# UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

# FORM 10-QSB

|[X]   | QUARTERLY REPORT UNDER SECTION 13 OR 15(D)      
                OF THE SECURITIES EXCHANGE ACT OF 1934 
|----- | --------------------------------------------------------------------------------------------------------
|      |                                                                                                         
|      | For the Quarterly Period ended September 30, 2005                                                       
|      |                                                                                                         
|      | 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
333-121485

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)

---

Check whether the issuer (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 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.  
YesX     No

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

State
the number of shares outstanding of each of the issuers classes of common equity, as
of the latest practicable date: 2,085,010 shares of common stock, par value $.01 per
share, outstanding as of November 4, 2005.

Transitional Small Business Disclosure Format (check one):   
Yes   NoX

---

# Independence Bancshares, Inc.

# Part I  Financial
Information

# Item 1.   Financial
Statements

# Consolidated Balance
Sheets September 30, 2005 (unaudited)

|                                                              | September 30, 2005 | December 31, 2004
|------------------------------------------------------------- | ------------------ | -----------------
|
|
|Assets                                                        |                    |                  
|Cash                                                          |                    |                  
|Federal funds sold                                            |                    |                  
|Investment securities available for sale                      |                    |                  
|Non-marketable equity securities                              |                    |                  
|Loans, net                                                    |                    |                  
|Premises and equipment, net                                   |                    |                  
|Other assets                                                  |                    |                  
|                                                              |                    |                  
|Total assets                                                  |                    |                  
|                                                              |                    |                  
|Liabilities and Shareholders Equity (Deficit)                |                    |                  
|Liabilities                                                   |                    |                  
|Deposits                                                      |                    |                  
|Non-interest bearing                                          |                    |                  
|Interest bearing                                              |                    |                  
|                                                              |                    |                  
|Total deposits                                                |                    |                  
|                                                              |                    |                  
|Accounts payable and accrued liabilities                      |                    |                  
|Organizer contribution deposits                               |                    |                  
|Line of credit                                                |                    |                  
|Note payable to bank                                          |                    |                  
|Total liabilities                                             |                    |                  
|                                                              |                    |                  
|Commitments and contingencies - Notes 4 & 5                   |                    |                  
|                                                              |                    |                  
|Shareholders' Equity (Deficit)                                |                    |                  
|Preferred stock, $.01 par value; 10,000,000 shares            |                    |                  
|authorized; none issued and outstanding                       |                    |                  
|Common stock, $.01 par value; 10,000,000 shares               |                    |                  
|authorized; 2,085,010 and 10 shares issued and outstanding at |                    |                  
|September 30, 2005 and December 31, 2004, respectively        |                    |                  
|Additional paid-in capital                                    |                    |                  
|Retained deficit                                              |                    |                  
|Accumulated other comprehensive loss                          |                    |                  
|                                                              |                    |                  
|Total shareholders' equity (deficit)                          |                    |                  
|                                                              |                    |                  
|Total liabilities and shareholders' equity (deficit)          |                    |                  
|                                                              |                    |                  

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

2

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# Independence
Bancshares, Inc.

# Consolidated Statement
of Operations (unaudited)

|                                                    | For the quarter ended | For the nine months ended
|--------------------------------------------------- | --------------------- | -------------------------
|
|Interest income                                     |                       |                          
|Loans                                               |                       |                          
|Investment securities                               |                       |                          
|Federal funds sold and other                        |                       |                          
|                                                    |                       |                          
|Total interest income                               |                       |                          
|                                                    |                       |                          
|Interest expense                                    |                       |                          
|                                                    |                       |                          
|Net interest income                                 |                       |                          
|                                                    |                       |                          
|Provision for loan loss                             |                       |                          
|                                                    |                       |                          
|Net interest income after provision for loan losses |                       |                          
|                                                    |                       |                          
|Non-interest income                                 |                       |                          
|                                                    |                       |                          
|Non-interest expense                                |                       |                          
|Salaries and employee benefits                      |                       |                          
|Professional fees                                   |                       |                          
|Data processing                                     |                       |                          
|Public relations                                    |                       |                          
|Occupancy and equipment                             |                       |                          
|Telephone and supplies                              |                       |                          
|Other                                               |                       |                          
|                                                    |                       |                          
|Total non-interest expense                          |                       |                          
|                                                    |                       |                          
|Loss before provision for income taxes              |                       |                          
|                                                    |                       |                          
|Provision for income taxes                          |                       |                          
|                                                    |                       |                          
|Net loss                                            |                       |                          
|                                                    |                       |                          
|Basic and diluted loss per share                    |                       |                          
|                                                    |                       |                          
|Weighted average shares outstanding                 |                       |                          
|                                                    |                       |                          

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

3

---

# Independence
Bancshares, Inc.

# Consolidated Statement
of Changes in Shareholders Equity (Deficit) For the Nine Months
Ended September 30, 2005 (unaudited)

|                                   |  |  |  |           | Accumulated Other |  
|---------------------------------- |  |  |  | --------- | ----------------- | -
|
|
|
|Balance, December 31, 2004         |  |  |  | 10        |                   | $
|                                   |  |  |  |           |                   |  
|Redemption of stock from organizer |  |  |  | (10       | )                 |  
|Proceeds from issuance of          |  |  |  |           |                   |  
|common stock, net of offering      |  |  |  |           |                   |  
|costs of $314,062                  |  |  |  | 2,085,010 |                   |  
|Net loss for the nine months ended |  |  |  |           |                   |  
|September 30, 2005                 |  |  |  | -         |                   |  
|Unrealized losses on investment    |  |  |  |           |                   |  
|securities available for sale,     |  |  |  |           |                   |  
|no tax effect                      |  |  |  | -         |                   |  
|                                   |  |  |  |           |                   |  
|Total comprehensive loss           |  |  |  | -         |                   |  
|                                   |  |  |  |           |                   |  
|Balance, September 30, 2005        |  |  |  | 2,085,010 |                   | $
|                                   |  |  |  |           |                   |  

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

4

---

# Independence Bancshares,
Inc.

# Consolidated Statement
of Cash Flows For the Nine Months Ended September 30, 2005 (unaudited)

|                                                                          | 
|------------------------------------------------------------------------- | 
|Cash flows from operating activities                                      | 
|Net loss                                                                  | 
|Provision for loan loss                                                   | 
|Depreciation                                                              | 
|Net accretion of discounts on investment securities                       | 
|Other assets                                                              | 
|Accounts payable and accrued liabilities                                  | 
|                                                                          | 
|Cash used by operating activities                                         | 
|                                                                          | 
|Cash flows from investing activities                                      | 
|Purchases of investment securities available for sale                     | 
|Proceeds from prepayment of investment securities available for sale      | 
|Purchase of non-marketable equity securities                              | 
|Net increase in loans                                                     | 
|Purchases of premises and equipment                                       | 
|                                                                          | 
|Cash used by investing activities                                         | 
|                                                                          | 
|Cash flows from financing activities                                      | 
|Net increase in deposits                                                  | 
|Repayment of organizer contribution deposits                              | 
|Proceeds from issuance of common stock, net of offering costs             | 
|Redemption of stock from organizer                                        | 
|Repayment of line of credit                                               | 
|Payments on note payable to bank                                          | 
|                                                                          | 
|Cash provided by financing activities                                     | 
|                                                                          | 
|Net increase in cash                                                      | 
|                                                                          | 
|Cash and cash equivalents, beginning of period                            | 
|                                                                          | 
|Cash and cash equivalents, end of period                                  | 
|                                                                          | 
|Supplemental disclosure for non-cash investing activity:                  | 
|Change in unrealized loss on securities available for sale, no income tax | 
|effect                                                                    | 
|                                                                          | 

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

5

---

Independence
Bancshares, Inc.

# 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. Since our inception in May 2004
and before our opening the Bank for business on May 16, 2005, we engaged in organizational
and pre-opening activities necessary to obtain regulatory approvals and to prepare our
subsidiary, Independence National Bank, to commence business as a financial institution.

# 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-QSB. 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 September 30, 2005 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2005. For further information, refer
to the financial statements and footnotes thereto included in the Companys
Registration Statement on Form SB-2 (Registration Number 333-121485) as filed with and
declared effective by the Securities and Exchange Commission.

Until
the Bank opened for business on May 16, 2005, the Company was accounted for as a
development stage enterprise as defined by Statement of Financial Accounting Standards No.
7, Accounting and Reporting by Development Stage Enterprises, as the Company
devoted substantially all of its efforts to establishing a new business, and thus,
comparison of the quarter ended September 30, 2005 to September 30, 2004 is not
meaningful. The organizational costs incurred during the period from our inception on May
17, 2004 through September 30, 2004 related primarily to consulting costs, salaries and
license fees and totaled $189,439. When the Bank opened, certain reclassifications and
adjustments were made to the financial statements to reflect that the Company is now
accounted for as an operating company.

The
accounting and reporting policies conform to accounting principles generally accepted in
the United States of America and to general practices in the banking industry. The company
uses the accrual basis of accounting. During the period of organization from May 17, 2004
(inception) to the incorporation date of October 12, 2004, the Company operated as an
association known as PMCS, LLC. All activity and agreements of PMCS, LLC were assigned to
Independence Bancshares, Inc. at the time of incorporation. For ease of presentation, all
transactions of the organizing association are included in the financial statements as
those of Independence Bancshares, Inc.

# NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation The consolidated financial statements include the accounts of Independence Bancshares,
Inc., the parent company, and Independence National Bank, its wholly owned subsidiary. All
significant intercompany items have been eliminated in the consolidated financial
statements.

Managements Estimates
 The preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.

6

---

# Independence Bancshares,
Inc.

# NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

Material estimates that are
particularly susceptible to significant change relate to the determination of the
allowance for losses on loans, including valuation allowances for impaired loans, and the
valuation of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowances for losses on loans and
valuation of foreclosed real estate, management obtains independent appraisals for
significant properties. Management must also make estimates in determining the estimated
useful lives and methods for depreciating premises and equipment.

While management uses available
information to recognize losses on loans and foreclosed real estate, future additions to
the allowances may be necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their examination process,
periodically review the Companys allowances for losses on loans and foreclosed real
estate. Such agencies may require the Company to recognize additions to the allowances
based on their judgments about information available to them at the time of their
examination. Because of these factors, it is reasonably possible that the allowances for
losses on loans and foreclosed real estate may change materially in the near term.

Investment Securities Investment securities are accounted or in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. 
Management classifies securities at the time of purchase into one of three categories as
follows: (1) Securities Held to Maturity:  securities which the Company has the
positive intent and ability to hold to maturity, which are reported at amortized cost; (2)
Trading Securities:  securities that are bought and held principally for the purpose
of selling them in the near future, which are reported at fair value with unrealized gains
and losses included in earnings; and (3) Securities Available for Sale:  securities
that may be sold under certain conditions, which are reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate component of
shareholders equity as accumulated other comprehensive income. The amortization of
premiums and accretion of discounts on investment securities are recorded as adjustments
to interest income. Gains or losses on sales of investment securities are based on the net
proceeds and the adjusted carrying amount of the securities sold, using the specific
identification method. Unrealized losses on securities, reflecting a decline in value or
impairment judged by the Company to be other than temporary, are charged to earnings in
the consolidated statements of income.

Non-marketable equity
securities  The Bank, as a member of the Federal Reserve Bank (FRB)
and the Federal Home Bank of Atlanta (FHLB), is required to own capital stock
in these organizations. The amount of FRB stock owned is based on the Banks capital
levels and totaled $509,800 at September 30, 2005. The amount of FHLB stock owned is
determined based on the Banks balances of residential mortgages and advances from
the FHLB and totaled $52,800 at September 30, 2005. No ready market exists for these
stocks, and they have no quoted market value. However, redemption of these stocks has
historically been at par value. Accordingly, the carrying amounts are deemed to be a
reasonable estimate of fair value.

Loans receivable  Loans
are stated at their unpaid principal balance. Interest income is computed using the simple
interest method and is recorded in the period earned. Fees earned on loans are amortized
over the life of the loan.

When serious doubt exists as to the
collectibility of a loan or when a loan becomes contractually 90 days past due as to
principal or interest, interest income is generally discontinued unless the estimated net
realizable value of collateral exceeds the principal balance and accrued interest. When
interest accruals are discontinued, income earned but not collected is reversed.

The Company identifies impaired loans
through its normal internal loan review process. Loans on the Companys problem loan
watch list are considered potentially impaired loans. These loans are evaluated in
determining whether all outstanding principal and interest are expected to be collected in
accordance with the contractual terms. Loans are not considered impaired if a minimal
payment delay occurs and all amounts due, including accrued interest at the contractual
interest rate for the period of delay, are expected to be collected. At September 30,
2005, management has determined that the Company had no impaired loans.

7

---

# Independence Bancshares,
Inc.

# NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

Allowance for Loan Losses
 An allowance for loan losses is maintained at a level deemed appropriate by
management to provide adequately for known and inherent losses in the loan portfolio.
Management evaluates current and future economic conditions which may affect the
borrowers ability to pay and the underlying collateral value of the loans in
determining the estimate of the allowance for loan losses. Loans which are deemed to be
uncollectible are charged off and deducted from the allowance. The provision for loan
losses and recoveries of loans previously charged off are added to the allowance.

Premises, Furniture and
Equipment  Premises, furniture and equipment are stated at cost, less
accumulated depreciation. The provision for depreciation is computed by the straight-line
method, based on the estimated useful lives for buildings of 40 years and for furniture
and equipment of 5 to 10 years. Leasehold improvements are amortized over the life of the
lease. The cost of assets sold or otherwise disposed of and the related allowance for
depreciation are eliminated from the accounts and the resulting gains or losses are
reflected in the income statement when incurred. Maintenance and repairs are charged to
current expense. The costs of major renewals and improvements are capitalized.

Residential Loan Origination
Fees  The Company offers residential loan origination services to its customers.
The loans are offered on terms and prices offered by the Companys correspondents and
are closed in the name of the correspondents. The Company receives fees for services it
provides in conjunction with the origination services it provides. The fees are recognized
at the time the loans are closed by the Companys correspondent.

Income Taxes  Income
taxes are provided for the tax effects of transactions reported in the financial
statements and consist of taxes currently due plus deferred taxes related primarily to
differences between the financial reporting and income tax bases of assets and
liabilities. At September 30, 2005, no taxable income has been generated and therefore, no
tax provision has been included in these financial statements. The deferred tax asset
related to the future benefit from operating loss carry-forwards for income tax purposes
has been offset by a valuation allowance as it is not more than likely that such losses
will be used.

Loss Per Share  Basic
loss per share represents income available to shareholders 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. Due to the net loss, the outstanding warrants are not considered common stock
equivalents and therefore, dilutive loss per share is not presented.

8

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# Independence Bancshares,
Inc.

# NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock Compensation Plans Upon completion of the offering, the Company agreed to issue warrants to the
organizing directors and organizer for the purchase of one share of common stock at $10.00
per share for every one shares purchased in the stock offering, up to a maximum of 25,000
warrants per director or organizer. The Company issued a total of 412,500 warrants. The
warrants vest over a six month period from the date of issue. In addition, the Company has
adopted a stock option plan, and 41,950 options to purchase one share of common stock at
$10.00 per share were granted as of July 26, 2005. The options vest over a three year
period from the date of grant. The Company accounts for the warrants and stock options
under the recognition and measurement principals of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. No stock-based compensation cost will be reflected in the net
income, as all warrants and stock options granted under these plans will have the exercise
price equal to the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share if the Company
had applied the fair value recognition provisions of SFAS 123 to stock-based employee and
non-employee compensation.

|                                 | For the quarter ended | For the nine months ended
|-------------------------------- | --------------------- | -------------------------
|
|
|Net loss as reported             |                       |                          
|Net loss pro forma               |                       |                          
|Basic and diluted loss per share |                       |                          
|As reported                      |                       |                          
|Pro forma                        |                       |                          

The weighted average fair value per
share of warrants granted on May 16, 2005 amounted to $4.03.  The fair value of each
warrant grant was estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions used for grants:  expected volatility of 28%,
risk-free interest rate of 3.87% and expected lives of seven and a half years. The
weighted average fair value per share of options granted on July 26, 2005 amounted to
$4.11.  The fair value of each warrant grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants:  expected volatility of 28%, risk-free interest rate of 4.15% and expected
lives of seven and a half years.

Organizer Contribution Deposits
Under the Organizer Contribution and Joint Venture Agreement, organizers agreed
to contribute $15,000 each to pay organizational expenses. Upon approval by regulatory
authorities of the application to organize the bank and completion of the stock offering,
the Company reimbursed $240,000 due to the organizers, and no amounts are due at September
30, 2005.

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

# NOTE 3  INVESTMENT
SECURITIES

At
September 30, 2005, investment securities included $6,952,813 of U.S. agency obligations
and $4,547,912 of mortgage-backed securities. All investment securities are classified as
available sale and are accordingly reported at fair value. At September 30, 2005, the
amortized cost and unrealized losses of U.S. agency obligations were $6,982,749 and
$29,936, respectively. At September 30, 2005, the amortized cost and unrealized losses of
mortgage-backed securities were $4,564,738 and $16,826, respectively.

# NOTE 4  LEASES

The
Company has entered into an agreement to lease a branch facility for four years under an
operating lease. The monthly rent under the lease amendment will be $5,832 beginning May
15, 2005 through September 30, 2006, $5,960 from October 1, 2006 through September 30,
2007 and $6,079 from October 1, 2007 through September 30, 2008.

9

---

# Independence Bancshares,
Inc.

# NOTE 5  BORROWINGS

At
September 30, 2005, the Bank had short-term lines of credit with correspondent banks to
purchase unsecured federal funds totaling $5,000,000.  The interest rate on any
borrowings under these lines would be the prevailing market rate for federal funds
purchased.

The
Company, on November 3, 2004, entered into a line of credit agreement with a financial
institution for up to $2.2 million at a rate of prime minus 0.25% to pay pre-opening
expenses and purchase equipment for the Company and the Bank prior to the completion of
the offering. On November 17, 2004, the Company entered into a loan agreement with this
same financial institution for $1.2 million at a rate of prime minus 0.25% and used this
loan to finance the purchase of approximately one acre of land in downtown Greenville,
South Carolina which will be the site for a new main office estimated to be built in 2008.
On May 16, 2005, the Company repaid the notes with the proceeds from the initial stock
offering and closed these credit facilities.

# NOTE 6  RELATED PARTY
TRANSACTIONS

One
of the organizers provided temporary office space, at no cost, during the organization
stage of the Bank. This space was available to the Company until the leasehold
improvements for the leased branch facility were completed in March 2005.

On
November 17, 2004, the Company purchased a one acre lot for approximately $1.2 million
located on the corner of South Irvine Street and East Washington Street, in downtown
Greenville, South Carolina. Completion of construction of the permanent headquarters at
this location is estimated for 2008. The Company acquired the lot by virtue of an option,
assigned at par, which is appraisal-based fair market value, from an investment company
which is a business interest of one of the organizers. A tenant currently leases this lot
from the Company for parking space rental and remits 50% of net operating revenues to the
Company. This lease expires December 31, 2005.

# NOTE 7  RECENTLY
ISSUED ACCOUNTING STANDARDS

The
following is a summary of recent authoritative pronouncements that affect our accounting,
reporting, and disclosure of financial information:

In
December 2004, the FASB issued Statement of Financial Accounting Standard
(SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS No.
123(R)). SFAS No. 123(R) will require companies to measure all employee stock-based
compensation awards using a fair value method and record such expense in its financial
statements. In addition, the adoption of SFAS No. 123(R) requires additional accounting
and disclosure related to the income tax and cash flow effects resulting from share-based
payment arrangements. SFAS No. 123(R) is effective beginning as of the first interim or
annual reporting period beginning after December 15, 2005.We are currently
evaluating the impact that the adoption of SFAS No. 123(R) will have on our financial
position, results of operations and cash flows.

In
April 2005, the Securities and Exchange Commissions Office of the Chief Accountant
and its Division of Corporation Finance has released Staff Accounting Bulletin (SAB)
No.107 to provide guidance regarding the application of FASB Statement No.123 (revised
2004), Share-Based Payment. Statement No.123(R) covers a wide range of share-based
compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase plans.
SAB 107 provides interpretive guidance related to the interaction between Statement
No.123R and certain SEC rules and regulations, as well as the staffs views regarding
the valuation of share-based payment arrangements for public companies. SAB 107 also
reminds public companies of the importance of including disclosures within filings made
with the SEC relating to the accounting for share-based payment transactions, particularly
during the transition to Statement No.123R.

Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are not expected
to have a material impact on the consolidated financial statements upon adoption.

10

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# Item 2.   Managements Discussion and Analysis or Plan of Operation

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
forward-looking statements relating to, without limitation, future economic
performance, plans and objectives of management for future operations, and projections of
revenues and other financial items that are based on the beliefs of management, as well as
assumptions made by and information currently available to management. The words
may, will, anticipate, should,
would, believe, contemplate, expect,
estimate, continue, and intend, as well as other
similar words and expressions of the future, are intended to identify forward-looking
statements. Our actual results may differ materially from the results discussed in the
forward-looking statements, and our operating performance each quarter is subject to
various risks and uncertainties that are discussed in detail in our filings with the
Securities and Exchange Commission, including, without limitation:

| |  | 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 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;
| | - | -------------------------

| |  | 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.
| | - | --------------------------------------------------------------------------------------------------------------------

# 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 unaudited consolidated financial statements included in this
report on Form 10-QSB.

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.

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.

11

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# Overview

The following discussion describes
our results of operations for the quarter and nine months ended September 30, 2005 and
also analyzes our financial condition as of September 30, 2005. Because our bank opened
for business on May 16, 2005, a comparison of the quarter and nine months ended September
30, 2005 to quarter and nine months ended September 30, 2004 is not meaningful. Until May
2005, our principal activities related to our organization, the conducting of our initial
public offering, the pursuit of approvals from the Office of the Comptroller of the
Currency for our application to charter the bank, the pursuit of approvals from the
Federal Reserve to become a bank holding company, and the pursuit of approvals from the
FDIC for our application for insurance of the deposits of the bank. We received approval
from the FDIC, Federal Reserve, and the Office of the Comptroller of the Currency in May
2005 and commenced business on May 16, 2005. The organizational costs incurred during the
period from our inception on May 17, 2004 through September 30, 2004 related primarily to
consulting costs, salaries and license fees and totaled $189,439. We completed our stock
offering in May 2005, upon the issuance of 2,085,010 shares with net proceeds totaling
$20,536,038. We capitalized the bank with $18 million of the proceeds from the stock
offering.

Like most community banks, we derive
most 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. 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.

Of course, 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 expense, in the following discussion.

# Results of Operations

We incurred a net loss of $402,034
for the three months ended September 30, 2005. We realized $283,577 in interest income.
The provision for loan loss was $159,000 for the quarter ended September 30, 2005. We
anticipate the growth in loans in future quarters will drive the growth in assets and the
growth in interest income. The primary source of funding for our loan portfolio is
deposits that are acquired locally. The bank incurred interest expense on deposit accounts
of $47,250 in the third quarter of 2005.

We incurred a net loss of $995,917
for the nine months ended September 30, 2005. Included in the net loss for the nine months
is $401,606 related to pre-opening and organizational costs prior to the banks
opening on May 16, 2005. We realized $392,043 in interest income. The provision for loan
loss was $172,000 for the nine months ended September 30, 2005. The bank incurred interest
expense of $95,289 for the nine months ended September 30, 2005. Interest expense related
to deposit accounts represented $79,987 of total interest expense. Interest expense of
$15,302 was incurred on the organizing line of credit and note payable to bank which were
both repaid with the proceeds from the stock offering.

We incurred non-interest expenses of
$485,420 during the three months ended September 30, 2005. Included in this expense is
$279,673 of salaries and benefits, $77,330 of occupancy and equipment expenses, $26,690 of
professional fees, $18,814 of data processing expense, and $28,861 of public relations
expense. We also incurred $13,592 of expenses related to supplies and $40,460 of other
expenses primarily related to credit expenses, insurance, postage and dues and
memberships.

We incurred non-interest expenses of
$1,134,484 during the nine months ended September 30, 2005. Included in this expense is
$735,031 of salaries and benefits, $124,507 of occupancy and equipment expenses, $41,531
of professional fees, $26,224 of data processing expense, and $99,823 of public relations
expense. We also incurred $38,274 of expenses related to supplies and $69,094 of other
expenses primarily related to credit expenses, insurance, postage and dues and
memberships.

12

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# Assets and Liabilities

General

At September 30, 2005, we had total
assets of $29.0 million, consisting principally of $13.0 million in net loans, $11.5
million in investment securities, $1.8 million in federal funds sold, and $1.8 in premises
and equipment. Liabilities at September 30, 2005 totaled $9.9 million, consisting
principally of $9.9 million in deposits. At September 30, 2005, shareholders equity
was $19.1 million.

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 September 30, 2005,
our loan portfolio consisted primarily of $8.0 million of commercial real estate loans,
$2.7 of commercial business loans, and $2.5 million of consumer and home equity loans.

We will 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 will 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 will 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 will reverse all interest which has been accrued on the loan but
remains unpaid and we will deduct this interest from earnings as a reduction of reported
interest income. We will not accrue any additional interest on the loan balance until we
conclude the collection of both principal and interest is reasonably certain. At September
30, 2005, there were no non-performing loans, and we had no loans that were 90 days or
more past due or non-accruing.

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 was $172,000 as of September 30,
2005. 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 will be 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 will also consider subjective issues such as changes in the
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, 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. Due to our short operating history, the loans in our loan
portfolio and our lending relationships are of 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 September 30, 2005, we had $9.9 million in deposits
which consisted primarily of $3.3 million in demand deposit accounts, $2.8 million in
certificates of deposit, and $3.8 million of money market accounts.

13

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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
0conditions. Individual and commercial deposits and borrowings are our primary source of
funds for credit activities. We have lines of credit with unrelated banks totaling $5.0
million. These lines are available on a one to fourteen day basis for general corporate
purposes. We believe our liquidity sources are adequate to meet our operating needs. The
level of liquidity is measured by the cash and securities available for sale-to-total
assets ratio, which was at 46.41% at September 30, 2005.

Impact of Off-Balance
Sheet InstrumentsThrough 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 September 30,
2005, we had issued commitments to extend credit of $8.9 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, commercial and
residential real estate. We manage the credit risk on these commitments by subjecting them
to normal underwriting and risk management processes.

Capital Resources
Total shareholders equity increased from a deficit of $392,105 at December 31, 2004 to equity of $19.1 million at
September 30, 2005. The increase is due to completion of our initial public offering which
raised $20,536,038, net of offering expenses. This increase was offset by the net loss for
the period of $995,917, and unrealized losses on investment securities of $46,762.

The bank is subject to various
regulatory capital requirements administered by the federal banking agencies. Because our
total assets are less than $150 million, we are judged only by the adequacy of the
banks capital and not at the holding company level. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional discretionary actions
by regulators that, if undertaken, could have a 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, minus 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 September 30, 2005,
as well as the ratios to be considered well capitalized.

14

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The following table summarizes the
capital amounts and ratios of the bank and the regulatory minimum requirements at
September 30, 2005.

(Dollars in thousands)

|                                       |  |  |   |        | Adequately
|-------------------------------------- |  |  | - | ------ | ----------
|
|
|
|Total capital to risk weighted assets  |  |  | $ | 16,784 |           
|Tier 1 capital to risk weighted assets |  |  | $ | 16,612 |           
|Tier 1 capital to average assets       |  |  | $ | 16,612 |           

# Item 3.   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 15d-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 September 30, 2005. There have been
no significant changes in our internal controls over financial reporting during the fiscal
quarter ended September 30, 2005 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.

15

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# Part II  Other
Information

# Item 1.   Legal Proceedings

There
are no material pending legal proceedings to which the company is a party or of which any
of its property is 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

# Item 6.   Exhibits

31.1        Rule 15d-14(a) Certification of the Chief Executive Officer.

31.2        Rule 15d-14(a) Certification of the Chief 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.

| | Dated:   November 4, 2005 |  | By:  /s/ Lawrence R. Miller
Lawrence R. MillerChief Executive Officer
| | ------------------------- |  | ---------------------------------------------------------------------

| | Dated:   November 4, 2005 |  | By:  /s/ Kimberly D. Barrs
Kimberly D. BarrsChief Financial Officer
| | ------------------------- |  | -------------------------------------------------------------------

17

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# EXHIBIT INDEX

ExhibitNumber              
Description

31.1          Rule 15d-14(a) Certification of the Chief Executive Officer.

31.2          Rule 15d-14(a) Certification of the Chief Financial Officer.

32             Section 1350
Certifications.

18