
                          
                          27
                          
                          
                          
                          25Total
      noninterest expenses
                          
                          
                          23
                          
                          
                          
                          55Net
      income (loss)
                          
                          $
                          (172
                          )
                          
                          $
                          (26
                          )




15





T
BANCSHARES, INC.


CONDENSED
STATEMENT OF CASH FLOWS


(Unaudited)





Three Months Ended March
      31,(000's)
                      
                      2009
                      
                      
                      2008Cash
      Flows from Operating ActivitiesNet
      Income (Loss)
                      
                      $
                      (172
                      )
                      
                      $
                      (26
                      )Adjustments
      to reconcile net income (loss) to net cash provided (used) by operating
      activities:Equity
      in (earnings) loss of Bank
                      
                      
                      149
                      
                      
                      
                      (29
                      )Stock
      based compensation
                      
                      
                      27
                      
                      
                      
                      25Net
      change in other assets
                      
                      
                      333
                      
                      
                      
                      -Net
      change in other liabilities
                      
                      
                      (14
                      )
                      
                      
                      -Net
      cash provided (used) by operating activities
                      
                      
                      323
                      
                      
                      
                      (30
                      )Cash
      Flows from Investing ActivitiesProceeds
      from sale of premises and equipment
                      
                      
                      -
                      
                      
                      
                      -Net
      cash used in investing activities
                      
                      
                      -
                      
                      
                      
                      -Cash
      Flows from Financing ActivitiesNet
      proceeds from rights offering
                      
                      
                      1,763
                      
                      
                      
                      -Contribution
      to bank
                      
                      
                      (2,000
                      )
                      
                      
                      -Net
      cash provided by financing activities
                      
                      
                      (237
                      )
                      
                      
                      -Net
      change in cash and cash equivalents
                      
                      
                      86
                      
                      
                      
                      (30
                      )Cash
      and cash equivalents at beginning of period
                      
                      
                      333
                      
                      
                      
                      743Cash
      and cash equivalents at end of period
                      
                      $
                      419
                      
                      
                      $
                      713Supplemental
      disclosures of cash flow informationCash
      paid during the period forInterest
                      
                      $
                      -
                      
                      
                      $
                      -Income
      taxes
                      
                      $
                      -
                      
                      
                      $
                      -




NOTE
16. Fair Value Measurements




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





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


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


16





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




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




The
following table summarizes financial and nonfinancial assets  measured
at fair value as of March 31, 2009, segregated by the level of the
valuation inputs within the fair value hierarchy utilized to measure fair
value:




(000's)
                
                Level 1
                  Inputs
                
                
                Level 2
                  Inputs
                
                
                Level 3
                  Inputs
                
                
                Total
                  Fair ValueSecurities
      available for sale:U.S.
      government agencies and corporations
                
                $
                —
                
                
                $
                1,006
                
                
                $
                —
                
                
                $
                1,006Other
      Assets:OREO
                
                
                —
                
                
                
                955
                
                
                
                —
                
                
                
                955





Non-financial
assets measured at fair value on a non-recurring basis include OREO. During the
first quarter of 2009, certain OREO assets, upon initial recognition, were
remeasured and reported at fair value through a charge-off to the allowance for
possible loan losses based upon the fair value of the OREO asset. The fair value
of an OREO asset, upon initial recognition, is estimated using Level 2
inputs based on observable market data. OREO assets measured at fair value upon
initial recognition totaled $955,000 (utilizing Level 2 valuation inputs)
during the three months ended March 31, 2009. In connection with the
measurement and initial recognition of the OREO assets, the Company recognized
charge-offs of the allowance for possible loan losses totaling $146,000, which
has been recorded on the consolidated statement of income as provision for loan
losses.


17




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




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




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




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




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




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




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




·
            we
      face substantial competition in our primary market
  area;




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




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




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




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




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




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




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




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




·
            we
      have no current intentions of paying cash
  dividends;




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




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




18


These
factors and the risk factors referred to in our Annual Report on Form 10-K for
the year ended December 31, 2008 could cause actual results or outcomes to
differ materially from those expressed in any forward-looking statements made by
us, and you should not place undue reliance on any such forward-looking
statements. Any forward-looking statement reflects only 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




The
Company is a bank holding company headquartered in Dallas, Texas, offering a
broad array of banking services through the Bank. Our principal markets include
North Dallas, Addison, Plano, Frisco, Southlake and the neighboring Texas
communities. As of March 31, 2009, we had, on a consolidated basis, total assets
of $135.9 million, net loans of $122.2 million, total deposits of $96.8 million,
and shareholders’ equity of $15.2 million. We currently operate through a main
office located at 16000 Dallas Parkway, Dallas, Texas, and a branch office at
8100 North Dallas Parkway, Plano, Texas.  We also have a loan production
office located at 850 E State Highway 114, Suite 200, Southlake,
Texas.




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




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





Recent
Developments





Capital
Raised through Rights Offering





On
December 31, 2008, the Company completed its rights offering for 237,504 shares
of common stock at a price of $7.50 per share for gross proceeds of $1.8
million.  The addition to capital, net of offering costs, was $1.5
million.  The proceeds from the offering were held in receivership at
year end and deposited with the Company on January 7, 2009.




Results
of Operations




Net
Interest Income and Net Interest Margin




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





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


19





First
      Quarter 2009 vs. First Quarter 2008Increase (Decrease) Due to
                                                Change inRate
                                              
                                              
                                              Volume
                                              
                                              
                                              Days
                                              
                                              
                                              TotalFederal
      Funds Sold
                                              
                                              $
                                              (93
                                              )
                                              
                                              $
                                              (6
                                              )
                                              
                                              $
                                              (1
                                              )
                                              
                                              $
                                              (100
                                              )Securities
                                              
                                              
                                              (1
                                              )
                                              
                                              
                                              5
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              4Loans,
      net of reserve
                                              
                                              
                                              (342
                                              )
                                              
                                              
                                              (61
                                              )
                                              
                                              
                                              (25
                                              )
                                              
                                              
                                              (428
                                              )Total
      earning assets
                                              
                                              
                                              (436
                                              )
                                              
                                              
                                              (62
                                              )
                                              
                                              
                                              (26
                                              )
                                              
                                              
                                              (524
                                              )NOW
                                              
                                              
                                              (2
                                              )
                                              
                                              
                                              1
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (1
                                              )Money
      Market
                                              
                                              
                                              (181
                                              )
                                              
                                              
                                              (16
                                              )
                                              
                                              
                                              (3
                                              )
                                              
                                              
                                              (200
                                              )Savings
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Certificates
      of deposit $100,000 or less
                                              
                                              
                                              (40
                                              )
                                              
                                              
                                              (85
                                              )
                                              
                                              
                                              (3
                                              )
                                              
                                              
                                              (128
                                              )Certificates
      of deposit $100,000 or more
                                              
                                              
                                              (55
                                              )
                                              
                                              
                                              (101
                                              )
                                              
                                              
                                              (6
                                              )
                                              
                                              
                                              (162
                                              )Borrowed
      Funds
                                              
                                              
                                              -
                                              
                                              
                                              
                                              14
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              14Total
      Interest-bearing liabilities
                                              
                                              
                                              (278
                                              )
                                              
                                              
                                              (187
                                              )
                                              
                                              
                                              (12
                                              )
                                              
                                              
                                              (477
                                              )Changes
      in net interest income
                                              
                                              $
                                              (158
                                              )
                                              
                                              $
                                              125
                                              
                                              
                                              $
                                              (14
                                              )
                                              
                                              $
                                              (47
                                              )





Net
interest income for the three months ended March 31, 2009 decreased $47,000, or
3.6%, compared to the same period in the prior year.  The decrease was
due to a decline in the average interest yield for earning assets, which was
partially offset by both a decrease in volume and a decrease in average interest
yield for interest bearing deposits.  The components of net interest
income are discussed below.





Total
interest income decreased $524,000, or 19.9%, to $2.1 million for the three
months ended March 31, 2009, compared to $2.6 million for the same period in the
prior year.  The decrease is due to a decrease in the average interest
yield for average earning assets and a decrease in earning asset
volume.  The average interest yield fell to 6.2%, or 16.2%, for the
three months ended March 31, 2009, compared to 7.4% for the same period in the
prior year.  Average earning asset volume fell $6.8 million, or 4.8%,
to $135.9 million for the three months ended March 31, 2009, compared to $142.7
million for the same period in the prior year.




Total
interest expense decreased by $477,000, or 36.0%, to $850,000 for the three
months ended March 31, 2009, compared to $1.3 million for the three months ended
March 31, 2008.  The decrease in interest expense is due to a decrease
in the average rate paid for interest bearing deposits and to a decrease in the
volume of average interest earning deposits.  For the three month
period ended March 31, 2009, the average rate paid for interest earning deposits
fell to 3.3% as compared to 4.4% for the same period in the prior
year.  Average interest bearing deposit volume fell $17.1 million, or
14.3%, to $102.8 million for the three months ended March 31, 2009, compared to
$119.9 million for the same period in the prior year.  However, the
decrease in interest bearing deposits was offset by the use of borrowed
funds.  Borrowed funds averaged $12.1 million and had an average rate
of 0.5% for the three months ended March 31, 2009.  By comparison, the
Company had no borrowed funds in the same period in the prior year.




Key
Performance Indicators at March 31, 2009




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




·
            total
      assets decreased to $135.9 million at the end of the first quarter of
      2009, representing a decrease of $339,000, or 0.2%, from $136.2 million at
      the end of 2008;




·
            total
      loans, net of allowance for loan losses, decreased to $122.2 million at
      the end of the first quarter of 2009, representing a decrease
      of  $1.2 million, or 1.0%, from $123.4 million at the end of
      2008;




·
            total
      deposits decreased to $96.8 million at the end of the first quarter of
      2009, representing a decrease of $14.2 million, or 12.8%, from $111.1
      million at the end of 2008;




·
            total
      revenue was $3.7 million for the three months ended March 31, 2009,
      compared to $5.1 million for the same period in the prior year,
      representing a decrease of 28.9%;
and


20




·
            net
      loss was $172,000 for the three months ended March 31, 2009, compared to
      net loss of $26,000 for the same period in the prior
  year.




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-Q.




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 three months ended March 31, 2009 and
2008.


21




FINANCIAL
SUMMARY


Consolidated
Daily Average Balances, Average Yields and Rates





Three Months Ended March 31,2009
                        
                        
                        2008(000's) except earnings per share
                        
                        Average
                          Balance
                        
                        
                        Interest
                        
                        
                        Average
                          Yield
                        
                        
                        Average
                          Balance
                        
                        
                        Interest
                        
                        
                        Average
                          YieldInterest-earning
      assetsLoans,
      net of reserve
                        
                        $
                        122,268
                        
                        
                        $
                        2,073
                        
                        
                        
                        6.8
                        %
                        
                        $
                        126,145
                        
                        
                        $
                        2,501
                        
                        
                        
                        7.9
                        %Federal
      funds sold
                        
                        
                        11,624
                        
                        
                        
                        20
                        
                        
                        
                        .7
                        %
                        
                        
                        15,081
                        
                        
                        
                        120
                        
                        
                        
                        3.2
                        %Securities
                        
                        
                        2,026
                        
                        
                        
                        19
                        
                        
                        
                        3.8
                        %
                        
                        
                        1,495
                        
                        
                        
                        15
                        
                        
                        
                        4.0
                        %Total
      earning assets
                        
                        
                        135,918
                        
                        
                        
                        2,112
                        
                        
                        
                        6.2
                        %
                        
                        
                        142,721
                        
                        
                        
                        2,636
                        
                        
                        
                        7.4
                        %Cash
      and other assets
                        
                        
                        4,341
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        4,752Total
      assets
                        
                        $
                        140,259
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        147,473Interest-bearing
      liabilitiesNOW
      accounts
                        
                        $
                        1,965
                        
                        
                        $
                        4
                        
                        
                        
                        .8
                        %
                        
                        $
                        1,721
                        
                        
                        $
                        5
                        
                        
                        
                        1.2
                        %Money
      market accounts
                        
                        
                        43,264
                        
                        
                        
                        184
                        
                        
                        
                        1.7
                        %
                        
                        
                        45,925
                        
                        
                        
                        384
                        
                        
                        
                        3.3
                        %Savings
      accounts
                        
                        
                        179
                        
                        
                        
                        1
                        
                        
                        
                        1.3
                        %
                        
                        
                        158
                        
                        
                        
                        1
                        
                        
                        
                        2.5
                        %Certificates
      of deposit less than $100,000
                        
                        
                        20,260
                        
                        
                        
                        221
                        
                        
                        
                        4.5
                        %
                        
                        
                        27,130
                        
                        
                        
                        349
                        
                        
                        
                        5.1
                        %Certificates
      of deposit $100,000 or greater
                        
                        
                        37,110
                        
                        
                        
                        426
                        
                        
                        
                        4.7
                        %
                        
                        
                        44,921
                        
                        
                        
                        588
                        
                        
                        
                        5.2
                        %Total
      interest bearing deposits
                        
                        
                        102,778
                        
                        
                        
                        836
                        
                        
                        
                        3.3
                        %
                        
                        
                        119,855
                        
                        
                        
                        1,327
                        
                        
                        
                        4.4
                        %Borrowed
      Funds
                        
                        
                        12,148
                        
                        
                        
                        14
                        
                        
                        
                        .5
                        %
                        
                        
                        -
                        
                        
                        
                        -Total
      interest bearing liabilities
                        
                        
                        114,926
                        
                        
                        
                        850
                        
                        
                        
                        3.0
                        %
                        
                        
                        119,855
                        
                        
                        
                        1,327
                        
                        
                        
                        4.4
                        %Noninterest
      bearing deposits
                        
                        
                        9,903
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        13,533
                        
                        
                        
                        -Other
      liabilities
                        
                        
                        685
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1,032Stockholders
      equity
                        
                        
                        14,745
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        13,053Total
      liabilities and stockholders' equity
                        
                        $
                        140,259
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        147,473Net
      interest income
                        
                        
                        
                        
                        
                        
                        1,262
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1,309Net
      interest spread
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3.2
                        %
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3.0
                        %Net
      interest margin
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3.7
                        %
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3.7
                        %Provision
      for loan loss
                        
                        
                        
                        
                        
                        
                        118
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        150Non-interest
      income
                        
                        
                        
                        
                        
                        
                        1,580
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        2,488Non-interest
      expense
                        
                        
                        
                        
                        
                        
                        2,896
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        3,673Income
      (loss) before income taxes
                        
                        
                        
                        
                        
                        
                        (172
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (26
                        )Income
      taxes expense (benefit)
                        
                        
                        
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        -Net
      income (loss)
                        
                        
                        
                        
                        
                        $
                        (172
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        (26
                        )Earnings
      (loss) per share
                        
                        
                        
                        
                        
                        
                        (0.09
                        )
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (0.02
                        )Return
      on average equity
                        
                        
                        
                        
                        
                        
                        (1.17
                        )
      %
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (0.8
                        )
      %Return
      on average assets
                        
                        
                        
                        
                        
                        
                        (0.12
                        )
      %
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (0.07
                        )
      %Equity
      to assets ratio
                        
                        
                        
                        
                        
                        
                        10.51
                        %
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        8.85
                        %




22




Provision
for Loan Losses




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




For the
three months ended March 31, 2009, our provision for loan losses was $118,000.
The provision amounts are directly related to loan volumes. For the three months
ended March 31, 2008, our provision for loan losses was $150,000. We had
charge-offs of $146,000 and recoveries of $7,000 during the three months ended
March 31, 2009.  We had charge-offs of $175,000 and no recoveries for
the three months ended March 31, 2008.




Non-interest
Income




Non-interest
income for the three months ended March 31, 2009 was $1.6 million and was
primarily attributable to fee income generated by the Company for trust services
and service charges on depository accounts. Fee income and service charges for
the same period in the prior year totaled $2.5 million.





Trust
income is earned on the value of managed and non-managed assets held in
custody.  For the three months ended March 31, 2009, trust income
decreased $907,000, or 36.8%, to $1.6 million, as compared to $2.5 million for
the same period in the prior year.  The decrease in trust income is
directly attributable to the 40% decline observed in the stock market since
September 2008.





Service
fees were $24,000 for the three months ended March 31, 2009, compared to $25,000
for the same period in the prior year.





Noninterest
Expense




Total
noninterest expense was $2.9 million for the three months ended March 31, 2009,
which compares to $3.7 million for the three months ended March 31,
2008.




Salaries
and employee benefits increased $56,000, or 7.4%, to $812,000 for the three
months ended March 31, 2009, which compares to $756,000 for the same period in
the prior year.  The increase in salaries and employee benefit
expenses is attributable to adding three individuals to the executive team in
2008.  Overall, we had 31 full-time equivalent employees as of March
31, 2009, compared to 29 employees as of March 31, 2008.




Occupancy
and equipment expenses are primarily lease expenses and depreciation and
amortization of leasehold improvements and furniture, fixtures and
equipment.  For the three months ended March 31, 2009, occupancy and
equipment expense decreased $38,000, or 11.3%, to $298,000, which compares to
$336,000 for the same period in the prior year.




Trust
expenses are advisory fees paid to a fund advisor to manage the assets in the
trust and are based on the value of the assets held in custody.  For
the three months ended March 31, 2009, trust expenses decreased $782,000, or
36.6%, to $1.4 million as compared to $2.1 million for the same period in the
prior year.  Similar to trust income, the decrease in trust expense is
directly attributable to the 40% decline observed in the stock market since
September 2008.





Professional
fees were $99,000 for the three months ended March 31, 2009, which compares to
$136,000 for the same period in the prior year.





Data
processing fees were $116,000 for the three months ended March 31, 2009, which
compares to $124,000 for the same period in the prior year.




Income
Taxes




No
federal income tax expense was recorded for the three months ended March 31,
2009, due to available operating losses to offset taxable income. Based upon the
Company’s limited operating history, the federal tax benefit of these losses has
been fully reserved. Cumulative net operating loss available to carry forward
for tax purposes is approximately $760,000 as of December 31, 2008.




Financial
Condition




Our total
assets as of March 31, 2009 were $135.9 million, which was almost unchanged from
December 31, 2008. Deposits were $96.8 million as of March 31, 2009, compared to
$111.1 million as of December 31, 2008. Borrowed funds as of March 31, 2009 were
$23.0 million, compared to $10.5 million as of December 31, 2008.  The
increase in borrowed funds and the corresponding decrease in deposits is a
result of the Company replacing higher cost deposits on a short term basis with
lower rate advances from the Federal Reserve Bank and the Federal Home Loan
Bank.


23


As of
March 31, 2009, our shareholders’ equity was $15.2 million, compared to $13.8
million as of December 31, 2008.  The $1.4 million increase in equity
is due to net proceeds of $1.5 million raised in rights offering completed at
the beginning of 2009 and the $172,000 loss recognized in the first quarter of
2009.





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




At March
31, 2009, we had $5.8 million in federal funds sold. At December 31, 2008, we
had $7.2 million in federal funds sold. Federal funds sold allow us to meet
liquidity requirements and provide temporary interest-bearing holdings until the
funds can be otherwise deployed or invested.





Investment
Securities




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




At March
31, 2009, the Bank’s securities consisted of Federal Reserve Bank of Dallas
stock and Federal Home Loan Bank of Dallas stock at cost of $420,000 and
$704,000, respectively, with an estimated fair value that approximated cost. We
also had government agency securities with amortized cost of $1.9 million and
fair value of $2.0 million. Weighted average yield of the securities portfolio
at March 31, 2009 was 3.8%.





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





Loan
Portfolio




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




As of
                                            
                                            
                                            As of(000's)
                                            
                                            March
      31, 2009
                                            
                                            
                                            December 31, 2008Commercial
      and industrial
                                            
                                            $
                                            83,972
                                            
                                            
                                            $
                                            81,342Consumer
      installment
                                            
                                            
                                            2,807
                                            
                                            
                                            
                                            3,799Real
      estate — mortgage
                                            
                                            
                                            25,920
                                            
                                            
                                            
                                            20,543Real
      estate — construction
                                            
                                            
                                            11,248
                                            
                                            
                                            
                                            19,481Other
                                            
                                            
                                            1
                                            
                                            
                                            
                                            12Total
      loans
                                            
                                            
                                            123,948
                                            
                                            
                                            
                                            125,177Less
      allowance for loan losses
                                            
                                            
                                            1,617
                                            
                                            
                                            
                                            1,638Less
      deferred loan fees
                                            
                                            
                                            137
                                            
                                            
                                            
                                            146Total
      net loans
                                            
                                            $
                                            122,194
                                            
                                            
                                            $
                                            123,393




As of
March 31, 2009 and December 31, 2008, our total net loans were $122.2 million
and $123.4 million, respectively. Total loans, net of reserves and deferred
fees, as a percentage of total assets were 89.9% as of March 31, 2009, and 90.6%
as of December 31, 2008.




Our
commercial loan portfolio is composed of lines of credit for working capital and
term loans to finance equipment and other business assets. Our lines of credit
typically are limited to a percentage of the value of the assets securing the
line. Lines of credit and term loans typically are reviewed annually and are
supported by accounts receivable, inventory, equipment and other assets of our
clients businesses. At March 31, 2009 and December 31, 2008, commercial loans
totaled $83.9 million and $81.3 million, representing approximately 67.7% and
65.0% of our total funded loans, respectively.




Our
consumer loan portfolio consists of personal lines of credit and loans to
acquire personal assets such as automobiles and boats. Our lines of credit
generally have terms of one year and our term loans generally have terms of
three to five years. Our lines of credit typically have floating rates. At March
31, 2009 and December 31, 2008, consumer loans totaled $2.8 million and $3.8
million, approximately 2.3% and 3.0% of our total funded loans,
respectively.


24


Our real
estate loan portfolio is composed of construction loans and short-term mortgage
loans. Construction loans consist primarily of single-family residential
properties, typically have terms of less than one year and have floating rates
and commitment fees. Our construction loans are typically to builders who have
an established record of successful project completion and loan repayment.
Short-term mortgage loans are typically secured by commercial properties
occupied by the borrower; typically have terms of three to ten years with both
fixed and floating rates. At March 31, 2009 and December 31, 2008, real estate
loans totaled $37.2 million and $40.0 million, approximately 30.0% and 32.0% of
our total loans, respectively. The decline in real estate loans is primarily due
to reductions in the construction loan portfolio as a result of loans paying at
or before maturity.  Additionally, current economic conditions have
resulted in fewer requests from credit worthy borrowers.  This $8.2
million reduction was partially offset by a $5.4 million increase in borrower
occupied commercial mortgages.





Loan
concentrations are considered to exist when there are amounts loaned to multiple
borrowers engaged in similar activities that would cause them to be similarly
impacted by economic or other conditions. At March 31,2009, our commercial loan
portfolio included $76.4 million of loans, approximately 62.6% of our total
funded loans, to dental professionals. These loans were to fund practice
acquisitions, practice enhancements, equipment purchases, real estate and
personal borrowing needs. We believe that these loans are well secured to credit
worthy borrowers and are diversified geographically. As new loans are generated
the percentage of the total loan portfolio consisting of the foregoing
concentration may remain constant or increase thereby continuing the risk
associated with industry concentration.




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




The
following table shows the maturity/reset date distribution and type of loan
within our loan portfolio as of March 31, 2009:





As of March 31, 2009Over 1 Year through
                      5 Years
                    
                    
                    Over 5 Years(000's)
                    
                    One Year
                      or
                      Less
                    
                    
                    Fixed Rate
                    
                    
                    Floating or
                      Adjustable
                      Rate
                    
                    
                    Fixed Rate
                    
                    
                    Floating or
                      Adjustable
                      Rate
                    
                    
                    TotalCommercial
      and industrial *
                    
                    $
                    13,310
                    
                    
                    $
                    8,468
                    
                    
                    $
                    10,204
                    
                    
                    $
                    51,587
                    
                    
                    $
                    403
                    
                    
                    $
                    83,972Consumer
      installment
                    
                    
                    1,006
                    
                    
                    
                    816
                    
                    
                    
                    -
                    
                    
                    
                    985
                    
                    
                    
                    -
                    
                    
                    
                    2,807Real
      estate — mortgage
                    
                    
                    8,344
                    
                    
                    
                    7,889
                    
                    
                    
                    344
                    
                    
                    
                    7,426
                    
                    
                    
                    1,917
                    
                    
                    
                    25,920Real
      estate — construction*
                    
                    
                    10,439
                    
                    
                    
                    809
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    11,248Other
                    
                    
                    1
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1Total
                    
                    $
                    33,100
                    
                    
                    $
                    17,982
                    
                    
                    $
                    10,548
                    
                    
                    $
                    59,998
                    
                    
                    $
                    2,320
                    
                    
                    $
                    123,948




*Includes
nonaccrual and other loans at March 31, 2009.


25


Nonperforming
Loans and Assets




Nonperforming
assets consist of loans on nonaccrual status, loans 90 days or more past due and
still accruing interest, loans that have been restructured resulting in a
reduction or deferral of interest or principal, other real estate owned
(“OREO”), and other repossessed assets. The impact of foreclosures and
distressed sales is impacting the value of real estate and the overall economy
broadly. This economic downturn has affected our real estate portfolio. As of
March 31, 2009, we had no loans 90 days or more past due and still accruing
interest, $1.9 million in loans on nonaccrual status and $955,000 in OREO. At
December 31, 2008, we had $1.3 million of 90 days or more past due and still
accruing interest, $3.3 million in loans on nonaccrual status and no
OREO.  Total nonperforming assets as of March 31, 2009 was $2.9
million, down 37% compared to $4.6 million as of December 31,
2008.  The reduction is primarily due to $1.7 million in nonperforming
loans restored to performing status.




A
potential problem loan is defined as a loan where information about possible
credit problems of the borrower is known, causing management to have doubts as
to the ability of the borrower to comply with the present loan payment terms and
which may result in the inclusion of such loan in one of the nonperforming asset
categories. We maintain an internally classified loan list that helps management
assess the overall quality of the loan portfolio and the adequacy of the
allowance for loan losses. Loans classified as “special mention” are those that
contain a weakness that, if left unattended, could develop into a problem
affecting the ultimate collectability of the loan. Loans classified as
“substandard” are those loans with clear and defined weaknesses such as highly
leveraged positions, unfavorable financial ratios, uncertain repayment resources
or poor financial condition, which may jeopardize recoverability of the loan.
Loans classified as “doubtful” are those loans that have characteristics similar
to substandard loans, but also have an increased risk that loss may occur or at
least a portion of the loan may require a charge-off if liquidated at present.
Although loans classified as substandard do not duplicate loans classified as
doubtful, both substandard and doubtful loans may include some loans that are
past due at least 90 days, are on nonaccrual status ,or have been restructured.
Loans classified as “loss” are those loans that are in the process of being
charged-off. At March 31, 2009 the Company had $7.6 million in special mention
loans, $5.0 million in substandard loans and $0 classified as
doubtful.





Allowance
for Loan Losses




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




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




Credit
and loan decisions are made by management and the Board of Directors in
conformity with loan policies established by the Board. Our practice is to
charge-off any loan or portion of a loan when the loan is determined by
management to be fully or partially uncollectible due to the borrower’s failure
to meet repayment terms, the borrower’s deteriorating or deteriorated financial
condition, the depreciation of the underlying collateral, the loan’s
classification as a loss by regulatory examiners, or other reasons. With the
current downturn in the economy, charge-offs in our portfolio have increased. We
had charge-offs of $146,000 and recoveries of $7,000 during the three months
ended March 31, 2009. During the year ended December 31, 2008, we had
charge-offs of $451,000 and recoveries of $72,000.


26


The
following table sets forth the specific allocation of the allowance for the
periods indicated and the percentage of allocated possible loan losses in each
category to total gross loans. An allocation for a loan classification is only
for internal analysis of the adequacy of the allowance and is not an indication
of expected or anticipated losses.




(000's)
                    
                    As of
                      March
      31, 2009
                    
                    
                    As of
                      December 31, 2008Allocated:
                    
                    Amount
                    
                    
                    Loan
                      Category to
                      Gross Loans
                    
                    
                    Amount
                    
                    
                    Loan
                      Category to
                      Gross LoansCommercial
      and industrial
                    
                    $
                    1,095
                    
                    
                    
                    67.7
                    %
                    
                    $
                    1,064
                    
                    
                    
                    65.0
                    %Consumer
      installment
                    
                    
                    37
                    
                    
                    
                    2.3
                    %
                    
                    
                    49
                    
                    
                    
                    3.0
                    %Real
      estate — mortgage
                    
                    
                    338
                    
                    
                    
                    20.9
                    %
                    
                    
                    269
                    
                    
                    
                    16.4
                    %Real
      estate — construction
                    
                    
                    147
                    
                    
                    
                    9.1
                    %
                    
                    
                    256
                    
                    
                    
                    15.6
                    %Total
      allowance for loan losses
                    
                    $
                    1,617
                    
                    
                    
                    100.0
                    %
                    
                    $
                    1,638
                    
                    
                    
                    100.0
                    %




Nonearning
Assets




Premises,
leasehold improvements and equipment, net of accumulated depreciation and
amortization, totaled $1.1 million at March 31, 2009 and $1.2 million at
December 31, 2008.





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 three months ended(000's)
                                                                                
                                                                                March 31, 2009
                                                                                
                                                                                
                                                                                March 31, 2008Average
                                                                                  Balance
                                                                                
                                                                                
                                                                                Percent of
                                                                                  Deposits
                                                                                
                                                                                
                                                                                Average
                                                                                  Rate
                                                                                
                                                                                
                                                                                Average
                                                                                  Balance
                                                                                
                                                                                
                                                                                Percent of
                                                                                  Deposits
                                                                                
                                                                                
                                                                                Average
                                                                                  RateNoninterest
      bearing deposits
                                                                                
                                                                                $
                                                                                9,903
                                                                                
                                                                                
                                                                                
                                                                                8.8
                                                                                %
                                                                                
                                                                                
                                                                                0.0
                                                                                %
                                                                                
                                                                                $
                                                                                13,533
                                                                                
                                                                                
                                                                                
                                                                                10.2
                                                                                %
                                                                                
                                                                                
                                                                                0.0
                                                                                %NOW
      accounts
                                                                                
                                                                                
                                                                                1,965
                                                                                
                                                                                
                                                                                
                                                                                1.7
                                                                                %
                                                                                
                                                                                
                                                                                .8
                                                                                %
                                                                                
                                                                                
                                                                                1,721
                                                                                
                                                                                
                                                                                
                                                                                1.3
                                                                                %
                                                                                
                                                                                
                                                                                1.1
                                                                                %Money
      market accounts
                                                                                
                                                                                
                                                                                43,264
                                                                                
                                                                                
                                                                                
                                                                                38.4
                                                                                %
                                                                                
                                                                                
                                                                                1.7
                                                                                %
                                                                                
                                                                                
                                                                                45,925
                                                                                
                                                                                
                                                                                
                                                                                34.4
                                                                                %
                                                                                
                                                                                
                                                                                3.3
                                                                                %Savings
      accounts
                                                                                
                                                                                
                                                                                179
                                                                                
                                                                                
                                                                                
                                                                                .2
                                                                                %
                                                                                
                                                                                
                                                                                1.3
                                                                                %
                                                                                
                                                                                
                                                                                158
                                                                                
                                                                                
                                                                                
                                                                                0.1
                                                                                %
                                                                                
                                                                                
                                                                                1.5
                                                                                %Certificates
      of deposit, less than $100,000
                                                                                
                                                                                
                                                                                20,260
                                                                                
                                                                                
                                                                                
                                                                                18.0
                                                                                %
                                                                                
                                                                                
                                                                                4.5
                                                                                %
                                                                                
                                                                                
                                                                                27,130
                                                                                
                                                                                
                                                                                
                                                                                20.3
                                                                                %
                                                                                
                                                                                
                                                                                5.2
                                                                                %Certificates
      of deposit, $100,000 or greater
                                                                                
                                                                                
                                                                                37,110
                                                                                
                                                                                
                                                                                
                                                                                32.9
                                                                                %
                                                                                
                                                                                
                                                                                4.7
                                                                                %
                                                                                
                                                                                
                                                                                44,921
                                                                                
                                                                                
                                                                                
                                                                                33.7
                                                                                %
                                                                                
                                                                                
                                                                                5.2
                                                                                %Total
      deposits
                                                                                
                                                                                $
                                                                                112,681
                                                                                
                                                                                
                                                                                
                                                                                100.00
                                                                                %
                                                                                
                                                                                
                                                                                3.0
                                                                                %
                                                                                
                                                                                $
                                                                                133,388
                                                                                
                                                                                
                                                                                
                                                                                100.00
                                                                                %
                                                                                
                                                                                
                                                                                4.0
                                                                                %





Total
average deposits at March 31, 2009 and December 31, 2008 were $112.7 million and
$135.9 million, respectively, representing a decrease of $23.2 million, or
17.1%, during the three month period ending March 31, 2009. The Bank continues
to seek ways to attract additional deposits.


27





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




(000's)
                                  
                                  March 31,
                                    2009
                                  
                                  
                                  December 31,
                                    2008Three
      months or less
                                  
                                  $
                                  1,908
                                  
                                  
                                  $
                                  3,345Over
      three months through 12 months
                                  
                                  
                                  12,756
                                  
                                  
                                  
                                  7,557Over
      one year through three years
                                  
                                  
                                  17,700
                                  
                                  
                                  
                                  21,031Over
      three years
                                  
                                  
                                  4,076
                                  
                                  
                                  
                                  5,307Total
                                  
                                  $
                                  36,440
                                  
                                  
                                  $
                                  37,240




Off-Balance
Sheet Arrangements




Neither
the Company nor the Bank has any material off-balance sheet arrangements other
than the Bank’s commitments to extend credit at March 31, 2009. See Note 14 to
the financial statements included in this report. In addition to the on balance
sheet liquidity available, the Bank has a line of credit with the Federal Home
Loan Bank (“FHLB”) and the Federal Reserve Bank (“FRB”), which provides the
Bank with a source of off-balance sheet liquidity. As of March 31, 2009 the
Bank’s established credit line with the FHLB was $12.6 million, or 9.3% of
assets, of which $12.0 million was utilized. As of March 31, 2009 the Bank’s
established credit line with the FRB was $19.1 million, or 14.1% of assets, of
which $11.0 million was utilized at March 31, 2009. The Bank also has access to
federal funds purchased for $6.4 million or 4.7% of assets. Additionally, the
Bank serves as trustee or custodian for $76.5 million in cash deposits held in a
Blackrock money market mutual fund, of which approximately $49.7 million could
be held at the Bank fully insured by the FDIC.





Capital Resources
and Capital Adequacy Requirements




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




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




28





Actual
                                                                    
                                                                    For Capital Adequacy
                                                                      Purposes
                                                                    
                                                                    To Be Well Capitalized
                                                                      Under Prompt Corrective
                                                                      Action Provisions(000's)
                                                                    
                                                                    Amount
                                                                    
                                                                    Ratio
                                                                    
                                                                    Amount
                                                                    
                                                                    Ratio
                                                                    
                                                                    Amount
                                                                    
                                                                    RatioAs
      of March 31, 2009Total
      Capital (to Risk Weighted Assets)
                                                                    
                                                                    $
                                                                    16,244
                                                                    
                                                                    13.66
                                                                    %
                                                                    $
                                                                    9,514
                                                                    ≥
                                                                    8.00
                                                                    %
                                                                    $
                                                                    11,892
                                                                    ≥
                                                                    10.00
                                                                    %Tier
      1 Capital (to Risk Weighted Assets)
                                                                    
                                                                    
                                                                    14,756
                                                                    
                                                                    12.41
                                                                    %
                                                                    
                                                                    4,757
                                                                    ≥
                                                                    4.00
                                                                    %
                                                                    
                                                                    7,135
                                                                    ≥
                                                                    6.00
                                                                    %Tier
      1 Capital (to Average Assets)
                                                                    
                                                                    
                                                                    14,756
                                                                    
                                                                    10.52
                                                                    %
                                                                    
                                                                    5,610
                                                                    ≥
                                                                    4.00
                                                                    %
                                                                    
                                                                    7,013
                                                                    ≥
                                                                    5.00
                                                                    %As
      of December 31, 2008Total
      Capital (to Risk Weighted Assets)
                                                                    
                                                                    $
                                                                    14,400
                                                                    
                                                                    12.05
                                                                    %
                                                                    $
                                                                    9,558
                                                                    ≥
                                                                    8.00
                                                                    %
                                                                    $
                                                                    11,947
                                                                    ≥
                                                                    10.00
                                                                    %Tier
      1 Capital (to Risk Weighted Assets)
                                                                    
                                                                    
                                                                    12,905
                                                                    
                                                                    10.80
                                                                    %
                                                                    
                                                                    4,779
                                                                    ≥
                                                                    4.00
                                                                    %
                                                                    
                                                                    7,168
                                                                    ≥
                                                                    6.00
                                                                    %Tier
      1 Capital (to Average Assets)
                                                                    
                                                                    
                                                                    12,905
                                                                    
                                                                    9.21
                                                                    %
                                                                    
                                                                    5,603
                                                                    ≥
                                                                    4.00
                                                                    %
                                                                    
                                                                    7,004
                                                                    ≥
                                                                    5.00
                                                                    %




Liquidity
Management




At March
31, 2009, the Company (excluding the Bank) had approximately $419,000 in
remaining cash proceeds of the initial public offering, which includes $108,000
of initial shareholder warrant and option exercises. These funds can be used for
Company operations, investment and for later infusion into the Bank and other
corporate activities. The primary source of liquidity for the Company will be
dividends paid by the Bank. The Bank is currently restricted from paying
dividends without regulatory approval, which will not be granted until the
Bank’s accumulated deficit has been eliminated.




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




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




At March
31, 2009, we had outstanding loan origination commitments and unused commercial
and retail lines of credit of $4.0 million and $5,000 in standby letters of
credit. Certificates of deposit that are scheduled to mature within one year
totaled $23.6 million at March 31, 2009.





The
Bank’s significant contractual obligations and other potential funding needs at
March 31, 2009 consist of:




As
      of March 31, 2008(000's)
                                
                                Less than
                                  One
                                  Year
                                
                                One to Three
                                  Years
                                
                                Over Three to
                                  Five
      Years
                                
                                Over Five
                                  YearsOperating
      leases
                                
                                
                                $
                                288
                                
                                
                                $
                                586
                                
                                
                                $
                                482
                                
                                
                                $
                                215Certificates
      of deposit
                                
                                
                                $
                                23,588
                                
                                
                                $
                                24,954
                                
                                
                                $
                                6,698
                                
                                
                                $
                                -




29


The Bank
had cash and cash equivalents of $7.3 million, or 5.4% of total assets, at March
31, 2009. In addition to the on balance sheet liquidity available, the Bank has
a line of credit with the FHLB and the FRB, which provides the Bank with a
source of off-balance sheet liquidity. As of March 31, 2009, the Bank’s
established credit line with the FHLB was $12.6 million or 9.3% of assets, of
which $12.0 million was utilized.  The established credit line with
the FRB was $19.1 million, or 14.1% of assets, of which $11.0 million was
utilized at March 31, 2009.  The Bank also has access to federal funds
purchased for $6.4 million or 4.7% of assets.





As loan
demand increases, greater pressure will be exerted on the Bank’s liquidity. As
of March 31, 2009, the loan to deposit ratio was 127%.  Although the
deposit ratio is high, it is not reflective of the Bank’s liquidity
position.  With the low rates available from the FHLB and the FRB
ranging from 0.10% to 0.50% and money market deposits available to the Bank
through the Bank’s Trust department, the Bank is able to move higher rate
deposits to the Trust and replace them with lower rate borrowed funds from the
FHLB and FRB.  With additional advances available from the FHLB and
FRB and the money market deposits available through the Bank’s Trust department,
the Bank has off-balance sheet liquidity available of no less than 40% of total
assets as of March 31, 2009.  We believe that the Bank has adequate
liquidity to meet anticipated future funding needs.




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


30


ITEM
3. Quantitative and Qualitative Disclosures about Market Risk





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





ITEM 4. Controls and
Procedures




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





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





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





Management’s
Report on Internal Control over Financial Reporting





There
were no changes in our internal controls over financial reporting during the
quarter ended March 31, 2009 that materially affected, or were reasonably likely
to materially affect, our internal controls over financial
reporting.




PART II. OTHER INFORMATION




ITEM 1. Legal Proceedings




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




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




None.




ITEM 3. Defaults Upon Senior
Securities




None.




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




None




ITEM 5. Other Information




None.


31




ITEM 6. Exhibits




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





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




32





SIGNATURES




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




T
      BANCSHARES, INC.Date:
      May 15, 2009
                  By:
                  /s/
      Patrick G. AdamsPatrick
      G. Adams
                    President
      and Chief Executive Officer
                    Principal
      Executive Officer




Date:
      May 15, 2009
                  By:
                  /s/
      Terry PurchalTerry
      Purchal
                    Chief
      Financial OfficerPrincipal
      Financial Officer




33