# 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, 2008                                                                
| |                                                                                                              
| | OR                                                                                                           
| |                                                                                                              
| | TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF       
               THE SECURITIES EXCHANGE ACT OF 1934     
| |                                                                                                              
| | For the Transition Period from ___________ to _____________                                                  

Commission File Number
000-51907

INDEPENDENCE BANCSHARES, INC.(Exact name of small business issuer as specified in its charter)

|South Carolina                                 |  | 20-1734180                          
|---------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation) |  | (I.R.S. Employer Identification No.)

500 East Washington StreetGreenville, South Carolina 29601
(Address of principal executive offices)

(864) 672-1776(Issuers telephone number, including area code)

---

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

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

|                                                              | 
|------------------------------------------------------------- | 
|Large accelerated filer                                       | 
|Non-accelerated   (do not check if smaller reporting company) | 

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

Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date: 2,085,010 shares of common stock, $.01 par value per share, were issued and outstanding as of May 2,
2008.

---

# Independence
Bancshares, Inc.

# Part I  Financial
Information

# Item 1.   Financial
Statements

# Consolidated Balance
Sheets

|                                                             | March 31, 2008 | December 31, 2007
|------------------------------------------------------------ | -------------- | -----------------
|
|Assets                                                       |                |                  
|Cash and due from banks                                      |                |                  
|Federal funds sold                                           |                |                  
|Investment securities available for sale                     |                |                  
|Non-marketable equity securities                             |                |                  
|Loans, net                                                   |                |                  
|Accrued interest receivable                                  |                |                  
|Property and equipment, net                                  |                |                  
|Other assets                                                 |                |                  
|                                                             |                |                  
|Total assets                                                 |                |                  
|                                                             |                |                  
|Liabilities                                                  |                |                  
|Deposits:                                                    |                |                  
|Noninterest bearing                                          |                |                  
|Interest bearing                                             |                |                  
|                                                             |                |                  
|Total deposits                                               |                |                  
|                                                             |                |                  
|Borrowings                                                   |                |                  
|Accrued interest payable                                     |                |                  
|Accounts payable and accrued expenses                        |                |                  
|                                                             |                |                  
|Total liabilities                                            |                |                  
|                                                             |                |                  
|Commitments and contingencies                                |                |                  
|                                                             |                |                  
|Shareholders equity                                         |                |                  
|Preferred stock, par value $.01 per share; 10,000,000 shares |                |                  
|authorized; no shares issued                                 |                |                  
|Common stock, par value $.01 per share; 10,000,000 shares    |                |                  
|authorized; 2,085,010 shares issued and outstanding          |                |                  
|Additional paid-in capital                                   |                |                  
|Accumulated other comprehensive income                       |                |                  
|Accumulated deficit                                          |                |                  
|                                                             |                |                  
|Total shareholders equity                                   |                |                  
|                                                             |                |                  
|Total liabilities and shareholders' equity                   |                |                  
|                                                             |                |                  

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

2

---

Independence Bancshares,
Inc.

# Consolidated
Statements of Operations (unaudited)

|                                                               | Three Months Ended
|-------------------------------------------------------------- | ------------------
|
|
|Interest income                                                |                   
|Loans                                                          |                   
|Investment securities                                          |                   
|Federal funds sold and other                                   |                   
|                                                               |                   
|Total interest income                                          |                   
|                                                               |                   
|Interest expense                                               |                   
|Deposits                                                       |                   
|Borrowings                                                     |                   
|                                                               |                   
|Total interest expense                                         |                   
|                                                               |                   
|Net interest income                                            |                   
|                                                               |                   
|Provision for loan losses                                      |                   
|                                                               |                   
|Net interest income after  provision                           |                   
|for loan losses                                                |                   
|                                                               |                   
|Noninterest income                                             |                   
|                                                               |                   
|Noninterest expenses                                           |                   
|Compensation and benefits                                      |                   
|Professional fees                                              |                   
|Marketing                                                      |                   
|Insurance                                                      |                   
|Occupancy and equipment                                        |                   
|Data processing and related costs                              |                   
|Telephone and supplies                                         |                   
|Other                                                          |                   
|                                                               |                   
|Total noninterest expenses                                     |                   
|                                                               |                   
|Loss before income tax benefit                                 |                   
|                                                               |                   
|Income tax benefit                                             |                   
|                                                               |                   
|Net loss                                                       |                   
|                                                               |                   
|Loss per common share - basic and diluted                      |                   
|                                                               |                   
|Weighted average common shares outstanding - basic and diluted |                   
|                                                               |                   

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

3

---

# Independence
Bancshares, Inc.

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

|                                |  |  |  | Accumulated |  |  
|------------------------------- |  |  |  | ----------- |  | -
|
|
|
|
|December 31, 2006               |  |  |  | 2,085,010   |  | $
|Compensation expense related to |  |  |  |             |  |  
|stock options granted           |  |  |  | -           |  |  
|Net loss                        |  |  |  | -           |  |  
|Unrealized gain on investment   |  |  |  |             |  |  
|securities available for sale,  |  |  |  |             |  |  
|net of tax                      |  |  |  | -           |  |  
|                                |  |  |  |             |  |  
|                                |  |  |  |             |  |  
|Total comprehensive loss        |  |  |  | -           |  |  
|                                |  |  |  |             |  |  
|March 31, 2007                  |  |  |  | 2,085,010   |  | $
|                                |  |  |  |             |  |  
|                                |  |  |  |             |  |  
|December 31, 2007               |  |  |  | 2,085,010   |  | $
|Compensation expense related to |  |  |  |             |  |  
|stock options granted           |  |  |  | -           |  |  
|Net loss                        |  |  |  | -           |  |  
|                                |  |  |  |             |  |  
|Unrealized gain on investment   |  |  |  |             |  |  
|securities available for sale,  |  |  |  |             |  |  
|net of tax                      |  |  |  | -           |  |  
|                                |  |  |  |             |  |  
|Total comprehensive loss        |  |  |  | -           |  |  
|                                |  |  |  |             |  |  
|March 31, 2008                  |  |  |  | 2,085,010   |  | $
|                                |  |  |  |             |  |  

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

4

---

# Independence Bancshares,
Inc.

# Consolidated
Statements of Cash Flows (unaudited)

|                                                                          | Three Months Ended
|------------------------------------------------------------------------- | ------------------
|
|
|Operating activities                                                      |                   
|Net loss                                                                  |                   
|Adjustments to reconcile net loss to cash provided by (used in) operating |                   
|activities                                                                |                   
|Provision for loan losses                                                 |                   
|Depreciation                                                              |                   
|Amortization (accretion) of investment securities discounts, net          |                   
|Compensation expense related to stock options granted                     |                   
|Increase in other assets, net                                             |                   
|Decrease in other liabilities, net                                        |                   
|                                                                          |                   
|Net cash provided by (used in) operating activities                       |                   
|                                                                          |                   
|Investing activities                                                      |                   
|Origination of loans, net                                                 |                   
|Maturity of investment securities available for sale                      |                   
|Repayments of investment securities available for sale                    |                   
|Purchase of non-marketable equity securities, net                         |                   
|Purchase of property and equipment                                        |                   
|                                                                          |                   
|Net cash used in investing activities                                     |                   
|                                                                          |                   
|Financing activities                                                      |                   
|Increase in deposits, net                                                 |                   
|Increase (decrease) in borrowings                                         |                   
|                                                                          |                   
|Net cash provided by financing activities                                 |                   
|                                                                          |                   
|Net increase (decrease) in cash and cash equivalents                      |                   
|                                                                          |                   
|Cash and cash equivalents at beginning of the period                      |                   
|                                                                          |                   
|Cash and cash equivalents at end of the period                            |                   
|                                                                          |                   
|Supplemental information:                                                 |                   
|Cash paid for                                                             |                   
|Interest                                                                  |                   
|                                                                          |                   
|Income taxes                                                              |                   
|                                                                          |                   
|Schedule of non-cash transactions                                         |                   
|Change in unrealized gain (loss) on securities, net of tax                |                   
|                                                                          |                   
|Loans transferred to other real estate owned                              |                   
|                                                                          |                   

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

5

---

# Notes to Unaudited
Consolidated Financial Statements

# NOTE 1  NATURE OF
BUSINESS AND BASIS OF PRESENTATION

Independence
Bancshares, Inc. (the Company) is a South Carolina corporation
organized to operate as a bank holding company pursuant to the Federal Bank Holding
Company Act of 1956 and the South Carolina Bank Holding Company Act, and to own and
control all of the capital stock of Independence National Bank (the Bank). The
Bank is a national association organized under the laws of the United States to conduct
general banking business in Greenville, South Carolina.

# Basis of Presentation

The
accompanying unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-Q. Accordingly, they do not
include all information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. However, in the opinion
of management, all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for the three
month period ended March 31, 2008 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2008. For further information, refer to the
financial statements and footnotes thereto included in our Annual Report on Form 10-KSB
for 2007 as filed with the Securities and Exchange Commission.

# NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

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

# Cash and Cash Equivalents

For
purposes of reporting cash flows, cash and cash equivalents include cash, amounts due from
banks and federal funds sold. Generally, federal funds are sold for one-day periods.

# Loss per Share

Basic
loss per share represents net loss divided by the weighted-average number of common shares
outstanding during the period. Dilutive loss per share reflects additional common shares
that would have been outstanding if dilutive potential common shares had been issued.
Potential common shares that may be issued by the Company relate to outstanding stock
options and warrants, and are determined using the treasury stock method. For the three
month periods ended March 31, 2008 and 2007, as a result of the Companys net loss,
all of the potential common shares were considered anti-dilutive.

# Fair Value Measurements

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

SFAS 157 defines  fair value as the  exchange  price that would be received  for an asset or paid to transfer a
liability  (an exit  price)  in the  principal  or most  advantageous  market  for the  asset or  liability  in an  orderly
transaction  between market  participants on the measurement  date. SFAS 157 also  establishes a fair value hierarchy which
requires an entity to maximize the use of  observable  inputs and minimize the use of  unobservable  inputs when  measuring
fair  value.  The  standard  describes  three  levels of inputs that may be used to measure  fair  value:  Level 1 - quoted
prices in active markets for identical  assets or liabilities;  Level 2 - observable  inputs other than Level 1 prices such
as quoted prices for similar  assets or  liabilities,  quoted  prices in markets that are not active,  or other inputs that
are  observable  or can be  corroborated  by

6

---

observable  market  data for  substantially  the full  term of the  assets or
liabilities;  and  Level 3 -  unobservable  inputs  that  are  supported  by  little  or no  market  activity  and that are
significant to the fair value of the assets or liabilities.

Available-for-sale  investment securities  ($5,090,117 at March 31, 2008) are the only assets whose fair values
are measured on a recurring  basis using Level 1 inputs (active  market  quotes).  The Company has no  liabilities  carried
at fair value or measured  at fair value on a  nonrecurring  basis.  The Company  also has no assets or  liabilities  whose
fair values are measured using Level 2 or Level 3 inputs.

# NOTE 3  INVESTMENT
SECURITIES

Investment
securities classified as Available for Sale are carried at fair value with
unrealized gains and losses excluded from earnings and reported as a separate component of
shareholders equity (net of estimated tax effects). Realized gains or losses on the
sale of investments are based on the specific identification method.

At
March 31, 2008, the investment portfolio included an unrealized gain of approximately
$74,000. At March 31, 2008 the investment portfolio included one security with a fair
value of $874,869 and an amortized cost of $875,711 that had been in an unrealized loss
position for more than twelve months. The Company believes, based on industry analyst
reports and credit ratings that the deterioration in the fair value of this investment
security available for sale is attributed to changes in market interest rates and not in
the credit quality of the issuer and therefore, this loss is not considered
other-than-temporary. The Company has the ability and intent to hold this security until
such time as the value recovers or the security matures.

7

---

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

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

# DISCUSSION OF
FORWARD-LOOKING STATEMENTS

This report contains statements which
constitute forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are
based on many assumptions and estimates and are not guarantees of future performance. Our
actual results may differ materially from those anticipated in any forward-looking
statements, as they will depend on many factors about which we are unsure, including many
factors which are beyond our control. The words may, would,
could, will, expect, anticipate,
believe, intend, plan, and estimate, as
well as similar expressions, are meant to identify such forward-looking statements.
Potential risks and uncertainties that could cause our actual results to differ from those
anticipated in our forward-looking statements include, but are not limited, to the
following:

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

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

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

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

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

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

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

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

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

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

| |  | the rates of loan growth and the lack of seasoning in our loan portfolio;
| | - | -------------------------------------------------------------------------

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

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

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

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

All forward-looking statements in
this report are based on information available to us as of the date of this report. We
undertake no obligation to publicly update or otherwise revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.

# Critical Accounting
Policies

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

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

8

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# Allowance for Loan Losses

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

# Income Taxes

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

# Overview

The following discussion describes
our results of operations for the quarters ended March 31, 2008 and 2007 and also analyzes
our financial condition as of March 31, 2008.

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

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

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

# Results of Operations

Three months ended March
31, 2008 and 2007

We incurred a net loss of $161,966,
or $0.08 per diluted share, for the quarter ended March 31, 2008 compared to a net loss of
$40,461, or $0.02 per diluted share, for the quarter ended March 31, 2007, an increase in
loss of $121,505. The increase in net loss is primarily due to an increase in noninterest
expenses due to the opening of a new branch in October 2007 as discussed below.

9

---

For the three months ended March 31,
2008, we recognized $1.9 million in interest income and $1.1 million in interest expense,
resulting in net interest income of $849,027, an increase of $56,308, or 7%, over the same
period in 2007. Average earning assets increased to $111.3 million for the three months
ended March 31, 2008 from $78.5 million for the three months ended March 31, 2007, an
increase of $32.8 million, or 42%. Average interest bearing liabilities increased to $91.8
million for the three months ended March 31, 2008 from $59.2 million for the three months
ended March 31, 2007, an increase of $32.6 million, or 55%. Net interest margin,
calculated as net interest income divided by average earning assets, decreased from 4.01%
for the quarter ended March 31, 2007 to 2.99% for the quarter ended March 31, 2008
primarily due to a decrease in yield on earning assets from 7.70% to 6.80% between periods
due to significant rate decreases initiated by the Federal Reserve Board during the first
quarter of 2008. This decrease was only slightly offset by the small decrease in cost of
funds from 4.88% to 4.62% between periods due to the mix of liabilities and the timing of
their repricing.

Provision for loan losses was
$164,000 for the quarter ended March 31, 2008, a decrease of $28,000, or 15%, compared to
the expense of $192,000 for the quarter ended March 31, 2007. This decrease in provision
expense is due to a decrease in net loan originations in the current quarter compared to
the comparable quarter in 2007.

For the three months ended March 31,
2008, non-interest income was $16,745 compared to $12,788 for the three months ended March
31, 2007. Non-interest income for the three months ended March 31, 2008 and 2007 was
derived from service charges on deposits, customer service fees, rental income, and
mortgage origination income.

During the current quarter, we
incurred non-interest expenses of $946,638, compared to non-interest expenses of $667,468
for the quarter ended March 31, 2007, an increase of $279,170, or 42%. This increase of
non-interest expenses for the three-month period ended March 31, 2008 primarily resulted
from an increase of $142,390 in compensation and benefits expense compared to the quarter
ended March 31, 2007, primarily due to the addition of staff for the new branch which
opened in October 2007. There were also increases of $72,575 in occupancy expenses and
$21,747 in data processing and related costs, due to the opening of the new branch.

Income tax benefit for the quarter
ended March 31, 2008 was $82,900 compared to $13,500 for the quarter ended March 31, 2007.
The increase in income tax benefit is a result of the increase in net loss between
periods.

# Assets and Liabilities

General

Total assets as of March 31, 2008
were $122.9 million, representing an increase of $12.3 million, or 11%, compared to
December 31, 2007. The increase in assets is due to net loan originations of $12.6
million, which were funded by deposit growth of $8.3 million and borrowings of $4.2
million. At March 31, 2008, our total assets consisted principally of $5.1 million in
investment securities, $110.1 million in net loans, and $2.7 million in property and
equipment. Our management closely monitors and seeks to maintain appropriate levels of
interest-earning assets and interest-bearing liabilities so that maturities of assets are
such that adequate funds are provided to meet customer withdrawals and demand.

Liabilities at March 31, 2008 totaled
$103.9 million, representing an increase of $12.4 million, or 14%, compared to December
31, 2007, and consisted principally of $90.5 million in deposits and $13.2 million in
borrowings. At March 31, 2008, shareholders equity was $18.9 million compared to
$19.0 million at December 31, 2007.

Loans

Since loans typically provide higher
interest yields than other types of interest-earning assets, we intend to invest a
substantial percentage of our earning assets in our loan portfolio. At March 31, 2008, our
loan portfolio consisted primarily of $69.2 million of commercial real estate loans, $19.2
million of commercial business loans, and $23.3 million of consumer and home equity loans.

10

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We discontinue accrual of interest on
a loan when we conclude it is doubtful that we will be able to collect interest from the
borrower. We reach this conclusion by taking into account factors such as the
borrowers financial condition, economic and business conditions, and the results of
our previous collection efforts. Generally, we place a delinquent loan in non-accrual
status when the loan becomes 90 days or more past due. When we place a loan in non-accrual
status, we reverse all interest which has been accrued on the loan but remains unpaid and
deduct this interest from earnings as a reduction of reported interest income. We do not
accrue any additional interest on the loan balance until we conclude the collection of
both principal and interest is reasonably certain. We had approximately $385,000 and
$1,084,000 in non-accrual loans at March 31, 2008 and December 31, 2007, respectively.
This balance represents 0.34% of gross loans at quarter-end. Nonaccrual loans decreased
during the quarter due to the payoff of one loan, with a principal balance of $700,000, in
January 2008. We collected the full principal outstanding on the loan as well interest and
legal fees. At March 31, 2008, we were not aware of any potential problem loans that were
not already categorized as nonaccrual.

At March 31, 2008, we had one
borrowing relationship with an aggregate principal balance of $385,000 that was considered
classified. This relationship was placed on non-accrual status in July 2007. Based on our
current evaluation of the financial condition of the borrower and the sufficient value of
the collateral, we do not believe we will incur a material loss from this relationship at
this time. Based on the same factors, management does not consider this relationship to be
impaired.

On September 6, 2006, we determined
it necessary to record an additional provision for loan losses of $398,900 as an
impairment charge, or specific reserve, related to one borrowing relationship with an
aggregate principal balance of approximately $895,000, of which $477,885 was considered
impaired. Our loss estimate was based on an assessment of the underlying collateral
securing this relationship. In April 2007, the underlying collateral was fully liquidated,
the funds were applied to the loans, and the remaining balances were charged off. No
material additional loss was incurred by the Bank.

In March 2007, we foreclosed on a 1-4
family residence which was collateral for a loan in the amount of $105,376. This property
was sold in June 2007 with no gain or loss recorded on the sale of the property.

Provision and Allowance
for Loan Losses

We have established an allowance for
loan losses through a provision for loan losses charged to expense on our consolidated
statement of operations. The allowance for loan losses for the three months ended March
31, 2008 and 2007 is presented below:

|                                           | Three Months Ended
|------------------------------------------ | ------------------
|
|
|Balance at beginning of the period         |                   
|Provision for loan losses                  |                   
|Loans charged-off                          |                   
|Recoveries of loans previously charged-off |                   
|                                           |                   
|Balance at end of the period               |                   
|                                           |                   

As of March 31, 2008, the allowance
for loan losses was $1.4 million, or 1.30% of gross loans, compared to $1.3 million, or
1.30% of gross loans as of December 31, 2007. For the quarter ended March 31, 2008,
provision for loan losses was $164,000, a decrease of $28,000, or 15%, over the three
months ended March 31, 2007. This decrease in provision expense is due to a decrease in
net loan originations in the current quarter compared to the first quarter of 2007.

The allowance for loan losses
represents an amount which we believe will be adequate to absorb probable losses on
existing loans that may become uncollectible. Our judgment as to the adequacy of the
allowance for loan losses is based on a number of assumptions about future events, which
we believe to be reasonable, but which may or may not prove to be accurate. Our
determination of the allowance for loan losses is based on evaluations of the
collectibility of loans, including consideration of factors such as the balance of
impaired loans, the quality, mix, and size of our overall loan portfolio, economic
conditions that may affect the borrowers ability to repay, the amount and quality of
collateral securing the loans, our historical loan loss experience, and a review of
specific problem loans. We also consider subjective issues such as changes in lending
policies and procedures, changes in the local/national economy, changes in volume or type
of credits, changes in volume/severity of problem loans, quality of loan review and board
of director oversight, concentrations of credit, and peer group comparisons. Due to our
limited operating history, with the exception of the specific reserve described above, to
date the provision for loan losses has been made primarily as a result of our assessment
of general loan loss risk compared to banks of similar size and maturity. In addition, due
to our short operating history, the loans in our loan portfolio and our lending
relationships are of

11

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

Deposits

Our primary source of funds for loans
and investments is our deposits. At March 31, 2008, we had $90.5 million in deposits,
representing an increase of $8.3 million, or 10%, compared to December 31, 2007. Deposits
at March 31, 2008 consisted primarily of $7.6 million in demand deposit accounts, $12.6
million in money market accounts and $70.2 million in time deposits. During the fourth
quarter of 2006, we began obtaining deposits outside of our local market area in the form
of brokered time deposits. Due to the interest rate environment in our market, as well as
strong competition from other banking and financial services companies in gathering
deposits, brokered time deposits allow us to obtain funding at a lower interest rate than
local market deposits and other funding sources in order to support loan growth. At March
31, 2008, we had $37.6 million in brokered time deposits. We plan to continue the use of
brokered time deposits, while maintaining an effort to gather core deposits in our local
market.

Borrowings

We use borrowings to fund growth of
earning assets in excess of deposit growth. Borrowings totaled $13.2 million at March 31,
2008, compared to $9.0 million at December 31, 2007. This increase is primarily due to the
addition of a FHLB Advance in the amount of $4.0 million in March 2008. This additional
borrowing was used to support earning asset growth. The advance has a rate of 2.558% and
matures in March 2010. The remaining balance in borrowings represents federal funds
purchased and customer repurchase agreements.

# Liquidity

Liquidity is the ability to meet
current and future obligations through liquidation or maturity of existing assets or the
acquisition of liabilities. We manage both assets and liabilities to achieve appropriate
levels of liquidity. Cash and short-term investments are our primary sources of asset
liquidity. These funds provide a cushion against short-term fluctuations in cash flow from
both deposits and loans. The investment portfolio is our principal source of secondary
asset liquidity. However, the availability of this source of funds is influenced by market
conditions and pledging agreements. Individual and commercial deposits, brokered deposits
and borrowings are our primary source of funds for credit activities. We maintain federal
funds purchased lines of credit with correspondent banks totaling $7.0 million. We are
also a member of the Federal Home Loan Bank of Atlanta, from which applications for
borrowings can be made for leverage purposes, if so desired, in an amount up to 20% of the
total assets of the Bank. As brokered deposits or advances mature in 2008, we intend to
replace these funds with new brokered deposits or advances to the extent necessary after
considering core deposit growth. We believe our liquidity sources are adequate to meet our
operating needs. The level of liquidity is measured by the cash, cash equivalents, and
investment securities available for sale-to-total assets ratio, which was at 6.13% at
March 31, 2008.

# Impact of Off-Balance
Sheet Instruments

Through the operations of our Bank,
we have made contractual commitments to extend credit in the ordinary course of our
business activities. These commitments are legally binding agreements to lend money to our
customers at predetermined interest rates for a specified period of time. At March 31,
2008, we had issued commitments to extend credit of $30.1 million through various types of
lending arrangements. We evaluate each customers credit worthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by us upon extension of
credit, is based on our credit evaluation of the borrower. Collateral varies but may
include accounts receivable, inventory, property, plant and equipment, and commercial and
residential real estate. We manage the credit risk on these commitments by subjecting them
to normal underwriting and risk management processes.

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# Commitments and
Contingencies

As of March 31, 2008, there were no
significant firm commitments outstanding for capital expenditures. However, we have
engaged a firm to design and build a full service branch on our new site in Simpsonville,
South Carolina. We anticipate we will begin construction on this facility in second
quarter 2008 and estimate the construction and equipment costs to be approximately
$1,000,000.

# Capital Resources

Total shareholders equity decreased slightly to $18.9 million at March 31, 2008 from $19.0
million at December 31, 2007. Our net loss for the quarter of $161,966 was offset by the
increase of $43,578 in unrealized gain on securities available for sale and the capital
impact of $40,650 in compensation expense related to stock option grants.

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

Quantitative measures established by
regulation to ensure capital adequacy require the Bank to maintain minimum ratios of Tier
1 and total capital as a percentage of assets and off-balance-sheet exposures, adjusted
for risk weights ranging from 0% to 100%. Tier 1 capital of the Bank consists of common
shareholders equity, excluding the unrealized gain or loss on securities
available-for-sale, less certain intangible assets. The Banks Tier 2 capital
consists of the allowance for loan losses subject to certain limitations. Total capital
for purposes of computing the capital ratios consists of the sum of Tier 1 and Tier 2
capital. The regulatory minimum requirements are 4% for Tier 1 capital and 8% for total
risk-based capital.

The Bank is also required to maintain
capital at a minimum level based on quarterly average assets, which is known as the
leverage ratio. Only the strongest banks are allowed to maintain capital at the minimum
requirement of 3%. All others are subject to maintaining ratios 1% to 2% above the minimum. The Bank exceeded its
minimum regulatory capital ratios as of March 31, 2008, as well as the ratios to be
considered well capitalized.

The following table summarizes the
capital amounts and ratios of the Bank and the regulatory minimum requirements at March
31, 2008.

|                                       | (Dollars in thousands) |  |   |        | 
|-------------------------------------- | ---------------------- |  | - | ------ | 
|
|
|
|Total capital to risk weighted assets  |                        |  | $ | 16,893 | 
|Tier 1 capital to risk weighted assets |                        |  | $ | 15,446 | 
|Tier 1 capital to average assets       |                        |  | $ | 15,446 | 

13

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# Item 3.   Quantitative and
Qualitative Disclosures About Market Risk

Not applicable

# Item 4.   Controls and
Procedures

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

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

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# Part II  Other
Information

# Item 1.   Legal Proceedings

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

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

Not applicable

# Item 3.   Default Upon Senior
Securities

Not applicable

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

Not applicable

# Item 5.   Other Information

Not applicable

15

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# Item 6.   Exhibits

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

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

32          Section 1350
Certifications.

16

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# SIGNATURES

In accordance with the requirements
of the Exchange Act, the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

| | Date:   May 6, 2008 |  | By:  /s/ Lawrence R. Miller
Lawrence R. MillerChief Executive Officer (Principal Executive Officer)
| | ------------------- |  | ---------------------------------------------------------------------------------------------------

| | Date:   May 6, 2008 |  | By:  /s/ Katie N. Tuttle
Katie N. TuttleChief Financial Officer (Principal Accounting and Financial Officer)
| | ------------------- |  | ------------------------------------------------------------------------------------------------------------

17

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# EXHIBIT INDEX

ExhibitNumber        
        Description

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

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

32           Section 1350
Certifications.

18