##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the quarterly period ended March 31, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 001-33005
 Integrity Bancshares, Inc.
  Georgia
    
    58-2508612(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 11140 State Bridge Road, Alpharetta, Georgia 30022
 
  (770) 777-0324
 
   
  þ o
  o þ o
 o þ




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##### 



INTEGRITY BANCSHARES, INC.
AND SUBSIDIARY
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets  March 31, 2007 and December 31, 2006
    
    
    3Consolidated Statements of Income and Comprehensive Income
Three Months Ended March 31, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2007 and 2006
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    9Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    16Item 4. Controls and Procedures
    
    
    16PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    17Item 1A. Risk Factors
    
    
    17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    17Item 3. Defaults Upon Senior Securities
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17Item 5. Other Information
    
    
    17Item 6. Exhibits
    
    
    17Signatures
    
    
    18EX-31.1 CERTIFICATION OF THE CEO PURSUANT TO SECTION 302EX-31.2 CERTIFICATE OF PFO PURSUANT TO SECTION 302EX-32 CERTIFICATION OF THE CEO AND PFO PURSUANT TO SECTION 906
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
INTEGRITY BANCSHARES, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,2007
    
    December 31,(Dollars in thousands)
    
    (Unaudited)
    
    2006ASSETS:Cash and due from banks
    
    $
    13,255
    
    
    $
    5,719Interest-bearing deposits in banks
    
    
    114
    
    
    
    85Securities available for sale, at fair value
    
    
    148,452
    
    
    
    133,923Restricted equity securities, at cost
    
    
    4,717
    
    
    
    1,727Loans
    
    
    997,396
    
    
    
    941,580Less: allowance for loan losses
    
    
    (10,898
    )
    
    
    (9,825
    )Net loans
    
    
    986,498
    
    
    
    931,755Premises and equipment
    
    
    20,950
    
    
    
    15,372Other real estate owned
    
    
    905
    
    
    
    542Bank owned life insurance
    
    
    20,944
    
    
    
    20,687Other assets
    
    
    16,756
    
    
    
    15,011Total assets
    
    $
    1,212,591
    
    
    $
    1,124,821LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIES:Deposits:Noninterest-bearing demand
    
    $
    15,937
    
    
    $
    20,146Interest-bearing:Demand
    
    
    128,527
    
    
    
    125,446Savings
    
    
    35,729
    
    
    
    31,963Time, $100,000 and over
    
    
    176,814
    
    
    
    169,615Other time
    
    
    568,273
    
    
    
    581,617Total deposits
    
    
    925,280
    
    
    
    928,787Federal funds purchased and repurchase agreements
    
    
    77,341
    
    
    
    46,551Federal Home Loan Bank advances
    
    
    60,000
    
    
    
    5,000Subordinated long-term debentures
    
    
    52,022
    
    
    
    52,022Other liabilities
    
    
    10,956
    
    
    
    12,089Total liabilities
    
    
    1,125,599
    
    
    
    1,044,449STOCKHOLDERS EQUITY:Common stock, no par value; 50,000,000 shares authorized; 15,511,014 and
14,764,538 shares issued and outstanding, respectively
    
    
    64,195
    
    
    
    60,723Retained earnings
    
    
    23,226
    
    
    
    20,280Accumulated other comprehensive loss
    
    
    (429
    )
    
    
    (631
    )Total stockholders equity
    
    
    86,992
    
    
    
    80,372Total liabilities and stockholders equity
    
    $
    1,212,591
    
    
    $
    1,124,821
 See Accompanying Notes to Condensed Consolidated Financial Statements.
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INTEGRITY BANCSHARES, INC.
 
 CONDENSED CONSOLIDATED INCOME STATEMENTS
 Three monthsended March 31,(Dollars in thousands, except share and per share amounts)
    
    2007
    
    2006Interest incomeLoans, including fees
    
    $
    22,484
    
    
    $
    15,573Interest-bearing deposits in banks
    
    
    2
    
    
    
    1Federal funds sold
    
    
    20
    
    
    
    91Taxable investment securities
    
    
    1,727
    
    
    
    907Total interest income
    
    
    24,233
    
    
    
    16,572Interest expenseTime deposits, $100,000 and over
    
    
    2,339
    
    
    
    1,626Other deposits
    
    
    9,384
    
    
    
    5,682Federal Home Loan Bank advances
    
    
    522
    
    
    
    8Other borrowings
    
    
    631
    
    
    
    33Long-term debentures
    
    
    976
    
    
    
    390Total interest expense
    
    
    13,852
    
    
    
    7,739Net interest income
    
    
    10,381
    
    
    
    8,833Provision for loan losses
    
    
    1,073
    
    
    
    1,291Net interest income after provision for loan losses
    
    
    9,308
    
    
    
    7,542Other incomeService charges on deposit accounts
    
    
    18
    
    
    
    20Income from bank owned life insurance
    
    
    258
    
    
    
    Other operating income
    
    
    86
    
    
    
    110Total other income
    
    
    362
    
    
    
    130Other expenseSalaries and employee benefits
    
    
    2,839
    
    
    
    2,310Occupancy and equipment expenses
    
    
    637
    
    
    
    501Other operating expenses
    
    
    1,556
    
    
    
    1,286Total noninterest expense
    
    
    5,032
    
    
    
    4,097Income before income taxes
    
    
    4,638
    
    
    
    3,575Income tax expense
    
    
    1,692
    
    
    
    1,398Net income
    
    $
    2,946
    
    
    $
    2,177Other comprehensive incomeUnrealized gains (losses) on securities available-for-
sale arising during period, net of tax
    
    
    203
    
    
    
    (207
    )Comprehensive income
    
    $
    3,149
    
    
    $
    1,970Basic earnings per common share
    
    $
    .19
    
    
    $
    .15Diluted earnings per common share
    
    $
    .18
    
    
    $
    .14Cash dividends per common share
    
    $
    
    
    
    $
    
 See Accompanying Notes to Condensed Consolidated Financial Statements.
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INTEGRITY
BANCSHARES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three monthsended March 31,(Dollars in thousands)
    
    2007
    
    2006Cash flows from operating activities:Net income
    
    $
    2,946
    
    
    $
    2,177Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation, accretion and amortization
    
    
    392
    
    
    
    152Stock compensation
    
    
    172
    
    
    
    244Increase in interest receivable
    
    
    (1,381
    )
    
    
    (392
    )Increase in interest payable
    
    
    1,526
    
    
    
    1,345Excess tax benefits from exercise of options
    
    
    (1,308
    )
    
    
    Provision for loan losses
    
    
    1,073
    
    
    
    1,291Income from bank owned life insurance
    
    
    (258
    )
    
    
    Net gains on sales of premises and equipment
    
    
    (39
    )
    
    
    (32
    )Net loss on sale of other real estate
    
    
    2
    
    
    
    Net other operating activities
    
    
    (1,553
    )
    
    
    (1,322
    )Net cash provided by operating activities
    
    
    1,572
    
    
    
    3,463Cash flows from investing activities:Net (increase) decrease in interest-earning deposits in banks
    
    
    (29
    )
    
    
    8Net decrease in federal funds sold
    
    
    
    
    
    
    5,325Proceeds from maturities and paydowns of securities available-for-sale
    
    
    3,942
    
    
    
    2,918Purchases of restricted equity securities
    
    
    (2,990
    )
    
    
    (613
    )Purchases of securities available for sale
    
    
    (18,484
    )
    
    
    (11,541
    )Net loans made to customers, net of principal collected on loans
    
    
    (56,266
    )
    
    
    (120,720
    )Purchases of premises and equipment
    
    
    (5,792
    )
    
    
    (863
    )Net cash used in investing activities
    
    
    (79,619
    )
    
    
    (125,486
    )Cash flows from financing activities:Net (decrease) increase in noninterest-bearing deposits
    
    
    (4,210
    )
    
    
    4,395Net increase in interest-bearing deposits
    
    
    703
    
    
    
    91,729Net increase in federal funds purchased and repurchase agreements
    
    
    30,790
    
    
    
    Proceeds from exercise of stock options
    
    
    1,992
    
    
    
    564Excess tax benefits from exercise of options
    
    
    1,308
    
    
    
    Net increase in Federal Home Loan Bank advances
    
    
    55,000
    
    
    
    27,836Net cash provided by financing activities
    
    
    85,583
    
    
    
    124,524Net increase in cash and due from banks
    
    
    7,536
    
    
    
    2,501Cash and due from banks at beginning of period
    
    
    5,719
    
    
    
    5,068Cash and due from banks at end of period
    
    $
    13,255
    
    
    $
    7,569Supplemental disclosures of cash paid during the period:Interest
    
    $
    12,326
    
    
    $
    6,394Income taxes
    
    $
    312
    
    
    $
    638Supplemental disclosures of noncash investing activities:Transfer of loans to other real estate owned
    
    $
    447
    
    
    $
    1,215
 See Accompanying Notes to Condensed Consolidated Financial Statements.
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INTEGRITY BANCSHARES, INC.
AND SUBSIDIARY
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 1.
    
    BASIS OF PRESENTATION
     NOTE 2.
    
    ACCOUNTING POLICIES
  NOTE 3.
    
    STOCK COMPENSATION PLANS
  6




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Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    Value ($000)Outstanding at December 31,
2006
    
    
    1,214,466
    
    
    $
    4.89Granted
    
    
    
    
    
    
    Exercised
    
    
    (738,466
    )
    
    
    2.58Forfeited
    
    
    
    
    
    
    Outstanding at March 31, 2007
    
    
    476,000
    
    
    $
    8.46
    
    
    
    7.86
    
    
    $
    1,964Exercisable at March 31, 2007
    
    
    259,255
    
    
    $
    5.95
    
    
    
    7.25
    
    
    $
    1,679
    Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    Value ($000)Outstanding at December 31, 2006
    
    
    297,000
    
    
    $
    4.52Granted
    
    
    
    
    
    
    Exercised
    
    
    (8,000
    )
    
    
    11.00Forfeited
    
    
    
    
    
    
    Outstanding at March 31, 2007
    
    
    289,000
    
    
    $
    4.34
    
    
    
    6.5
    
    
    $
    2,312Exercisable at March 31, 2007
    
    
    289,000
    
    
    $
    4.34
    
    
    
    6.5
    
    
    $
    2,312
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NOTE 4.
    
    EARNINGS PER SHARE
  Three Months EndedMarch 31,2007
    
    
    2006Basic Earnings Per Share:Weighted average common shares outstanding
    
    
    15,274,312
    
    
    
    14,456,382Net income
    
    $
    2,945,606
    
    
    $
    2,176,983Basic earnings per share
    
    $
    0.19
    
    
    $
    0.15Diluted Earnings Per Share:Weighted average common shares outstanding
    
    
    15,274,312
    
    
    
    14,456,382Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market prices for the period
    
    
    694,969
    
    
    
    1,217,178Total weighted average common shares and
common stock equivalents outstanding
    
    
    15,969,281
    
    
    
    15,673,560Net income
    
    $
    2,945,606
    
    
    $
    2,176,983Diluted earnings per share
    
    $
    0.18
    
    
    $
    0.14
 NOTE 5.
    
    RECENT ACCOUNTING PRONOUNCEMENTS
  8




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  Forward Looking Statements
   Critical Accounting Policies
   Allowance for loan losses
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Liquidity and Capital Resources
    MinimumActual
    
    RegulatoryConsolidated
    
    Bank
    
    Requirement*Leverage capital ratios
    
    
    10.10
    %
    
    
    9.86
    %
    
    
    5.00
    %Risk-based capital ratios:Tier 1 capital
    
    
    9.97
    
    
    
    9.73
    
    
    
    6.00Total capital
    
    
    12.78
    
    
    
    12.21
    
    
    
    10.00
 
 *
    
    The percentages listed as the Minimum Regulatory Requirement are required to maintain a
well-capitalized status. Commitments and Contractual Obligations
   10




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(Dollars in Thousands)
    
    2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    ThereafterDemand and Savings
    
    $
    180,193
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Time Deposits
    
    
    503,553
    
    
    
    199,569
    
    
    
    25,614
    
    
    
    6,846
    
    
    
    6,770
    
    
    
    2,735FHLB Advances
    
    
    25,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,000Other borrowed funds
    
    
    32,341
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,000Long-term debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,022Commitments to customers
under lines and letters of
credit
    
    
    325,550
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commitments under lease
agreements
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,066,671
    
    
    $
    199,569
    
    
    $
    25,614
    
    
    $
    6,846
    
    
    $
    6,770
    
    
    $
    134,757
   Financial Condition
    11




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March 31,
    

%(In thousands)
    
    2007
    
    2006
    
    ChangeTotal investment securities
    
    $
    135,913
    
    
    $
    75,181
    
    
    
    80.8
    %Loans, net
    
    
    956,115
    
    
    
    699,534
    
    
    
    36.7Earning assets
    
    
    1,104,329
    
    
    
    789,750
    
    
    
    39.8Total assets
    
    
    1,154,427
    
    
    
    811,809
    
    
    
    42.2Non-interest-bearing deposits
    
    
    16,519
    
    
    
    14,851
    
    
    
    11.2Interest-bearing deposits
    
    
    895,710
    
    
    
    696,931
    
    
    
    28.5Borrowed funds
    
    
    146,859
    
    
    
    23,285
    
    
    
    530.7Total interest-bearing liabilities
    
    
    1,059,088
    
    
    
    735,067
    
    
    
    44.1Total equity
    
    
    84,530
    
    
    
    68,385
    
    
    
    23.6
 Asset Quality
 st
  12




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March 31,(Dollars in Thousands)
    
    2007
    
    2006Nonaccrual loans
    
    $
    20,061
    
    
    $
    277Loans contractually past due ninety days or more as to interest
or principal payments and still accruing
    
    
    0
    
    
    
    0Restructured loans
    
    
    0
    
    
    
    0Potential problem loans
    
    
    388
    
    
    
    5,635Interest income that would have been recorded on nonaccrual
and restructured loans under original terms
    
    
    397
    
    
    
    24Interest income that was recorded on nonaccrual and
restructured loans
    
    
    0
    
    
    
    0
    Results of Operations for the Three Months Ended March 31, 2007 and 2006
  13




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Allowance for Loan Losses
  Three Months EndedMarch 31,(Dollars in Thousands)
    
    2007
    
    
    2006Average amount of loans outstanding
    
    $
    966,228
    
    
    $
    705,323Balance of allowance for loan losses at beginning of period
    
    $
    9,825
    
    
    $
    5,612Loans charged offCommercial and financial
    
    
    0
    
    
    
    0Real estate mortgage
    
    
    0
    
    
    
    160Installment
    
    
    0
    
    
    
    00
    
    
    
    160Loans recoveredCommercial and financial
    
    
    0
    
    
    
    0Real estate mortgage
    
    
    0
    
    
    
    0Installment
    
    
    0
    
    
    
    00
    
    
    
    0Net charge-offs
    
    
    0
    
    
    
    160Additions to allowance charged to operating expense during period
    
    
    1,073
    
    
    
    1,291Balance of allowance for loan losses at end of period
    
    $
    10,898
    
    
    $
    6,743Ratio of net loans charged off during the period to
average loans outstanding
    
    
    0
    %
    
    
    0.02
    %
  14




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Non-interest Income
  Noninterest Expenses
    15




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  16




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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
  31.1
    
    Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certificate of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32
    
    Certification of the Chief Executive Officer and Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 17




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SIGNATURES
  INTEGRITY BANCSHARES, INC.
(Registrant)DATE:  May 8, 2007
    BY:        /s/ Steven M. SkowSteven M. Skow, President and C.E.O.(Principal Executive Officer) DATE:  May 8, 2007
    BY:       /s/ Suzanne LongSuzanne Long, Senior VP & C.F.O.(Principal Financial and Accounting Officer) 18