# 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, 2006                                                       
|      |                                                                                                         
|      | 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)

---

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 1, 2006.

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

---

# Independence
Bancshares, Inc.

# Part I  Financial
Information

# Item 1.   Financial
Statements

# Consolidated Balance
Sheets (unaudited)

|                                                                     | September 30, 2006 | December 31, 2005
|-------------------------------------------------------------------- | ------------------ | -----------------
|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 and Shareholders Equity                                 |                    |                  
|Liabilities                                                          |                    |                  
|Deposits                                                             |                    |                  
|Non-interest bearing                                                 |                    |                  
|Interest bearing                                                     |                    |                  
|                                                                     |                    |                  
|Total deposits                                                       |                    |                  
|                                                                     |                    |                  
|Borrowings                                                           |                    |                  
|Accrued interest payable                                             |                    |                  
|Accounts payable and accrued liabilities                             |                    |                  
|                                                                     |                    |                  
|Total liabilities                                                    |                    |                  
|                                                                     |                    |                  
|Commitments and contingencies                                        |                    |                  
|                                                                     |                    |                  
|Shareholders Equity                                                 |                    |                  
|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 shares issued and outstanding at September 30, |                    |                  
|2006 and December 31, 2005                                           |                    |                  
|Additional paid-in capital                                           |                    |                  
|Accumulated other comprehensive loss                                 |                    |                  
|Retained deficit                                                     |                    |                  
|                                                                     |                    |                  
|Total shareholders' equity                                           |                    |                  
|                                                                     |                    |                  
|Total liabilities and shareholders' equity                           |                    |                  
|                                                                     |                    |                  

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

2

---

Independence Bancshares,
Inc.

# Consolidated
Statements of Operations (unaudited)

|                                                   | Three Months Ended | Nine Months Ended
|-------------------------------------------------- | ------------------ | -----------------
|
|
|Interest income                                    |                    |                  
|Loans                                              |                    |                  
|Investment securities                              |                    |                  
|Federal funds sold & other                         |                    |                  
|                                                   |                    |                  
|Total interest income                              |                    |                  
|                                                   |                    |                  
|Interest expense                                   |                    |                  
|Deposits                                           |                    |                  
|Borrowings                                         |                    |                  
|                                                   |                    |                  
|Total interest expense                             |                    |                  
|                                                   |                    |                  
|Net interest income                                |                    |                  
|                                                   |                    |                  
|Provision for loan losses                          |                    |                  
|                                                   |                    |                  
|Net interest income after  provision               |                    |                  
|                                                   |                    |                  
|Non-interest income                                |                    |                  
|                                                   |                    |                  
|Non-interest expenses                              |                    |                  
|Compensation and benefits                          |                    |                  
|Professional fees                                  |                    |                  
|Marketing                                          |                    |                  
|Insurance                                          |                    |                  
|Occupancy and equipment                            |                    |                  
|Data processing and related costs                  |                    |                  
|Telephone and supplies                             |                    |                  
|Other                                              |                    |                  
|                                                   |                    |                  
|Total non-interest 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 financial statements.

3

---

# Independence
Bancshares, Inc.

# Consolidated Statements
of Changes in Shareholders Equity and Comprehensive LossFor the Nine Months
Ended September 30, 2006 and 2005(unaudited)

|                                   |  |  |  | Accumulated |   |  
|---------------------------------- |  |  |  | ----------- | - | -
|
|
|
|
|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                           |  |  |  | -           |   |  
|Unrealized losses on investment    |  |  |  |             |   |  
|securities available for sale,     |  |  |  |             |   |  
|no tax effect                      |  |  |  | -           |   |  
|                                   |  |  |  |             |   |  
|Total comprehensive loss           |  |  |  | -           |   |  
|                                   |  |  |  |             |   |  
|September 30, 2005                 |  |  |  | 2,085,010   |   | $
|                                   |  |  |  |             |   |  
|December 31, 2005                  |  |  |  | 2,085,010   |   | $
|Compensation expense related to    |  |  |  |             |   |  
|stock options granted              |  |  |  | -           |   |  
|Net loss                           |  |  |  | -           |   |  
|Unrealized loss on investment      |  |  |  |             |   |  
|securities available for sale,     |  |  |  |             |   |  
|net of tax                         |  |  |  | -           |   |  
|                                   |  |  |  |             |   |  
|Total comprehensive loss           |  |  |  | -           |   |  
|                                   |  |  |  |             |   |  
|September 30, 2006                 |  |  |  | 2,085,010   |   | $
|                                   |  |  |  |             |   |  

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

4

---

# Independence
Bancshares, Inc.

# Consolidated
Statements of Cash Flows For the Nine Months
Ended (unaudited)

|                                                                       | September 30, | September 30,
|---------------------------------------------------------------------- | ------------- | -------------
|
|Operating activities                                                   |               |              
|Net loss                                                               |               |              
|Adjustments to reconcile net loss to cash used in operating activities |               |              
|Provision for loan losses                                              |               |              
|Depreciation                                                           |               |              
|Accretion of investment securities discounts, net                      |               |              
|Benefit for deferred income taxes                                      |               |              
|Compensation expense related to stock options granted                  |               |              
|Increase in other assets, net                                          |               |              
|Increase (decrease) in other liabilities, net                          |               |              
|                                                                       |               |              
|Net cash used in operating activities                                  |               |              
|                                                                       |               |              
|Investing activities                                                   |               |              
|Origination of loans, net                                              |               |              
|Purchase 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                                              |               |              
|Decrease in short-term borrowings                                      |               |              
|Repayment of organizer contribution deposits                           |               |              
|Repayment of note payable to bank                                      |               |              
|Repayment of line of credit                                            |               |              
|Proceeds from issuance of common stock, net                            |               |              
|Redemption of stock from organizer                                     |               |              
|                                                                       |               |              
|Net cash provided by financing activities                              |               |              
|                                                                       |               |              
|Net (decrease) increase 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                                                               |               |              
|                                                                       |               |              
|Schedule of non-cash transactions                                      |               |              
|Increase in unrealized loss on securities, net of income taxes         |               |              
|                                                                       |               |              

The accompanying notes are an
integral part of these 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. Since our inception in May 2004
and before the Banks opening 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 and nine month periods ended September 30, 2006 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2006. For further
information, refer to the financial statements and footnotes thereto included in our
Annual Report on Form 10-KSB for 2005 as filed with 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.

# 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, 2005.  For further
information, refer to the consolidated financial statements and footnotes thereto included
in our Annual Report on Form 10-KSB for 2005 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.

# 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 and nine month periods ended September 30, 2006 and 2005, as a result of the
Companys net loss, all of the potential common shares were considered anti-dilutive.

# Stock Compensation Plans

Upon
completion of the offering, the Company agreed to issue warrants to the organizing
directors and organizers for the purchase of one share of common stock at $10.00 per share
for every one share 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
vested over a six month period from the date of issuance. In addition, the Company adopted
a stock option plan, and 41,950 options were granted as of July 26, 2005. The options vest
over a three year period from the date of grant or the anniversary of the Banks
opening for certain officers. No additional options were granted in 2005.

6

---

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

During
2006, 17,000 additional stock options were granted. Of the total granted, 8,000 options
were granted in the quarter ended September 30, 2006, and 9,000 options were granted in
the quarter ended June 30, 2006. No options were granted during the first quarter of 2006.
In addition to these grants, 14,350 stock options were forfeited and cancelled during the
nine month period ended September 30, 2006.

On
January 1, 2006, the Company adopted the fair value recognition provisions of Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 123(R), Accounting for Stock-Based Compensation, to account
for compensation costs under its stock option plan. The Company previously utilized the
intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (as amended) (APB 25). Under the intrinsic value
method prescribed by APB 25, no compensation costs were recognized for the Companys
stock options and warrants because the option and warrant exercise price in its plan
equaled the market price on the date of grant. Prior to January 1, 2006, the Company only
disclosed the pro forma effects on net income and earnings per share as if the fair value
recognition provisions of SFAS 123(R) had been utilized.

In
adopting SFAS No. 123(R), the Company elected to use the modified prospective method to
account for the transition from the intrinsic value method to the fair value recognition
method. Under the modified prospective method, compensation cost is recognized from the
adoption date forward for all new stock options granted and for any outstanding unvested
awards as if the fair value method had been applied to those awards as of the date of
grant. The following table illustrates the effect on net income and earnings per share as
if the fair value based method had been applied to all outstanding and unvested awards in
each period.

|                                                           | Three Months Ended | Nine Months Ended
|---------------------------------------------------------- | ------------------ | -----------------
|
|
|Net loss as reported                                       |                    |                  
|Add: Stock-based employee compensation expense included    |                    |                  
|in reported net loss                                       |                    |                  
|Deduct: Total stock-based employee compensation expense    |                    |                  
|determined under fair value based method for all awards    |                    |                  
|                                                           |                    |                  
|Pro forma net loss including stock-based compensation cost |                    |                  
|based on fair-value method                                 |                    |                  
|                                                           |                    |                  
|Loss per share:                                            |                    |                  
|Basic and diluted--as reported                             |                    |                  
|                                                           |                    |                  
|Basic and diluted--pro forma                               |                    |                  
|                                                           |                    |                  

The
weighted average fair value per share of options granted in 2006 amounted to $4.33. 
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average assumptions
used:  expected volatility of 28%, risk-free interest rate of 4.97% and an expected
life of seven and a half years.

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

The
weighted average fair value per share of warrants granted on May 16, 2005 amounted to
$4.03.  The fair value of the warrant grant was estimated on the date of grant using
the Black-Scholes option pricing model. The following assumptions were used: expected
volatility of 28%, risk-free interest rate of 3.87% and an expected life of seven and a
half years.

7

---

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

# 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.

# Reclassifications

Certain
amounts, previously reported, have been reclassified to state all periods on a comparable
basis. Reclassifications had no effect on shareholders equity or net loss.

# 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
September 30, 2006, the investment portfolio included an unrealized loss of approximately
$173,000. The Company believes, based on industry analyst reports and credit ratings, that
the deterioration in fair values of investment securities available for sale is attributed
to changes in market interest rates and not in the credit quality of the issuer and
therefore, these losses are not considered other-than-temporary. The Company has the
ability and intent to hold these securities until such time as the value recovers or the
securities mature.

# 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 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 projected 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. 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 losses;
| | - | ---------------------------------------

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

| |  | the rate 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;
| | - | -----------------------------------------------------------------------------------------

8

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| |  | 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 audited consolidated financial statements as of December 31, 2005,
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.

# 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. 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 September 30, 2006 and 2005, the nine
months ended September 30, 2006, and also analyzes our financial condition as of September
30, 2006.

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.

9

---

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
September 30, 2006 and 2005

We incurred a net loss of $324,319,
or $0.16 per share, for the quarter ended September 30, 2006 compared to a net loss of
$402,034 or $0.19 per share for the quarter ended September 30, 2005, a decrease in loss
of $77,715 or 19%. For the quarter ended September 30, 2006, we recognized $1.1 million in
interest income and $454,216 in interest expense, resulting in net interest income of
$687,927, an increase of $451,600, or 191%, over the same period in 2005. This increase in
net interest income is a result of our current year growth in average earning assets,
which increased to $60.2 million for the three months ended September 30, 2006 from $25.8
million for the three months ended September 30, 2005, an increase of $34.4 million, or
134%.

Provision for loan losses was
$522,750 for the three months ended September 30, 2006, an increase of $363,750, or 229%,
compared to the quarter ended September 30, 2005. This increase in provision expense is
due to additional provision that was recorded related to a loan relationship that was
determined to be impaired during the three months ended September 30, 2006. See additional
information related to this impairment under the Provision and Allowance for Loan
Losses section below.

For the three months ended September
30, 2006, non-interest income was $11,849, an increase of $5,790, or 96%, compared to
$6,059 for the three months ended September 30, 2005. Non-interest income for the three
months ended September 30, 2006 was derived from service charges on deposits, customer
service fees, and rental income. The increase in non-interest income compared to third
quarter 2005 is due to the increase in our customer base between periods.

During the current quarter, we
incurred non-interest expenses of $614,515, compared to non-interest expenses of $485,420
for the quarter ended September 30, 2005, an increase of $129,095, or 27%. This change
within non-interest expenses for the three month periods ended September 30, 2006 and 2005
primarily resulted from an increase in compensation and benefits of approximately $48,000
(due to the addition of employees in the current year, and the adoption of FAS 123R), an
increase in marketing expense of approximately $48,000 (due to an emphasis on branding and
advertising in the current year) and an increase in data processing and related costs of
approximately $28,000 (due to the increase in our customer base in the current year).
Other non-interest expense for the three months ended September 30, 2006 related to costs
associated with postage, outside service charges, and miscellaneous credit expenses.

Nine months ended
September 30, 2006

Because our bank opened for business
on May 16, 2005, a comparison of the nine months ended September 30, 2006 to the nine
months ended September 30, 2005 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. 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. Total loss incurred in 2005
prior to the opening of the Bank in May was $401,606.

Total loss for the nine months ended
September 30, 2006 was $662,518, or $0.32 per share. We recognized $2,912,305 in interest
income and $1,154,086 in interest expense during the current year, resulting in net
interest income of $1,758,219 for the nine months ended September 30, 2006. Provision for
loan losses was $755,750 for the nine months ended period.

Through September 30, 2006, we earned
non-interest income of $36,912 and incurred non-interest expenses of $1,927,579. Included
in non-interest expenses is $1,138,603 of compensation and benefits, which included
approximately $55,000 related to severance benefits for a former officer who ceased to be
employed by us on March 13, 2006. We incurred $112,460 of

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professional fees expense, $156,049 of marketing expense, $224,852 of occupancy and equipment expense, and $135,887
of data processing expense. Included in professional fees expense is approximately $25,000
of legal and consulting fees related to the employment matter discussed above. We also
incurred $40,491 of insurance expense including regulatory assessments, $32,017 of
expenses related to telephone and supplies, and $87,220 of other expenses primarily
related to postage, outside service charges, and miscellaneous credit expenses.

# Assets and Liabilities

General

Total assets as of September 30, 2006
were $67.8 million, representing an increase of $27.0 million or 66% compared to December
31, 2005. The increase in assets is due to net loan growth of $28.1 million, which was
funded by deposit growth of $27.6 million. 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.

At September 30, 2006, our total
assets consisted principally of $10.7 million in investment securities, $53.8 million in
net loans, and $1.7 million in property and equipment. Liabilities at September 30, 2006
totaled $49.4 million, consisting principally of $44.1 million in deposits and $5.2
million in borrowings. At period-end, shareholders equity was $18.4 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, 2006,
our loan portfolio consisted primarily of $34.0 million of commercial real estate loans,
$9.0 million of commercial business loans, and $12.1 million of consumer and home equity
loans.

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. At September 30, 2006, we had
approximately $589,000 in non-accrual loans. This balance represents 1.07% of gross loans
at quarter-end. There were no non-accrual loans outstanding as of December 31, 2005.

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. As of September 30, 2006, the allowance for loan losses was $1.1
million, or 1.99% of gross loans, up from $338,000, or 1.30% of gross loans as of December
31, 2005. For the quarter ended September 30, 2006, provision for loan losses was
$522,750, an increase of $364,000, or 229%, over the three months ended September 30,
2005. Total provision for loan losses for the nine months ended September 30, 2006 was
$755,750.

The increase in the allowance for
loan losses as a percentage of gross loans is due to a specific loan reserve that was
recorded in the current quarter. On September 6, 2006, we determined it necessary to
record an additional provision for loan losses of $398,900 as an impairment charge based
on recent developments concerning an existing credit relationship. The provision relates
to one borrowing relationship with an aggregate principal balance of approximately
$895,000 which became impaired. We were informed by the borrower that it will be unable to
meet the repayment terms of the loans due to severe deterioration in the financial
condition of its business causing the borrower to cease operation. Prior to this event,
these loans had performed in accordance with repayment terms, and financial information
had been provided in accordance with loan covenants indicating no material adverse change
in the financial condition of the borrower. We are continuing to evaluate the financial
condition of the borrower and the value of the collateral. There have been no charge-offs
as of September 30, 2006, however we expect this relationship to be completely charged-off
within the next six months.

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

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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 the lending
policies and procedures, changes in the local/national economy, changes in volume or types
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, 2006, we had $44.1 million in deposits
which consisted primarily of $1.8 million in demand deposit accounts, $16.2 million in
money market accounts and $23.0 million in certificates of deposit. During the nine months
ended September 30, 2006, we have completed several deposit campaigns in our local market
to attract new customer relationships as well as increase our funding availability for
expected loan growth. Total deposits increased $27.6 million from December 31, 2005. These
funds were used to fund loan growth.

# 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 and borrowings are
our primary source of funds for credit activities. We maintain a federal funds purchased
line of credit with a correspondent bank totaling $5.0 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 10% of the total assets of the
Bank. 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 15.87% at September 30, 2006.

# 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 September 30,
2006, we had issued commitments to extend credit of $22.6 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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# Capital Resources

Total shareholders equity
decreased from $19.0 million at December 31, 2005 to $18.4 million at September 30, 2006.
The decrease is primarily a result of net loss for the nine months ended September 30,
2006 of $662,518.

The Bank is subject to various
regulatory capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a 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.

The Federal Reserve guidelines
contain an exemption from the capital requirements for small bank holding
companies.  On March 31, 2006, the Federal Reserve changed
the definition of a small bank holding company to bank holding companies with less
than $500 million in total assets (an increase from $150 million under the prior
rule).  However, bank holding companies will not qualify under the new
definition if they (i) are engaged in significant non-banking activities either directly
or indirectly through a subsidiary, (ii) conduct significant off-balance sheet activities,
including securitizations or managing or administering assets for third parties, or (iii)
have a material amount of debt or equity securities (including trust preferred securities)
outstanding that are registered with the SEC.  Although we have less than $500
million in assets, it is unclear at this point whether we otherwise meet the requirements
for qualifying as a small bank holding company.  According to the Federal
Reserve Board, the revision of the criterion to exclude any bank holding company that has
outstanding a material amount of SEC-registered debt or equity securities reflects the
fact that SEC registrants typically exhibit a degree of complexity of operations and
access to multiple funding sources that warrants excluding them from the new policy
statement and subjecting them to the capital guidelines.  In the adopting
release for the new rule, the Federal Reserve Board stated that what constitutes a
material amount of SEC-registered debt or equity for a particular bank holding
company depends on the size, activities and condition of the relevant bank holding
company.  In lieu of using fixed measurable parameters of materiality across all
institutions, the rule provides the Federal Reserve with supervisory flexibility in
determining, on a case-by-case basis, the significance or materiality of activities
or securities outstanding such that a bank holding company should be excluded from the
policy statement and subject to the capital guidelines. Prior to adoption of this new
rule, our holding company was not subject to these capital guidelines, as it had less than
$150 million in assets. Until the Federal Reserve provides further guidance on the new
rules, it will be unclear whether our holding company will be subject to the exemption
from the capital requirements for small bank holding companies. Regardless, our bank falls
under these minimum capital requirements as set per bank regulatory agencies.

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 September 30, 2006,
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
September 30, 2006.

(Dollars in thousands)

|                                       |  |  | Well Capitalized | Adquately Capitalized
|-------------------------------------- |  |  | ---------------- | ---------------------
|
|
|Total capital to risk weighted assets  |  |  | $                | 16,719               
|Tier 1 capital to risk weighted assets |  |  | $                | 15,948               
|Tier 1 capital to average assets       |  |  | $                | 15,948               

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# 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 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 September 30, 2006. There have been
no significant changes in our internal controls over financial reporting during the fiscal
quarter ended September 30, 2006 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

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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.

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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:   November 3, 2006 |  | By:  /s/ Lawrence R. Miller
Lawrence R. MillerChief Executive Officer (Principal Executive Officer)
| | ------------------------ |  | ---------------------------------------------------------------------------------------------------

| | Date:   November 3, 2006 |  | By:  /s/ Kimberly D. Barrs
Kimberly D. BarrsChief Financial Officer (Principal Financial Officer)
| | ------------------------ |  | -------------------------------------------------------------------------------------------------

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# EXHIBIT INDEX

Exhibit Number      
      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