##### 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, 2006
 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
 
   
  þ o
  o o þ
 o þ




---



##### Table of Contents



INTEGRITY BANCSHARES, INC.
AND SUBSIDIARY
 INDEX
  
 PagePART I.
    
    FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets  March 31, 2006 and December 31, 2005
    
    
    3Consolidated Statements of Income and Comprehensive Income
Three Months Ended March 31, 2006 and 2005
    
    
    4Consolidated
Statements of Cash Flows-
Three Months Ended March 31, 2006 and 2005
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18PART II.
    
    OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    19Item 1A. Risk Factors
    
    
    19Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3. Defaults Upon Senior Securities
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Item 5. Other Information
    
    
    19Item 6. Exhibits
    
    
    19Signatures
    
    
    20Certifications
    
    
    21EX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32 SECTION 906, CERTIFICATION OF THE CEO AND CFO
 2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 INTEGRITY BANCSHARES, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 March 31,
    
    December 31,2006
    
    2005(In thousands)
    
    (Unaudited)ASSETS:Cash and due from banks
    
    $
    7,569
    
    
    $
    5,068Interest-bearing deposits in banks
    
    
    59
    
    
    
    67Federal funds sold
    
    
    918
    
    
    
    6,243Securities available for sale, at fair value
    
    
    82,179
    
    
    
    73,924Other investments
    
    
    1,502
    
    
    
    889Loans, net of unearned income
    
    
    771,123
    
    
    
    651,778Less: allowance for loan losses
    
    
    (6,743
    )
    
    
    (5,612
    )Net loans
    
    
    764,380
    
    
    
    646,166Premises and equipment, net
    
    
    12,608
    
    
    
    11,865Other real estate owned
    
    
    1,215
    
    
    
    0Other assets
    
    
    11,670
    
    
    
    8,853Total assets
    
    $
    882,100
    
    
    $
    753,075LIABILITIES AND STOCKHOLDERS EQUITY
LIABILITIES:Deposits:Noninterest-bearing demand
    
    $
    17,441
    
    
    $
    13,046Interest-bearing:Demand
    
    
    165,626
    
    
    
    163,487Savings
    
    
    9,331
    
    
    
    9,768Time, $100,000 and over
    
    
    164,091
    
    
    
    135,474Other time
    
    
    414,080
    
    
    
    352,669Total deposits
    
    
    770,569
    
    
    
    674,444Other borrowed funds
    
    
    34,022
    
    
    
    6,186Other liabilities
    
    
    8,241
    
    
    
    6,326Total liabilities
    
    
    812,832
    
    
    
    686,956STOCKHOLDERS EQUITY:Common stock, no par value; 50,000,000 shares authorized; 14,588,342 and
14,361,542 shares issued and outstanding, respectively
    
    
    58,171
    
    
    
    56,992Retained earnings
    
    
    12,321
    
    
    
    10,144Accumulated other comprehensive loss
    
    
    (1,224
    )
    
    
    (1,017
    )Total stockholders equity
    
    
    69,268
    
    
    
    66,119Total liabilities and stockholders equity
    
    $
    882,100
    
    
    $
    753,075
 See Accompanying Notes to Condensed Consolidated Financial Statements.
 3




---



##### Table of Contents



INTEGRITY BANCSHARES, INC.
 
 CONDENSED CONSOLIDATED INCOME STATEMENTS
 Three monthsended March 31,(Dollars in thousands, except share and per share amounts)
    
    2006
    
    2005Interest incomeLoans, including fees
    
    $
    15,573
    
    
    $
    7,671Interest-bearing deposits in banks
    
    
    1
    
    
    
    1Federal funds sold
    
    
    91
    
    
    
    7Taxable investment securities
    
    
    907
    
    
    
    608Total interest income
    
    
    16,572
    
    
    
    8,287Interest expenseDeposits
    
    
    7,308
    
    
    
    2,876Federal funds purchased
and other borrowings
    
    
    431
    
    
    
    330Total interest expense
    
    
    7,739
    
    
    
    3,206Net interest income
    
    
    8,833
    
    
    
    5,081Provision for loan losses
    
    
    1,291
    
    
    
    572Net interest income after provision for loan losses
    
    
    7,542
    
    
    
    4,509Other incomeService charges on deposit accounts
    
    
    20
    
    
    
    11Other operating income
    
    
    110
    
    
    
    179Total other income
    
    
    130
    
    
    
    190Other expenseSalaries and employee benefits
    
    
    2,310
    
    
    
    1,500Occupancy and equipment expenses
    
    
    501
    
    
    
    403Other operating expenses
    
    
    1,286
    
    
    
    672Total noninterest expense
    
    
    4,097
    
    
    
    2,575Income before income taxes
    
    
    3,575
    
    
    
    2,124Income tax expense
    
    
    1,398
    
    
    
    790Net income
    
    $
    2,177
    
    
    $
    1,334Other comprehensive lossUnrealized losses on securities available-for-sale arising during period, net of tax
    
    
    (207
    )
    
    
    (532
    )Comprehensive income
    
    $
    1,970
    
    
    $
    802Basic earnings per common share
    
    $
    .15
    
    
    $
    .10Diluted earnings per common share
    
    $
    .14
    
    
    $
    .09Cash dividends per common share
    
    $
    0
    
    
    $
    0
 See Accompanying Notes to Condensed Consolidated Financial Statements.
 4




---



##### Table of Contents



INTEGRITY BANCSHARES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Three monthsended March 31,(In thousands)
    
    2006
    
    2005Cash flows from operating activities:Net income
    
    $
    2,177
    
    
    $
    1,334Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization of premises and equipment
    
    
    152
    
    
    
    123Stock compensation
    
    
    244
    
    
    
    221Increase in interest receivable
    
    
    (392
    )
    
    
    (323
    )Increase in interest payable
    
    
    1,345
    
    
    
    447Provision for loan losses
    
    
    1,291
    
    
    
    572Net gains on sales of premises and equipment
    
    
    (32
    )
    
    
    (103
    )Changes in other assets and liabilities:Increase in other assets
    
    
    (1,893
    )
    
    
    (215
    )Increase in other liabilities
    
    
    571
    
    
    
    358Net cash provided by operating activities
    
    
    3,463
    
    
    
    2,414Cash flows from investing activities:Net decrease in interest-earning deposits in banks
    
    
    8
    
    
    
    228Net decrease in federal funds sold
    
    
    5,325
    
    
    
    Principal collections on securities available for sale
    
    
    2,918
    
    
    
    2,496(Purchases) redemption of restricted equity securities
    
    
    (613
    )
    
    
    343Purchases of securities available for sale
    
    
    (11,541
    )
    
    
    (15,477
    )Net loans made to customers, net of principal collected on loans
    
    
    (120,720
    )
    
    
    (65,937
    )Purchases of premises and equipment
    
    
    (863
    )
    
    
    (111
    )Net cash used in investing activities
    
    
    (125,486
    )
    
    
    (78,458
    )Cash flows from financing activities:Net increase (decrease) in noninterest-bearing deposits
    
    
    4,395
    
    
    
    (1,295
    )Net increase in interest-bearing deposits
    
    
    91,729
    
    
    
    92,756Net decrease in federal funds purchased
    
    
    
    
    
    
    (232
    )Proceeds from exercised stock options
    
    
    564
    
    
    
    528Net increase (decrease) in other borrowed funds
    
    
    27,836
    
    
    
    (15,000
    )Net cash provided by financing activities
    
    
    124,524
    
    
    
    76,757Net increase (decrease) in cash and due from banks
    
    
    2,501
    
    
    
    (713
    )Cash and due from banks at beginning of period
    
    
    5,068
    
    
    
    1,275Cash and due from banks at end of period
    
    $
    7,569
    
    
    $
    1,988Supplemental disclosures of cash paid during the period:Interest
    
    $
    6,394
    
    
    $
    2,760Income taxes
    
    $
    638
    
    
    $
    68Supplemental disclosures of noncash investing activities:Transfer of loans to other real estate owned
    
    $
    1,215
    
    
    $
    
 See Accompanying Notes to Condensed Consolidated Financial Statements.
 5




---



##### Table of Contents



INTEGRITY BANCSHARES, INC.
AND SUBSIDIARY
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE
1.
    BASIS OF PRESENTATIONIntegrity Bancshares, Inc. (the Company), prepared the condensed consolidated
financial statements included herein, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in consolidated financial statements prepared
in accordance with accounting principles generally accepted in the United States of
America have been omitted, although the Company believes that the disclosures are
adequate to make the information presented not misleading. In the opinion of
management, the information in the condensed consolidated financial statements
reflects all adjustments necessary to present fairly the Companys financial
position, results of operations, and cash flows for such interim periods.
Management believes that all interim period adjustments are of a normal recurring
nature. These consolidated financial statements should be read in conjunction with
the Companys audited financial statements and the notes thereto included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2005.The condensed consolidated financial statements include the accounts of the
Company. All intercompany accounts and transactions have been eliminated in
consolidation.The Company operates through one segment, providing a full range of banking
services to individual and corporate customers through its subsidiary bank.The results of operations for the three month period ended March 31, 2006, are
not necessarily indicative of the results to be expected for the full year.NOTE
2.

    ACCOUNTING POLICIESThe Companys accounting policies are described in the notes to consolidated
financial statements contained in the Companys Annual Report on Form 10-K for the
year ended December 31, 2005.NOTE
3.

    STOCK COMPENSATION PLANSEffective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
entitled Share-Based Payment (SFAS No. 123R) using the
modified-prospective-transition method. Under that transition method, compensation
cost recognized in 2006 includes compensation cost for all share-based payments
granted prior to but not vested as of January 1, 2006, based on the grant date fair
value estimated in accordance with the original provisions of SFAS No. 123 and
compensation cost for all share-based payments granted subsequent to January 1,
2006, based on the grant-date fair value estimated in accordance with the provisions
of SFAS No. 123R. Results for prior periods have not been restated.As a result of adopting SFAS 123R on January 1, 2006, the Companys income
before income taxes and net income for the three months ended March 31, 2006 are
$115,000 and $78,000 lower, respectively, than if it had continued to account for
share-based compensation under the provisions of APB Opinion No. 25.
 6




---



##### Table of Contents



Three Months EndedMarch 31,2005Net income available to common shareholders:As reported
    
    $
    1,334Pro forma
    
    
    1,400Basic earnings per common share:As reported
    
    
    .10Pro forma
    
    
    .11Diluted earnings per common share:As reported
    
    
    .09Pro forma
    
    
    .10
    Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    Shares
    
    
    Price
    
    
    Term
    
    
    Value ($000)Outstanding at December 31,
2005
    
    
    1,409,072
    
    
    $
    4.67Granted (below market)
    
    
    11,340
    
    
    
    2.45Granted (at market)
    
    
    84,000
    
    
    
    11.90Exercised
    
    
    (128,800
    )
    
    
    3.35Forfeited
    
    
    (155,200
    )
    
    
    9.48Outstanding at March 31, 2006
    
    
    1,220,412
    
    
    $
    3.85
    
    
    
    5.5
    
    
    $
    9,183Exercisable at March 31, 2006
    
    
    487,285
    
    
    $
    3.03
    
    
    
    8.4
    
    
    $
    4,423
 7




---



##### Table of Contents



Number of
    
    
    Weighted AverageShares
    
    
    Grant-Date Fair ValueNonvested stock options beginning of period
    
    
    991,720
    
    
    $
    5.89Granted
    
    
    95,340
    
    
    
    5.86Vested
    
    
    (198,733
    )
    
    
    .77Forfeited
    
    
    (155,200
    )
    
    
    9.48Nonvested stock options end of period
    
    
    733,127
    
    
    $
    5.77
   Three Months EndedMarch 31,2006
    
    
    2005Expected volatility
    
    22.6% to 33.40%
    
    
    33
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %Expected life (in years)
    
    
    7.50
    
    
    
    10.0Risk-free rate
    
    
    4.2% to 4.7
    %
    
    
    4.5
    %
 8




---



##### Table of Contents



Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    Shares
    
    
    Price
    
    
    Term
    
    
    Value ($000)Outstanding at December 31, 2005
    
    
    538,000
    
    
    $
    3.85Granted
    
    
    
    
    
    
    Exercised
    
    
    (98,000
    )
    
    
    2.45Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Outstanding at March 31, 2006
    
    
    440,000
    
    
    $
    4.16
    
    
    
    7.3
    
    
    $
    3,564Exercisable at March 31, 2006
    
    
    440,000
    
    
    $
    4.16
    
    
    
    7.3
    
    
    $
    3,564
  9




---



##### Table of Contents



NOTE 4. EARNINGS PER SHARE
  Three Months EndedMarch 31,2006
    
    
    2005Basic Earnings Per Share:Weighted average common shares outstanding
    
    
    14,456,382
    
    
    
    12,917,994Net income
    
    $
    2,176,983
    
    
    $
    1,333,723Basic earnings per share
    
    $
    0.15
    
    
    $
    0.10Diluted Earnings Per Share:Weighted average common shares outstanding
    
    
    14,456,382
    
    
    
    12,917,994Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market prices for the period
    
    
    1,217,178
    
    
    
    1,144,522Total weighted average common shares and
common stock equivalents outstanding
    
    
    15,673,560
    
    
    
    14,062,516Net income
    
    $
    2,176,983
    
    
    $
    1,333,723Diluted earnings per share
    
    $
    0.14
    
    
    $
    0.09
  10




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward Looking Statements
   Critical Accounting Policies
   Allowance for loan losses
 11




---



##### Table of Contents



Liquidity and Capital Resources
      MinimumActual
    
    RegulatoryConsolidated
    
    Bank
    
    Requirement*Leverage capital ratios
    
    
    11.58
    %
    
    
    12.11
    %
    
    
    5.00
    %Risk-based capital ratios:Tier 1 capital
    
    
    10.73
    
    
    
    11.21
    
    
    
    6.00Total capital
    
    
    12.58
    
    
    
    11.98
    
    
    
    10.00
 
 *
    
    The percentages listed as the Minimum Regulatory Requirement are required to maintain a
well-capitalized status. Commitments and Contractual Obligations
  12




---



##### Table of Contents



(Dollars in Thousands)
    
    March 31, 2006Commitments to extend credit
    
    $
    237,475Letters of credit
    
    
    1,855$
    239,330
   Financial Condition
  March 31,
    
    
    December 31,(Dollars in Thousands)
    
    2006
    
    
    2005Cash and due from banks
    
    $
    7,569
    
    
    $
    5,068Interest-bearing deposits in banks
    
    
    59
    
    
    
    67Federal funds sold
    
    
    918
    
    
    
    6,243Securities
    
    
    82,179
    
    
    
    73,924Restricted equity securities
    
    
    1,502
    
    
    
    889Loans, net
    
    
    764,380
    
    
    
    646,166Premises and equipment
    
    
    12,608
    
    
    
    11,865Other assets
    
    
    12,885
    
    
    
    8,853$
    882,100
    
    
    $
    753,075Deposits
    
    $
    770,569
    
    
    $
    674,444Federal funds purchased
    
    
    0
    
    
    
    0Other borrowings
    
    
    34,022
    
    
    
    6,186Other liabilities
    
    
    8,241
    
    
    
    6,326Stockholders equity
    
    
    69,268
    
    
    
    66,119$
    882,100
    
    
    $
    753,075
  13




---



##### Table of Contents



March 31,
    
    
    
    %(In thousands)
    
    2006
    
    
    2005
    
    
    
    ChangeTotal investment securities
    
    $
    75,181
    
    
    $
    53,103
    
    
    
    41.46
    %Loans, net
    
    
    699,534
    
    
    
    417,495
    
    
    
    67.56Earning assets
    
    
    789,750
    
    
    
    477,557
    
    
    
    65.99Total assets
    
    
    811,809
    
    
    
    490,500
    
    
    
    65.26Non-interest-bearing deposits
    
    
    14,851
    
    
    
    9,686
    
    
    
    81.78Interest-bearing deposits
    
    
    696,931
    
    
    
    390,645
    
    
    
    75.17Borrowed funds
    
    
    23,285
    
    
    
    41,226
    
    
    
    -90.04Total funds
    
    
    735,067
    
    
    
    441,557
    
    
    
    61.91Total equity
    
    
    68,385
    
    
    
    44,476
    
    
    
    37.51
 Asset Quality
  14




---



##### Table of Contents



March 31,2006
    
    
    2005(Dollars in Thousands)Nonaccrual loans
    
    $
    277
    
    
    $
    0Loans contractually past due ninety days or more as to interest
or principal payments and still accruing
    
    
    0
    
    
    
    0Restructured loans
    
    
    0
    
    
    
    0Potential problem loans
    
    
    5,635
    
    
    
    1,199Interest income that would have been recorded on nonaccrual
and restructured loans under original terms
    
    
    24
    
    
    
    0Interest income that was recorded on nonaccrual and
restructured loans
    
    
    0
    
    
    
    0
    15




---



##### Table of Contents



Results of Operations for the Three Months Ended March 31, 2006 and 2005
  Three Months EndedMarch 31,2006
    
    
    2005(Dollars in Thousands)Interest income
    
    $
    16,572
    
    
    $
    8,287Interest expense
    
    
    7,739
    
    
    
    3,206Net interest income
    
    
    8,833
    
    
    
    5,081Provision for loan losses
    
    
    1,291
    
    
    
    572Other income
    
    
    130
    
    
    
    190Other expense
    
    
    4,097
    
    
    
    2,575Pretax income
    
    
    3,575
    
    
    
    2,124Income taxes
    
    
    1,398
    
    
    
    790Net income
    
    $
    2,177
    
    
    $
    1,334
   16




---



##### Table of Contents



Allowance for Loan Losses
  Three Months EndedMarch 31,2006
    
    
    2005(Dollars in Thousands)Average amount of loans outstanding
    
    $
    705,323
    
    
    $
    421,200Balance of allowance for loan losses at beginning of period
    
    $
    5,612
    
    
    $
    3,433Loans charged offCommercial and financial
    
    
    0
    
    
    
    (210
    )Real estate mortgage
    
    
    (160
    )
    
    
    0Installment
    
    
    0
    
    
    
    0(160
    )
    
    
    (210
    )Loans recoveredCommercial and financial
    
    
    0
    
    
    
    0Real estate mortgage
    
    
    0
    
    
    
    50Installment
    
    
    0
    
    
    
    00
    
    
    
    50Net charge-offs
    
    
    (160
    )
    
    
    (160
    )Additions to allowance charged to operating expense during period
    
    
    1,291
    
    
    
    572Balance of allowance for loan losses at end of period
    
    $
    6,743
    
    
    $
    3,845Ratio of net loans charged off during the period to
average loans outstanding
    
    
    0.02
    %
    
    
    0.04
    %
   17




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
  18




---



##### Table of Contents



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. The following exhibits are furnished with this report:
 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.
 
 19




---



##### Table of Contents



SIGNATURES
  INTEGRITY BANCSHARES, INC.
        (Registrant)DATE:  May 15, 2006
    BY:
    /s/      Steven M. SkowSteven M. Skow, President and C.E.O.(Principal Executive Officer)DATE:  May 15, 2006
    BY:
    /s/      Suzanne LongSuzanne Long, Senior VP & C.F.O.(Principal Financial and Accounting Officer) 20