The following discussion and analysis represents our consolidated financial condition as of September 30, 2008 and December 31, 2007, and our consolidated results of operations for the nine months ended September 30, 2008 and 2007. The discussion should be read in conjunction with our financial statements and the notes related thereto, which appear elsewhere in this Quarterly Report on Form 10-Q.

Statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including our expectations, intentions, beliefs, or strategies regarding the future. Any statements in this document about expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential," "believe," "will likely result," "expect," "anticipate," "seek," "estimate," "intend," "plan," "projection," "would" and "outlook," and similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties, which could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this document. All forward-looking statements concerning economic conditions, rates of growth, rates of income or values as may be included in this document are based on information available to us on the dates noted, and we assume no obligation to update any such forward-looking statements. It is important to note that our actual results may differ materially from those in such forward-looking statements due to fluctuations in interest rates, inflation, government regulations, economic conditions, customer disintermediation and competitive product and pricing pressures in the geographic and business areas in which we conduct operations, including our plans, objectives, expectations and intentions and other factors discussed under the section entitled "Risk Factors," in our Annual Report on Form 10-KSB for the year ended December 31, 2007, including the following:

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

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

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

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

· we face substantial competition in our primary market area;

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

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

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

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

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

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

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

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

· we have no current intentions of paying cash dividends;

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

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

These factors and the risk factors referred to in our Annual Report on Form 10-KSB for the year ended December 31, 2007 could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, and you should not place undue reliance on any such forward-looking statements. Any forward-looking statement reflects only as of the date on which it is made and we do not undertake any obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Executive Overview

Introduction

The Company is a bank holding company headquartered in Dallas, Texas, offering a broad array of banking services through the Bank. Our principal markets include North Dallas, Addison, Plano, Frisco and the neighboring Texas communities. As of September 30, 2008, we had, on a consolidated basis, total assets of $139 million, net loans of $126 million, total deposits of $124 million, and shareholders' equity of $13.9 million. We currently operate through a main office located at 16000 Dallas Parkway, Dallas, Texas, and a branch office at 8100 North Dallas Parkway, Plano, Texas. We also have a loan production office located at 850 E State Highway 114, Suite 200, Southlake, Texas.

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

The following discussion focuses on our financial condition at September 30, 2008 and December 31, 2007, and our results of operations for the nine months ended September 30, 2008 and 2007.

Recent Developments

Consent Order

On July 9, 2008, the Bank announced that it entered into a Stipulation and Consent to the Issuance of a Consent Order (the "Stipulation") and a Consent Order (the "Order") with the Office of the Comptroller of the Currency (the "OCC"). The Stipulation and the Order were based on the OCC's findings during its examination as of September 30, 2007.

As part of the Order, the Bank has agreed to strengthen its Bank Secrecy Act ("BSA") internal controls, revise and implement changes to its internal BSA audit program, maintain specific capital ratios and correct any violations of law. The requirement in the Order to meet and maintain a specific capital level means that the Bank may not be deemed to be well capitalized under regulatory requirements.

Rights Offering

On July 29, 2008, the Company filed a Form S-1, Registration Statement under the Securities Act of 1933, since revised, to distribute to each of our owners, transferable subscription rights to purchase an aggregate of up to 1,069,052 shares of common stock for an aggregate subscription price of $8,017,890. The Registration Statement was declared effective on October 6, 2008. Transferable subscription rights certificates entitle existing shareholders to purchase one share of common stock at a price of $7.50 for every 1.59375 shares of common stock owned as of July 31, 2008. If shareholders fully exercise their basic subscription rights they are entitled to exercise an oversubscription privilege to purchase, subject to limitations, a portion of the unsubscribed shares of our common stock. Common stock offered but not subscribed by current shareholders will be offered to the public through a limited public offering. The subscription rights and the limited public offering expire at 5:00 p.m., New York City time on December 5, 2008. Since participation is voluntary we have no way to determine the outcome of the rights offering and limited public offering at this time

Application for Capital Purchase Program

On October 23, 2008, the Company filed an application with the Office of the Comptroller of the Currency for a $3.6 million capital purchase from the U.S. Department of Treasury ("Treasury") under the $250 billion Troubled Asset Relief Program. Under the program, the Treasury would invest $3.6 million with the Company and would receive non-voting preferred stock. The preferred stock may not be redeemed for three years and would pay a cumulative 5% annual dividend for five years and 9% thereafter. In addition, the Company would also agree to grant warrants to the Treasury equivalent to 15% of the aggregate market price of the preferred stock with a term of ten years.

Results of Operations

Net Interest Income and Net Interest Margin

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

Net interest income was $3.7 million and $4.0 million for the nine months ended September 30, 2008 and September 30, 2007, respectively. Net interest margin was 3.2% and 4.2% for the nine months ended September 30, 2008 and 2007, respectively. The decrease in net interest income and net interest margin is primarily the result of a decrease in overall interest rates and the fact that the Bank is asset sensitive, meaning that its assets reprice faster than its liabilities.

Total interest income was unchanged at $7.6 million for the nine months ended September 30, 2008 and 2007. Despite the $23 million increase in average earning assets period over period, the overall decrease in rates offset the benefit of an increase in earning assets. Total average loans and average yield as of September 30, 2008 was $132.3 million and 7.4% compared with $101.3 million and 8.8% at September 30, 2007.

Total interest expense increased by 5.4% to $3.9 million for the nine months ended September 30, 2008, compared to $3.7 million for the nine months ended September 30, 2007. This increase resulted primarily from a $22 million growth in our average deposits to $125 million at September 30, 2008, from $103 million at September 30, 2007. The effect on interest expense from a 21% increase in average deposits was offset by a decrease in the average interest rate paid for interest-bearing deposits. The Average interest rate paid was 4.1% for the nine months ended September 30, 2008, compared to 4.7% for the same period in 2007.

Key Performance Indicators at September 30, 2008

The following were key indicators of our performance and results of operations through the third quarter of 2008:

· total assets decreased to $139.5 million at the end of the third quarter of 2008, representing a decrease of $8.0 million, or -5.4%, from $147.5 million at the end of 2007;

· total loans, net of allowance for loan losses, grew to $126.0 million at the end of the third quarter of 2008, representing an increase of $6 million, or 5.0%, from $120.0 million at the end of 2007;

· total deposits decreased to $124.3 million at the end of the third quarter of 2008, representing and decrease of $8.6 million, or -6.5%, from $132.9 million at the end of 2007;

· total revenue was $15.7 million for the nine months ended September 30, 2008, compared to $15.8 million for the same period in the prior year, representing a decrease of 0.6%; and

· net loss was $273,000 for the nine months ended September 30, 2008, compared to net income of $554,000 for the same period in the prior year.

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

The following table sets forth our average balances of assets, liabilities and shareholders' equity, in addition to the major components of net interest income and our net interest margin for the nine months ended September 30, 2008 and 2007.

                               FINANCIAL SUMMARY
         Consolidated Daily Average Balances, Average Yields and Rates

                                          Nine Months Ended September 30,
                                     2008                                 2007
                       Average                  Average      Average                 Average
(000's)                Balance    Interest       Yield       Balance    Interest      Yield

Interest-earning
assets

Loans, net of
reserve               $ 132,304   $   7,294          7.4 %  $ 101,306   $   6,671         8.8 %
Federal funds sold
                         15,305         271          2.4 %     23,102         894         5.2 %
Securities                1,547          39          3.4 %      1,478          59         5.3 %
Total earning
assets                  149,156       7,604          6.8 %    125,886       7,624         8.1 %
Cash and other
assets                    4,610                                 5,273
Total assets          $ 153,766                             $ 131,159

Interest-bearing
liabilities
NOW accounts          $   1,785   $      14          1.0 %  $   1,698   $      16         1.2 %
Money market
accounts                 47,017         956          2.7 %     62,300       2,095         4.5 %
Savings accounts            159           2          1.4 %        338           3         1.3 %
Certificates of
deposit less than
$100,000                 28,654       1,086          5.1 %     14,437         572         5.3 %
Certificates of
deposit $100,000 or
greater                  47,768       1,813          5.1 %     24,116         968         5.4 %
Total interest
bearing deposits        125,383       3,871          4.1 %    102,889       3,654         4.7 %
Noninterest bearing
deposits                 14,171                                14,889
Other liabilities         1,005                                   624
Stockholders equity
                         13,207                                12,757
Total liabilities
and stockholders'
equity                $ 153,766                             $ 131,159

Net interest income
                                      3,733                                 3,970
Net interest spread
                                                     2.7 %                                3.3 %
Net interest margin
                                                     3.2 %                                4.2 %

Provision for loan
loss                                    476                                   450
Non-interest income
                                      8,050                                 8,220
Non-interest
expense                              11,580                                11,186
Income (loss)
before income taxes                    (273 )                                 554
Income taxes
expense (benefit)                         -                                     -
Net income (loss)                 $    (273 )                           $     554

Earnings (loss) per
share                                 (0.16 )                                0.33
Return on average
equity                                (2.76 )%                                5.8 %
Return on average
assets                                (0.24 )%                               1.69 %
Equity to assets
ratio                                  8.59 %                                9.73 %

Provision for Loan Losses

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

For the nine months ended September 30, 2008, our provision for loan losses was $476,000. The provision amounts are directly related to loan volumes. For the nine months ended September 30, 2007, our provision for loan losses was $450,000. We had charge-offs of $451,000 and recoveries of $44,000 during the nine months ended September 30, 2008. The Bank experienced no charge-offs for the same period in prior year.

Non-interest Income

Non-interest income for the nine months ended September 30, 2008 amounted to approximately $8.1 million and was primarily attributable to fee income generated by the Company for trust services and service charges on depository accounts. Fee income and service charges for the nine months ended September 30, 2007 totaled $8.2 million.

Trust income increased to $8.0 million for the nine months ended September 30, 2008 compared to $6.9 million for the same period in 2007. Trust income is earned on the amount of managed and non-managed assets held in custody.

Service fees for the nine months ended September 30, 2008 was $80,000 compared to $1.3 million for the same period in prior year. The decrease in service fees is due to a severed payment processing client relationship in the third quarter of 2007.

Noninterest Expense

Total noninterest expense was $11.6 million for the nine months ended September 30, 2008, compared to $11.2 for the nine months ended September 30, 2007.

Salaries and employee benefits totaled $2.3 million for the nine months ended September 30, 2008, as compared to $2.1 million for the nine months ended September 30, 2007. We had 31 full-time equivalent employees as of September 30, 2008 and 29
employees as of September 30, 2007. Included in the nine months ending September 30, 2008, is $60,000 of expense related to stock options. For the nine months ended September 30, 2007, there was $55,000 of expense related to stock options.

Occupancy and equipment expenses totaled $978,000 for the nine months ended September 30, 2008, as compared to $791,000 for the nine months ended September 30, 2007. Expense in both periods is attributable primarily to lease expense and depreciation and amortization of leasehold improvements and furniture, fixtures and equipment.

Expenses related to trust consulting services were $7.0 million for the nine months ended September 30, 2008, compared to $6.5 million for the nine months ended September 30, 2007. Advisory fees are based on total assets held in custody and are paid to a fund advisor to manage the assets in the trust.

Professional fees were $513,000 for the nine months ended September 30, 2008, compared to $492,000 for the nine months ended September 30, 2007.

Income Taxes

No federal income tax expense was recorded for the nine months ended September 30, 2008, due to available operating losses to offset taxable income. Based upon the Company's limited operating history, the federal tax benefit of these losses has been fully reserved. Cumulative net operating loss available to carry forward for tax purposes is approximately $458,000 as of December 31, 2007.

Financial Condition

Our total assets as of September 30, 2008 were $139 million, compared to $148 million as of December 31, 2007. Correspondingly, deposits were $124 million as of September 30, 2008, compared to $133 million as of December 31, 2007. The decrease in total assets and deposits was primarily the result of our efforts to strengthen the Bank's capital ratios by contracting our balance sheet. This was achieved by slowing loan growth, selling deposits and deploying our federal funds sold balance.

As of September 30, 2008, our shareholders' equity was $13.9 million, compared to $14.1 million as of December 31, 2007.

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

At September 30, 2008, we had $6.4 million in federal funds sold. At December 31, 2007, we had $20.3 million federal funds sold. Federal funds sold allow us to meet liquidity requirements and provide temporary interest-bearing holdings until the funds can be otherwise deployed or invested.

Investment Securities

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

Our securities consisted of Federal Reserve Bank of Dallas stock at cost of $420,000 at September 30, 2008 and December 31, 2007, respectively, and Federal Home Loan Bank of Dallas stock at cost of $131,000 at September 30, 2008 and $79,000 at December 31, 2007. We had U.S. Government Agency mortgage backed security at September 30, 2008, having an amortized cost and estimated fair value of $1,011,000. At December 31, 2007, we held a 90-day maturing U.S. Treasury Securities having an amortized cost and estimated fair value of $992,000. Weighted average yield of the securities portfolio at September 30, 2008 was 3.4% compared to 4.0% at December 31, 2007.

Loan Portfolio

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

                                        As of                  As of
(000's)                           September 30, 2008     December 31, 2007

Commercial and industrial        $             83,070   $            81,811
Consumer installment                            3,509                 3,183
Real estate - mortgage                         19,490                23,542
Real estate - construction                     21,741                13,177
Other                                              10                    13
                                              127,820               121,726

Less allowance for loan losses                  1,669                 1,600
Less deferred loan fees                           156                   202
                                 $            125,995   $           119,924

As of September 30, 2008 and December 31, 2007, our total loans were $128 million and $122 million, respectively. The increase in our loan volume is a result of continued strong demand for commercial and industrial loans. Total loans, net of reserves and deferred fees, as a percentage of total assets were 90.4% as of September 30, 2008, and 81.3% as of December 31, 2007.

Our commercial loan portfolio is comprised of lines of credit for working capital and term loans to finance equipment and other business assets. Our lines of credit typically are limited to a percentage of the value of the assets securing the line. Lines of credit and term loans typically are reviewed annually and are supported by accounts receivable, inventory, equipment and other assets of our clients businesses. At September 30, 2008 and December 31, 2007, commercial loans totaled $83.1 million and $81.8 million, representing approximately 65.0% and 67.2% of our total funded loans, respectively.

Our consumer loan portfolio consists of personal lines of credit and loans to acquire personal assets such as automobiles and boats. Our lines of credit generally have terms of one year and our term loans generally have terms of three to five years. Our lines of credit typically have floating rates. At September 30, 2008 and December 31, 2007, consumer loans totaled $3.5 million and $3.2 million, approximately 2.7% and 2.6% of our total funded loans, respectively.

Our real estate loan portfolio is comprised of construction loans and short-term mortgage loans. Construction loans consist primarily of single-family residential properties, typically have terms of less than one year and have floating rates and commitment fees. Our construction loans are typically to builders who have an established record of successful project completion and loan repayment. Short-term mortgage loans are typically secured by commercial properties occupied by the borrower; typically have terms of three to ten years with both fixed and floating rates. At September 30, 2008 and December 31, 2007, real estate loans totaled $41.2 million and $36.7 million, approximately 32.3% and 30.2% of our total loans, respectively.

Loan concentrations are considered to exist when there are amounts loaned to multiple borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At September 30, 2008, our commercial loan portfolio included $72.8 million of loans, approximately 56.9% of our total funded loans, to dental professionals. These loans were to fund practice acquisitions, practice enhancements, equipment purchases, real estate and personal borrowing needs. We believe that these loans are well secured to credit worthy borrowers and are diversified geographically. As new loans are generated the percentage of the total loan portfolio consisting of the foregoing concentration may remain constant or increase thereby continuing the risk associated with industry concentration.

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

The following table shows the maturity distribution and type of loan within our loan portfolio as of September 30, 2008:

                                                     As of September 30, 2008
. . .