##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the quarterly period ended June 30, 2005
 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: 333-95335
 Integrity Bancshares, Inc.
  Georgia
    
    58-2508612(State or other jurisdiction of
incorporation or organization)
    
    (IRS Employer
Identification No.)
 11140 State Bridge Road, Alpharetta, Georgia 30022
 
  (770) 777-0324
 (Issuers telephone number)
  (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o þ




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INTEGRITY
BANCSHARES, INC.
 AND SUBSIDIARY
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheet  June 30, 2005
    
    
    3Consolidated Statements of Income and Comprehensive Income
Three Months Ended June 30, 2005 and 2004
And Six Months Ended June 30, 2005 and 2004
    
    
    4Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2005 and 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    10Item 3. Controls and Procedures
    
    
    16PART II. OTHER INFORMATIONItem 1  Legal Proceedings
    
    
    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
    
    
    18Item 6 - Exhibits
    
    
    18Signatures
    
    
    19EX-3.1 ARTICLES OF AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATIONEX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE PFOEX-32 SECTION 906, CERTIFICATION OF THE CEO AND PFO




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM I. FINANCIAL STATEMENTS
 INTEGRITY BANCSHARES, INC. AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEET
(Unaudited)
 June 30,2005AssetsCash and due from banks
    
    $
    6,254,613Interest-bearing deposits in banks
    
    
    385,690Federal funds sold
    
    
    770,000Securities available-for-sale, at fair value
    
    
    57,139,000Restricted equity securities, at cost
    
    
    1,699,300Loans
    
    
    523,763,710Less allowance for loan losses
    
    
    4,513,912Loans, net
    
    
    519,249,798Premises and equipment
    
    
    8,677,655Other assets
    
    
    5,316,641Total assets
    
    $
    599,492,697Liabilities and Stockholders EquityDepositsNoninterest-bearing
    
    $
    9,987,826Interest-bearing
    
    
    498,979,067Total deposits
    
    
    508,966,893Federal funds purchased
    
    
    Other borrowings
    
    
    24,186,000Other liabilities
    
    
    3,784,826Total liabilities
    
    
    536,937,719Commitments and contingenciesStockholders equityCommon stock, no par value; 50,000,000 shares authorized;
7,180,771 shares issued and outstanding
    
    
    56,163,384Retained earnings
    
    
    6,630,421Accumulated other comprehensive loss
    
    
    (238,827
    )Total stockholders equity
    
    
    62,554,978Total liabilities and stockholders equity
    
    $
    599,492,697
 See Notes to Consolidated Financial Statements.
 3




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##### Table of Contents



INTEGRITY BANCSHARES, INC. AND SUBSIDIARY
 
 CONSOLIDATED
STATEMENTS OF INCOME  AND COMPREHENSIVE INCOME
THREE MONTHS ENDED JUNE 30, 2005 AND 2004
AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(Unaudited)
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Interest incomeLoans
    
    $
    9,317,144
    
    
    $
    4,687,310
    
    
    $
    16,988,436
    
    
    $
    8,918,556Taxable securities
    
    
    669,377
    
    
    
    359,555
    

    
    
    1,277,284
    
    
    
    675,626Deposits in banks
    
    
    1,472
    
    
    
    443
    
    
    
    2,593
    
    
    
    821Federal funds sold
    
    
    5,969
    
    
    
    5,398
    
    
    
    12,925
    
    
    
    14,117Total interest income
    
    
    9,993,962
    
    
    
    5,052,706
    
    
    
    18,281,238
    
    
    
    9,609,120Interest expenseDeposits
    
    
    3,800,251
    
    
    
    1,414,269
    
    
    
    6,676,666
    
    
    
    2,781,519Federal funds purchased, securities sold under
repurchase agreements and other borrowings
    
    
    317,924
    
    
    
    147,834
    
    
    
    648,208
    
    
    
    252,515Total interest expense
    
    
    4,118,175
    
    
    
    1,562,103
    
    
    
    7,324,874
    
    
    
    3,034,034Net interest income
    
    
    5,875,787
    
    
    
    3,490,603
    
    
    
    10,956,364
    
    
    
    6,575,086Provision for loan losses
    
    
    663,511
    
    
    
    571,642
    
    
    
    1,235,352
    
    
    
    712,448Net interest income after
provision for loan losses
    
    
    5,212,276
    
    
    
    2,918,961
    
    
    
    9,721,012
    
    
    
    5,862,638Other incomeService charges on deposit accounts
    
    
    14,768
    
    
    
    15,851
    
    
    
    25,774
    
    
    
    28,841Other operating income
    
    
    181,351
    
    
    
    61,520
    
    
    
    360,821
    
    
    
    110,885Total other income
    
    
    196,119
    
    
    
    77,371
    
    
    
    386,595
    
    
    
    139,726Other expensesSalaries and employee benefits
    
    
    1,737,131
    
    
    
    871,788
    
    
    
    3,237,615
    
    
    
    1,761,943Occupancy and equipment expenses
    
    
    431,473
    
    
    
    202,562
    
    
    
    834,254
    
    
    
    380,526Other operating expenses
    
    
    896,497
    
    
    
    601,141
    
    
    
    1,568,341
    
    
    
    1,081,656Total other expenses
    
    
    3,065,101
    
    
    
    1,675,491
    
    
    
    5,640,210
    
    
    
    3,224,125Net income before income taxes
    
    
    2,343,294
    
    
    
    1,320,841
    
    
    
    4,467,397
    
    
    
    2,778,239Income tax expense
    
    
    868,000
    
    
    
    456,700
    
    
    
    1,658,380
    
    
    
    1,027,400Net income
    
    
    1,475,294
    
    
    
    864,141
    
    
    
    2,809,017
    
    
    
    1,750,839Other comprehensive income (loss):Unrealized gains (losses) on securities available-for-sale arising during period, net of tax
    
    
    491,803
    
    
    
    (677,784
    )
    
    
    (40,079
    )
    
    
    (655,013
    )Comprehensive income
    
    $
    1,967,097
    
    
    $
    186,357
    
    
    $
    2,768,938
    
    
    $
    1,095,826Basic earnings per share
    
    $
    0.22
    
    
    $
    0.17
    
    
    $
    0.43
    
    
    $
    0.39Diluted earnings per share
    
    $
    0.20
    
    
    $
    0.17
    
    
    $
    0.39
    
    
    $
    0.36Cash dividends per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 See Notes to Consolidated Financial Statements.
 4




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##### Table of Contents



INTEGRITY BANCSHARES, INC. AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(Unaudited)
 2005
    
    2004OPERATING ACTIVITIESNet income
    
    $
    2,809,017
    
    
    $
    1,750,839Adjustments to reconcile net income to net cash
provided by (used in) operating activities:Depreciation
    
    
    253,850
    
    
    
    187,129Provision for loan losses
    
    
    1,235,352
    
    
    
    712,448Stock compensation
    
    
    479,367
    
    
    
    77,310Increase in interest receivable
    
    
    (580,973
    )
    
    
    (242,222
    )Increase in interest payable
    
    
    83,516
    
    
    
    167,917Gain on sale of other real estate
    
    
    
    
    
    
    (16,756
    )Gain on sale of premises and equipment
    
    
    (206,250
    )
    
    
    Net other operating activities
    
    
    (320,522
    )
    
    
    (1,742,970
    )Net cash provided by (used in) operating activities
    
    
    3,753,357
    
    
    
    893,695INVESTING ACTIVITIESNet increase in interest-bearing deposits in banks
    
    
    (97,728
    )
    
    
    (23,885
    )Purchases of securities available-for-sale
    
    
    (15,476,806
    )
    
    
    (19,286,294
    )Proceeds from maturities of securities available-for-sale
    
    
    6,201,961
    
    
    
    6,941,710Purchase of restricted equity securities
    
    
    (466,700
    )
    
    
    (1,075,000
    )Net (increase) decrease in federal funds sold
    
    
    (770,000
    )
    
    
    2,439,000Net increase in loans
    
    
    (138,012,498
    )
    
    
    (54,789,692
    )Proceeds from sale of other real estate
    
    
    
    
    
    
    206,380Purchase of premises and equipment
    
    
    (313,013
    )
    
    
    (2,017,203
    )Net cash used in investing activities
    
    
    (148,934,784
    )
    
    
    (67,604,984
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    135,694,642
    
    
    
    39,719,004Net decrease in federal funds purchased
    
    
    (4,279,000
    )
    
    
    (4,226,000
    )Net proceeds of other borrowings
    
    
    3,000,000
    
    
    
    24,500,000Proceeds from exercised stock options
    
    
    750,645
    
    
    
    Net proceeds from sale of common stock
    
    
    14,995,042
    
    
    
    10,741,083Net cash provided by financing activities
    
    
    150,161,329
    
    
    
    70,734,087Net increase in cash and due from banks
    
    
    4,979,902
    
    
    
    4,022,798Cash and due from banks, beginning of period
    
    
    1,274,711
    
    
    
    1,693,155Cash and due from banks, end of period
    
    $
    6,254,613
    
    
    $
    5,715,953SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash paid during period for:Interest
    
    $
    7,241,358
    
    
    $
    2,866,117Income taxes
    
    $
    1,867,719
    
    
    $
    2,754,888
 See Notes to Consolidated Financial Statements.
 5




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##### Table of Contents



INTEGRITY
BANCSHARES, INC.
 
 AND
SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 NOTE 1. BASIS OF PRESENTATION
   NOTE 2. STOCK COMPENSATION PLANS
 Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation
 Three Months EndedJune 30,2005
    
    2004Net income, as reported
    
    $
    1,475,294
    
    
    $
    864,141Difference between stock-based employee
compensation expense determined under fair value
Based method and APB No. 25 for all awards,
net of tax
    
    
    (285,196
    )
    
    
    (10,781
    )Pro forma net income
    
    $
    1,190,098
    
    
    $
    853,360Earnings per share:Basic  as reported
    
    $
    .22
    
    
    $
    .17Basic  pro forma
    
    $
    .18
    
    

    $
    .17Diluted  as reported
    
    $
    .20
    
    
    $
    .17Diluted  pro forma
    
    $
    .16
    
    
    $
    .16
 6




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Six Months EndedJune 30,2005
    
    2004Net income, as reported
    
    $
    2,809,017
    
    
    $
    1,750,839Difference between stock-based employee
compensation expense determined under fair value
based method and APB No. 25 for all awards,
net of tax
    
    
    (218,565
    )
    
    
    (34,006
    )Pro forma net income
    
    $
    2,590,452
    
    
    $
    1,716,833Earnings per share:Basic  as reported
    
    $
    .43
    
    
    $
    .39Basic  pro forma
    
    $
    .40
    
    
    $
    .38Diluted  as reported
    
    $
    .39
    
    
    $
    .36Diluted  pro forma
    
    $
    .36
    
    
    $
    .35
 NOTE 3. EARNINGS PER SHARE
  Three Months EndedJune 30,2005
    
    2004Basic Earnings Per Share:Weighted average common shares outstanding
    
    
    6,650,139
    
    
    
    4,949,932Net income
    
    $
    1,475,294
    
    
    $
    864,141Basic earnings per share
    
    $
    0.22
    
    
    $
    0.17Diluted Earnings Per Share:Weighted average common shares outstanding
    
    
    6,650,139
    
    
    
    4,949,932Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market prices for the period
    
    
    598,923
    
    
    
    300,993Total weighted average common shares and
common stock equivalents outstanding
    
    
    7,249,062
    
    
    
    5,250,925Net income
    
    $
    1,475,294
    
    
    $
    864,141Diluted earnings per share
    
    $
    0.20
    
    
    $
    0.17
 7




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Six Months EndedJune 30,2005
    
    2004Basic Earnings Per Share:Weighted average common shares outstanding
    
    
    6,554,231
    
    
    
    4,547,388Net income
    
    $
    2,809,017
    
    
    $
    1,750,839Basic earnings per share
    
    $
    0.43
    
    
    $
    0.39Diluted Earnings Per Share:Weighted average common shares outstanding
    
    
    6,554,231
    
    
    
    4,547,388Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market prices for the period
    
    
    580,285
    
    
    
    300,489Total weighted average common shares and
common stock equivalents outstanding
    
    
    7,134,516
    
    
    
    4,847,877Net income
    
    $
    2,809,017
    
    
    $
    1,750,839Diluted earnings per share
    
    $
    0.39
    
    
    $
    0.36
 NOTE 4. CURRENT ACCOUNTING DEVELOPMENTS
 Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51 Consolidation of Variable Interest Entities
 8




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 4. CURRENT ACCOUNTING DEVELOPMENTS (Continued)
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
     9




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
  Forward Looking Statements
   Critical Accounting Policies
   Allowance for loan losses
 10




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##### Table of Contents



Liquidity and Capital Resources
   ActualMinimumRegulatoryConsolidated
    
    Bank
    
    Requirement*Leverage capital ratios
    
    
    11.71
    %
    
    
    11.87
    %
    
    
    5.00
    %Risk-based capital ratios:Tier 1 capital
    
    
    11.50
    
    
    
    11.25
    
    
    
    6.00Total capital
    
    
    12.26
    
    
    
    12.01
    
    
    
    10.00
 
 *The percentages listed as the Minimum Regulatory Requirement are required to maintain a
well-capitalized status.   Off-Balance Sheet Risk
   11




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##### Table of Contents



June 30, 2005(Dollars in Thousands)Commitments to extend credit
    
    $
    146,569Letters of credit
    
    
    2,507$
    149,076
   Financial Condition
  June 30,
    
    December 31,2005
    
    2004(Dollars in Thousands)Cash and due from banks
    
    $
    6,254
    
    
    $
    1,275Interest-bearing deposits in banks
    
    
    386
    
    
    
    288Federal funds sold
    
    
    770
    
    
    
    Securities
    
    
    57,139
    
    
    
    47,928Restricted equity securities
    
    
    1,699
    
    
    
    1,233Loans, net
    
    
    519,250
    
    
    
    382,473Premises and equipment
    
    
    8,678
    
    
    
    8,608Other assets
    
    
    5,317
    
    
    
    4,370$
    599,493
    
    
    $
    446,175Deposits
    
    $
    508,967
    
    
    $
    373,272Federal funds purchased
    
    
    
    
    
    
    4,279Other borrowings
    
    
    24,186
    
    
    
    21,186Other liabilities
    
    
    3,785
    
    
    
    3,883Stockholders equity
    
    
    62,555
    
    
    
    43,555$
    599,493
    
    
    $
    446,175
  12




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Results of Operations For The Three and Six Months Ended June 30, 2005 and 2004
  Three Months EndedJune 30,2005
    
    2004(Dollars in Thousands)Interest income
    
    $
    9,994
    
    
    $
    5,053Interest expense
    
    
    4,118
    
    
    
    1,562Net interest income
    
    
    5,876
    
    
    
    3,491Provision for loan losses
    
    
    664
    
    
    
    572Other income
    
    
    196
    
    
    
    77Other expense
    
    
    3,065
    
    
    
    1,675Pretax income
    
    
    2,343
    
    
    
    1,321Income taxes
    
    
    868
    
    
    
    457Net income
    
    $
    1,475
    
    
    $
    864
 Six Months EndedJune 30,2005
    
    2004(Dollars in Thousands)Interest income
    
    $
    18,281
    
    
    $
    9,609Interest expense
    
    
    7,325
    
    
    
    3,034Net interest income
    
    
    10,956
    
    
    
    6,575Provision for loan losses
    
    
    1,235
    
    
    
    712Other income
    
    
    386
    
    
    
    139Other expense
    
    
    5,640
    
    
    
    3,224Pretax income
    
    
    4,467
    
    
    
    2,778Income taxes
    
    
    1,658
    
    
    
    1,027Net income
    
    $
    2,809
    
    
    $
    1,751
 13




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June 30,2005
    
    2004(Dollars in Thousands)Nonaccrual loans
    
    $
    0
    
    
    $
    2,319Loans contractually past due ninety days or more as to interest
or principal payments and still accruing
    
    
    0
    
    
    
    0Restructured loans
    
    
    0
    
    
    
    0Potential problem loans
    
    
    4,422
    
    
    
    1,641Interest income that would have been recorded on nonaccrual
and restructured loans under original terms
    
    
    0
    
    
    
    100Interest income that was recorded on nonaccrual and
restructured loans
    
    
    0
    
    
    
    0
   14




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Six Months EndedJune 30,2005
    
    2004(Dollars in Thousands)Average amount of loans outstanding
    
    $
    456,840
    
    
    $
    258,011Balance of allowance for loan losses at beginning of period
    
    $
    3,433
    
    
    $
    3,573Loans charged offCommercial and financial
    
    
    (210
    )
    
    
    0Real estate mortgage
    
    
    0
    
    
    
    (550
    )Installment
    
    
    0
    
    
    
    0(210
    )
    
    
    (550
    )Loans recoveredCommercial and financial
    
    
    0
    
    
    
    0Real estate mortgage
    
    
    56
    
    
    
    0Installment
    
    
    0
    
    
    
    056
    
    
    
    0Net (charge-offs)/recoveries
    
    
    (154
    )
    
    
    (550
    )Additions to allowance charged to operating expense during period
    
    
    1,235
    
    
    
    712Balance of allowance for loan losses at end of period
    
    $
    4,514
    
    
    $
    3,735Ratio of net loans charged off during the period to
average loans outstanding
    
    
    0.03
    %
    
    
    0.21
    %
  15




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ITEM 3. CONTROLS AND PROCEDURES
  16




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##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 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.
 (a)
    
    The Companys Annual Meeting of Shareholders was held on May 18, 2005.(b)
    
    See (c) below for the name of each director elected at the meeting and the name
of each other director whose term of office as a director continued after the
meeting.(c)
    
    The following matter was voted on at the meeting as was previously identified in
the Proxy materials forwarded to each shareholder. The shares represented at
the meeting (4,707,849 or 72.5% of the total outstanding shares on the record
date) voted as follows:
  Director
    
    For
    
    Against
    
    AbstainCharles J. Puckett
    
    4,654,832
    
    0
    
    53,017Gerald O. Reynolds
    
    4,655,507
    
    0
    
    52,342Steven M. Skow
    
    4,655,507
    
    0
    
    52,342Robert S. Wholey
    
    4,655,507
    
    0
    
    52,342
  17




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##### Table of Contents



For
    
    Against
    
    Abstain
    
    Broker Non Vote3,481,809
    
    51,544
    
    21,333
    
    1,153,163
  For
    
    Against
    
    Abstain4,658,977
    
    34,039
    
    14,833
 
 ITEM 5. OTHER INFORMATION.
  
 ITEM 6. EXHIBITS
 3.1
    
    Articles of Amendment to the Companys Articles of Incorporation31.1
    
    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.
 18




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##### Table of Contents



SIGNATURES
  INTEGRITY BANCSHARES, INC.(Registrant)DATE: August 10, 2005
    
    BY:
    
    /s/ Steven M. SkowSteven M.Skow, President and C.E.O.(Principal Executive Officer)DATE: August 10, 2005
    
    BY:
    
    /s/ Jeff L. SandersJeff L. Sanders, Senior VP & C.F.O.(Principal Financial and Accounting Officer)
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