This management's discussion and analysis of financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. Please see "Item 1-Business-Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements. You should read the following discussion in conjunction with our audited consolidated financial statements and the notes to our audited consolidated financial statements included elsewhere in this report. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those listed under "Item 1A-Risk Factors" and included in other portions of this report.

General

We are a bank holding company headquartered in Dallas, Texas, offering a broad array of banking services through our wholly owned banking subsidiary, T Bank, N.A. Our principal markets include North Dallas, Addison, Plano, Frisco, Southlake, Grapevine and the neighboring Texas communities. We currently operate through a main office located at 16000 Dallas Parkway, Dallas, Texas, and another office at 8100 North Dallas Parkway, Plano, Texas and a loan production office at 850 E State Highway 114, 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. The stock sale resulted in the issuance of 1,680,000 shares at a price of $10.00 per share. The offering resulted in capital of $16,800,000, net of offering expenses of $403,000. The Bank opened for business on November 2, 2004.

Business Strategy

The Bank operates as a full-service community bank emphasizing prompt, personalized customer service to further our strategy of attracting deposits from the general public and using such deposits and other sources of funds to originate commercial business loans, commercial real estate loans, and a variety of consumer loans. We believe our philosophy, encompassing the service aspects of community banking, distinguish the Bank from its larger and non-locally owned competitors and allows us to capitalize on an opportunity as a locally-owned and locally-managed community bank to acquire significant market share.

The Bank's goal is to sustain profitability, maintain controlled growth by focusing on increasing our loan and deposit market share by developing and offering new financial products, services and delivery channels; closely managing yields on earning assets and rates on interest-bearing liabilities; focusing on noninterest income opportunities, controlling noninterest expenses and maintaining strong asset quality.

2008 Executive Overview

Financial Highlights

The following were significant factors related to 2008 results as compared to 2007.

During 2008, total assets decreased by $11.3 million to $136.3 million. Due to a regulatory requirement to increase the Bank's Tier 1 leverage ratio to 9% by September 30, 2008, the Bank decreased the size of its balance sheet. This decrease was achieved primarily through participating loans and deposits.

Credit quality declined in 2008 as the Bank experienced $451,000 in charge-offs. The Bank had no charge-offs in 2007. Non-performing loans increased in 2008 to $4.6 million at year end compared to $1.1 million in prior year.

Net income was down significantly as the Company lost $428,000 in 2008 compared to income of $801,000 in 2007. There are two primary drivers for difference in years' earnings. First, the Bank severed a payment processing client relationship in the third quarter of 2007. Second, the economic downturn in 2008 compressed net interest margin and had a significant negative impact on earnings.

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.

Recent Developments

Capital Raised through Rights Offering

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

Critical Accounting Policies

The Company's financial condition and results of operations are sensitive to accounting measurements and estimates of matters that are inherently uncertain. When applying accounting policies in areas that are subjective in nature, the Company must use its best judgment to arrive at that carrying value of certain assets. The following accounting policies are identified by management as being critical to the results of operations:

Allowance for Credit Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries. Management estimates the allowance balance required by considering the collectability of loans based on historical experience and the borrowers ability to repay, the nature and volume of the portfolio, information about specific borrower situations and the estimated value of any underlying collateral, economic conditions and other factors. The allowance consists of general and specific reserves. The specific component relates to loans that are individually evaluated and determined to be impaired. This evaluation is often based on significant estimates and assumptions due to the level of subjectivity and judgment necessary to account for highly uncertain matters of the susceptibility of such matters to change. The general component relates to the entire group of loans that are evaluated in the aggregate based primarily on industry historical loss experience adjusted for current economic factors. To the extent actual loan losses differ materially from management's estimate of these subjective factors, loan growth/run-off accelerates, or the mix of loan types changes, the level of the provision for loan loss, and related allowance can, and will, fluctuate. As of December 31, 2008, the Bank had incurred charge-offs, net of recoveries, of $379,000 and the allowance for loan loss was approximately 1.31% of total loans.

Income Taxes

Deferred tax assets and liabilities are the expected future tax amounts for the temporary difference between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. Positions taken by the Company in preparing the consolidated federal tax return are subject to the review of the Internal Revenue Service, and as such positions taken by management could result in a material adjustment to the financial statements.

Stock Based Compensation

We adopted Financial Accounting Standards Board ("FASB") Statement No. 123(R), Share-Based Payments on January 1, 2006 using the modified prospective method. Accordingly, no compensation expense was recognized in our financial statements for years ended prior to January 1, 2006. For the years ended December 31, 2008 and 2007, we recorded expense of $96,000 and $79,000, respectively, for option grants.

We calculated the compensation expense of the options using the Modified Black-Scholes-Merton option pricing model to determine the fair value of the options granted. In calculating the fair value of the options, management makes assumptions regarding the risk-free rate of return, the expected volatility of our common stock and the expected life of the options.

Recent Accounting Pronouncements

Please refer to Note 1 of the accompanying Consolidated Financial Statements for information related to the adoption of new accounting standards and the effect of newly issued but not yet effective accounting standards.

Financial Condition

Investment Securities

Securities are categorized as either "held to maturity", "available for sale", or "trading." Securities held to maturity represent those securities which the Bank has the positive intent and ability to hold to maturity. The primary purpose of the Bank's investment portfolio is to provide a source of earnings for liquidity management purposes, to provide collateral to pledge against public deposits, and to control interest rate risk. In managing the portfolio, the Bank seeks to attain the objectives of safety of principal, liquidity, diversification, and maximized return on investment.

At December 31, 2008, the Bank's securities consisted of Federal Reserve Bank Stock, having an amortized cost and fair value of $420,000, Federal Home Loan Bank stock, having an amortized cost and fair value of $302,000 and a GNMA mortgage backed security having an amortized cost of $981,000 and a fair value of $1,012,000. The weighted average yield for the securities was 3.28% at December 31, 2008.

At December 31, 2007, the Bank's securities consisted of Federal Reserve Bank Stock, having an amortized cost and fair value of $420,000, Federal Home Loan Bank stock, having an amortized cost and fair value of $79,000 and U.S. Treasury Notes having an amortized cost and fair value of $992,000. The weighted average yield for the securities was 5.07% at December 31, 2007.

The GNMA mortgage backed security is pledged to the Bank's trust department deposits that exceed the FDIC insurance limits. At December 31, 2008, all securities were designated "held to maturity" and the Bank had no "available for sale" or "trading" securities.

Loan Portfolio Composition

Commercial loans comprise the largest group of loans in our portfolio amounting to $81.3 million, or 65.0% of the total loan portfolio, at December 31, 2008, which is down slightly from $81.8 million, or 67.2%, at December 31, 2007. Commercial real estate loans comprise the second largest group of loans in the portfolio. At December 31, 2008, commercial real estate loans totaled $40.0 million, or 32.0% of the total loan portfolio, compared to $36.7 million, or 30.2%, at year end in prior year. The following table sets forth the composition of our loan portfolio:

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

Commercial and industrial        $  81,342        64.98 %   $  81,811        67.21 %
Consumer installment                 3,799         3.04 %       3,183         2.61 %
Real estate - mortgage              20,543        16.41 %      23,542        19.34 %
Real estate - construction          19,481        15.56 %      13,177        10.83 %
Other                                   12         0.01 %          13         0.01 %
                                 $ 125,177       100.00 %   $ 121,726       100.00 %

Less allowance for loan losses       1,638                      1,600
Less deferred loan fees                146                        202

                                 $ 123,393                  $ 119,924

Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2008, our commercial loan portfolio included $73.6 million of loans, approximately 58.8% of our total funded loans, to the dental industry, as compared to $60.8 million, or 49.8%, at December 31, 2007. We believe that these loans are well secured to credit worthy borrowers and are diversified geographically. As new loans are generated and the Bank continues to grow, the percentage of the total loan portfolio creating the foregoing concentration may remain constant thereby continuing the risk associated with industry concentration.

As of December 31, 2008, 26.4% of the loan portfolio consisting of commercial, consumer and real estate loans, or $33.1 million, matures or re-prices within one year or less. The following table presents the contractual maturity ranges for commercial, consumer and real estate loans outstanding at December 31, 2008 and 2007, and also presents for each maturity range the portion of loans that have fixed interest rates or variable interest rates over the life of the loan in accordance with changes in the interest rate environment as represented by the base rate:

                                                                    As of December 31, 2008
                                                 Over 1 Year through 5 Years                  Over 5 Years
                                                                    Floating or                        Floating or
                              One Year or                           Adjustable                         Adjustable
(000's)                          Less           Fixed Rate             Rate           Fixed Rate          Rate            Total

Commercial and industrial    $      12,618      $        8,089       $        515      $    46,548      $     13,572     $   81,342
Consumer installment                 1,117                 793                  -            1,889                 -          3,799
Real estate - mortgage               3,480               6,897                782            4,827             4,557         20,543
Real estate - construction          15,833                 621                837            2,190                 -         19,481
Other                                   12                   -                  -                -                 -             12

Total                        $      33,060      $       16,400       $      2,134      $    55,454      $     18,129     $  125,177



                                                                    As of December 31, 2007
                                                 Over 1 Year through 5 Years                  Over 5 Years
                                                                    Floating or                        Floating or
                              One Year or                           Adjustable                         Adjustable
(000's)                          Less           Fixed Rate             Rate           Fixed Rate          Rate            Total

Commercial and industrial    $      22,584      $       10,353       $        888      $    34,350      $     13,636     $   81,811
Consumer installment                   959                 979                  6              941               298          3,183
Real estate - mortgage              10,796               6,419              2,892            1,942             1,493         23,542
Real estate - construction           8,861               1,999                203                -             2,114         13,177
Other                                   13                   -                  -                -                 -             13

Total                        $      43,213      $       19,750       $      3,989      $    37,233      $     17,541     $  121,726

Scheduled contractual principal repayments of loans do not reflect the actual life of such assets. The average life of loans is less than their average contractual terms due to prepayments.

Nonperforming Assets

Our primary business is making commercial, real estate, and consumer loans. That activity entails potential loan losses, the magnitude of which depends on a variety of economic factors affecting borrowers which are beyond our control. While the Company has instituted underwriting guidelines and credit review procedures to protect it from avoidable credit losses, some losses will inevitably occur. At December 31, 2008, the Company had nonperforming assets of $4.6 million, of which $1.3 million was past due 90 days or more but still accruing interest.

Loans are placed on nonaccrual status when management has concerns relating to the ability to collect the loan principal and interest and generally when such loans are 90 days or more past due. A loan is considered impaired when it is probable that not all principal and interest amounts will be collected according to the loan contract. The following table sets forth certain information regarding nonaccrual loans and 90 days or more past due loans, including ratio of such loans to total assets as of the dates indicated:

                                                                 As of December 31,
(000's)                                                 2008                             2007
                                                               Loan                             Loan
                                                           Category to                      Category to
Allocated:                                   Amount        Total Assets       Amount        Total Assets

Commercial and industrial                   $     137               0.10 %   $     665               0.45 %
Real estate - mortgage                          1,666               1.22 %           -                  - %
Real estate - construction                      2,778               2.04 %         420               0.29 %
Consumer and other                                  -                  - %           -                  - %
Total nonperforming loans to total assets   $   4,581               3.36 %   $   1,085               0.74 %

As of March 31, 2009, $1.3 million of the 90 days or more past due but still accruing interest at December 31, 2008, were brought to current status. In addition, $1.1 million of nonaccrual loans were foreclosed upon prior to March 31, 2009. After performing a market analysis for the real estate owned, the Bank impaired the assets for an additional $100,000. No other loans were charged off or impaired in the first quarter ended March 31, 2009.

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for credit losses in the loan portfolio. Management has adopted a methodology to properly analyze and determine an adequate loan loss allowance. The analysis is based on sound, reliable and well documented information and is designed to support an allowance that is adequate to absorb all estimated incurred losses in the Company's loan portfolio.

In estimating the specific and general exposure to loss on impaired loans, the Company has considered a number of factors, including the borrower's character, overall financial condition, resources and payment record, the prospects for support from any financially responsible guarantors, and the realizable value of any collateral.

The Company also considers other internal and external factors when determining the allowance for loan losses, which include, but are not limited to, changes in national and local economic conditions, loan portfolio concentrations, and trends in the loan portfolio.

Senior management and the Directors Loan Committee review this calculation and the underlying assumptions on a routine basis not less frequently than quarterly.

The allowance for loan losses amounted to $1.6 million at December 31, 2008 and December 31, 2007. During the year ended December 31, 2008, the Bank had charge-offs of $451,000. The Bank did not experience any charge-offs prior to 2008. Based on an analysis performed by management at December 31, 2008, the allowance for loan losses is considered to be adequate to cover estimated loan losses in the portfolio as of that date. However, management's judgment is based upon a number of assumptions about future events, which are believed to be reasonable, but which may or may not prove valid. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that significant additional increases in the allowance for loan losses will not be required.

The following table sets forth the specific allocation of the allowance for years ended December 31, 2008 and 2007 and the percentage of allocated possible loan losses in each category to total gross loans:

                                                      As of December 31,
  (000's)                                     2008                          2007
                                                    Loan                          Loan
                                                 Category to                   Category to
  Allocated:                        Amount       Gross Loans      Amount       Gross Loans

  Commercial and industrial         $ 1,064              65.0 %   $ 1,075              67.3 %
  Consumer installment                   49               3.0 %        42               2.6 %
  Real estate - mortgage                269              16.4 %       309              19.3 %
  Real estate - construction            256              15.6 %       174              10.8 %
  Total allowance for loan losses   $ 1,638            100.00 %   $ 1,600             100.0 %

Note: An allocation for a loan classification is only for internal analysis of the adequacy of the allowance and is not an indication of expected or anticipated losses.

Sources of Funds

General

Deposits, loan and investment security repayments and prepayments, proceeds from the sale of securities, and cash flows generated from operations are the primary sources of our funds for lending, investing, and other general purposes. Loan repayments are generally a relatively stable source of funds, while deposit inflows and outflows tend to fluctuate with prevailing interests rates, markets and economic conditions, and competition.

Deposits

Deposits are attracted principally from our primary geographic market area with the exception of time deposits, which, due to the Bank's attractive rates, are attracted from across the nation. The Bank offers a broad selection of deposit products, including demand deposit accounts, NOW accounts, money market accounts, regular savings accounts, term certificates of deposit and retirement savings plans (such as IRAs). Deposit account terms vary, with the primary differences being the minimum balance required, the time period the funds must remain on deposit, and the associated interest rates. Management sets the deposit interest rates weekly based on a review of deposit flows for the previous week, and a survey of rates among competitors and other financial institutions. The Bank relies primarily on customer service and long-standing relationships with customers to attract and retain deposits; however, market interest rates and rates offered by competing financial institutions significantly affect the Bank's ability to attract and retain deposits.

The following table sets forth our average deposit account balances, the percentage of each type of deposit to total deposits, and average cost of funds for each category of deposits:

                                                         As of December 31,
                                          2008                                         2007
                         Average       Percent of       Average               Average               Average
                         Balance        Deposits          Yied                Balance                 Yied
Noninterest bearing
deposits                $  13,649             10.0 %         0.00 %   $   14,889          12.7 %         0.00 %
NOW accounts                1,792              1.3 %         1.04 %        1,598           1.4 %         1.16 %
Money market accounts      46,722             34.4 %         2.62 %       62,300          52.9 %         4.26 %
Savings accounts              162              0.1 %         1.46 %          338           0.3 %         1.22 %
Certificates of
deposit less than
$100,000                   27,646             20.4 %         4.98 %       14,437          12.2 %         5.86 %
Certificates of
deposit $100,000 or
more                       45,908             33.8 %         5.03 %      24,116           20.5 %         5.84 %

Total average
deposits                $ 135,879           100.00 %         4.03 %   $ 117,678         100.00 %         4.80 %

The following table presents maturity of our time deposits of $100,000 or more at December 31, 2008 and 2007:

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

            Three months or less                  $    3,345     $  2,034
            Over three months through 12 months        7,557       25,049
            Over one year through three years         21,031       11,650
            Over three years                           5,307        2,954

            Total                                 $   37,240     $ 41,687

Liquidity

The Company's liquidity is its ability to maintain a steady flow of funds to support its ongoing operating, investing and financing activities. Our Board establishes policies and analyzes and manages liquidity to ensure that adequate funds are available to meet normal operating requirements in addition to unexpected customer demands for funds, such as high levels of deposit withdrawals or loan demand, in a timely and cost-effective manner. The most important factor in the preservation of liquidity is maintaining public confidence that facilitates the retention and growth of a large, stable supply of core deposits and funds. Ultimately, public confidence is generated through profitable operations, sound credit quality and a strong capital position. Liquidity management is viewed from a long-term and a short-term perspective as well as from an asset and liability perspective. We monitor liquidity through a regular review of loan and deposit maturities and forecasts, incorporating this information into a detailed projected cash flow model.

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

The Bank had cash and cash equivalents of $8.5 million, or 6.2% of total assets . . .