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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 Commission file number: 001-33005
 INTEGRITY BANCSHARES, INC.
 Georgia
    
    58-2508612(State or Other Jurisdiction
    
    (I.R.S. Employer Identification Number)of Incorporation or Organization)
 11140 State Bridge Road
P.O. Box 2008
Alpharetta, Georgia 30022
 (770) 777-0324
 
 o þ
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INTEGRITY BANCSHARES, INC.
 FORM 10-K CROSS-REFERENCE INDEX
 PageNumberPart I1.
    
    Description of Business
    
    
    31A.
    
    Risk Factors
    
    
    171B.
    
    Unresolved Staff Comments
    
    
    192.
    
    Description of Property
    
    
    203.
    
    Legal Proceedings
    
    
    214.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21Part II5.
    
    Market for Common Equity and Related Stockholder Matters
    
    
    216.
    
    Selected Financial Data
    
    
    237.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    247A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    468.
    
    Financial Statements and Supplementary Data
    
    
    479.
    
    Changes in and Disagreemnts with Accountants on Accounting and Financial Disclosure
    
    
    479A.
    
    Controls and Procedures
    
    
    479B.
    
    Other Information
    
    
    49Part III10.
    
    Directors, Executive Officers, and Corporate Governance
    
    
    5011.
    
    Executive Compensation
    
    
    5012.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    5013.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    5014.
    
    Principal Accountant Fees and Services
    
    
    50Part IV15.
    
    Exhibits and Financial Statement Schedules
    
    
    51Signatures
    
    
    52EX-10.6 AMENDMENT NO. 3 TO 2003 STOCK OPTION PLANEX-13.1 FINANCIAL STATEMENTS AS OF DECEMBER 31, 2006EX-21 SUBSIDIARIES OF THE REGISTRANTEX-23 CONSENT OF MAULDIN & JENKINS, LLCEX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32.1 SECTION 906, CERTIFICATION OF THE CEOEX-32.2 SECTION 906, CERTIFICATION OF THE CFO
  2




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Cautionary Notice Regarding Forward-Looking Statements
   
    
    The effects of future economic conditions in our market areas and generally in the United States;
    
    United States governmental and international monetary and fiscal policies;
    
    Legislative and regulatory changes;
    
    The effects of changes in interest rates on the level and composition of deposits, loan
demand, the value of loan collateral, and interest rate risks; and
    
    The effects of competition from commercial banks, thrifts, consumer finance companies,
and other financial institutions operating in our market area and elsewhere.
  
 PART I
 
 ITEM 1. DESCRIPTION OF BUSINESS
 Integrity Bancshares, Inc.
   Integrity Bank
   3




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Types of Loans
  Construction and Development Loans
   Commercial and Residential Real Estate
    Commercial and Industrial Loans
  4




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Consumer Loans
   
    
    Home equity loans  open and closed end
    
    Vehicle financing
    
    Loans secured by deposits
    
    Overdraft protection lines
    
    Secured and unsecured personal loans
  Loan participations
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Managements policy for determining the loan loss allowance
  
    
    The asset quality of individual loans.
    
    Changes in the national and local economy and business conditions/development,
including underwriting standards, collections, charge off and recovery practices.
    
    Changes in the nature and volume of the loan portfolio.
    
    Changes in the experience, ability and depth of the lending staff and management.
    
    Changes in the trend of the volume and severity of past dues and classified loans
and trends in the volume of non-accrual loans, troubled debt restructurings and other
modifications.
    
    Possible deterioration in collateral segments or other portfolio concentrations.
    
    Historical loss experience (when available) used for pools of loans (ie. collateral
types, borrowers, purposes, etc.)
    
    Changes in the quality of the institutions loan review system and the degree of
oversight by the Banks Board of Directors.
    
    The effect of external factors such as competition and the legal and regulatory
requirement on the level of estimated credit losses in the Banks current loan
portfolio.
    
    Unfunded commitments.
     6




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Managements policy for investing in securities
  
    
    Provide an investment medium for funds which are not needed to meet loan demand or
deposit withdrawal.
    
    Optimize income generated from the investment account consistent with the stated
objectives for liquidity and quality standards.
    
    Meet regulatory standards.
    
    Provide collateral which the bank is required to pledge against public monies or borrowings.
    
    Provide an investment medium for funds which may be needed for liquidity purposes.
    
    Provide an investment medium which will balance market and credit risk for other
assets and the banks liability structure.
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Industry and competition
  de novo
 Employees
  Supervision and Regulation
 General
   Integrity Bancshares, Inc
   8




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
    
    it may acquire direct or indirect ownership or control of any voting shares of
any bank if, after such acquisition, the bank holding company will directly or
indirectly own or control more than 5% of the voting shares of the bank;
    
    it or any of its subsidiaries, other than a bank, may acquire all or
substantially all of the assets of any bank; or
    
    it may merge or consolidate with any other bank holding company.
    
    
    interstate acquisitions by institutions located in Georgia will be permitted in
states which also allow interstate acquisitions; and
    
    interstate acquisitions of institutions located in Georgia will be permitted by
institutions located in states which allow interstate acquisitions.
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Integrity Bank
   Gramm-Leach-Bliley Act of 1999
    
    
    financial in nature;
    
    incidental to an activity that is financial in nature; or
    
    complimentary to a financial activity and does not pose a substantial risk to
the safety and soundness of depository institutions or the financial system in
general.
  
    
    lending, exchanging, transferring or investing for others;
    
    safeguarding money or securities;
    
    insuring, guaranteeing, or indemnifying against loss, harm, damage, illness,
disability, or death, or providing and issuing annuities, and acting as principal,
agent, or broker for these purposes in any state;
    
    providing financial, investment or economic advice;
    
    issuing or selling interests in pools of assets that a bank could hold directly;
    
    underwriting, dealing in or making markets in securities; and
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
    
    engaging within the United States in any activity that a bank holding company
could engage in outside of the United States, if the Federal Reserve has found that
the activity was usual in connection with banking or other financial operations
internationally.
  
    
    lending, exchanging, transferring or investing for others or safeguarding
financial assets other than money or securities;
    
    providing any device or other instrumentality for transferring financial assets; and
    
    arranging, effecting or facilitating financial transactions for third parties.
  
    
    all of the bank holding companys depository institution subsidiaries must be
well capitalized;
    
    all of the bank holding companys depository institution subsidiaries must be
well managed; and
    
    the bank holding company must file with the Federal Reserve a declaration of its
election to become a financial holding company, including a certification that its
depository institution subsidiaries meet the prior two criteria.
  Payment of dividends
    
    
    that dividends of cash or property may be paid only out of the retained earnings
of the bank;
    
    that dividends may not be paid if the banks paid-in capital and retained
earnings which are set aside for dividend payment and other distributions do not,
in combination, equal at least 20% of the banks capital stock; and
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
    
    that dividends may not be paid without prior approval of the Georgia Department
of Banking and Finance if:
 
    
    the banks total classified assets exceed 80% of its equity capital;
    
    the aggregate amount of dividends to be declared exceeds 50% of the
banks net profits after taxes but before dividends for the previous
calendar year; or
    
    the ratio of equity capital to total adjusted assets is less than
6%.
  Capital adequacy
       12




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Support of subsidiary institution
  Prompt corrective action
   
    
    well capitalized if it has a total capital ratio of 10.0% or greater, a tier 1
capital ratio of 6.0% or greater and a leverage ratio of 5.0% or greater and is not
subject to any order or written directive by the appropriate regulatory authority to
meet and maintain a specific capital level for any capital measure;
    
    adequately capitalized if it has a total capital ratio of 8.0% or greater, a tier
1 capital ratio of 4.0% or greater and a leverage ratio of 4.0% or greater (3.0% in
certain circumstances) and is not well capitalized;
 13




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
    
    undercapitalized if it has a total capital ratio of less than 8.0%, a tier 1
capital ratio of less than 4.0% or a leverage ratio of less than 4.0% (3.0% in certain
circumstances);
    
    significantly undercapitalized if it has a total capital ratio of less than 6.0%,
a tier 1 capital ratio of less than 3.0% or a leverage ratio of less than 3.0%; and
    
    critically undercapitalized if its tangible equity is equal to or less than 2.0%
of average quarterly tangible assets.
    FDIC insurance assessments
     Safety and soundness standards
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Community Reinvestment Act
    USA PATRIOT Act
  
    
    to conduct enhanced scrutiny of account relationships to guard against money laundering
and report any suspicious transaction; and
    
    to ascertain the identity of the nominal and beneficial owners of, and the source of
funds deposited into, each account as needed to guard against money laundering and report
any suspicious transactions.
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
    
    the development of internal policies, procedures and controls;
    
    the designation of a compliance officer;
    
    an ongoing employee training program; and
    
    an independent audit function to test the programs.
  
    
    expeditiously search its records to determine whether it maintains or has maintained
accounts, or engaged in transactions with individuals or entities, listed in a request
submitted by the Financial Crimes Enforcement Network (FinCEN);
    
    notify FinCEN if an account or transaction is identified;
    
    designate a contact person to receive information requests;
    
    limit use of information provided by FinCEN to: (1) reporting to FinCEN, (2)
determining whether to establish or maintain an account or engage in a transaction and (3)
assisting the financial institution in complying with the Bank Secrecy Act; and
    
    maintain adequate procedures to protect the security and confidentiality of FinCEN
requests.
  
    
    notifies FinCEN of its intention to share information, even when sharing with an
affiliated financial institution;
    
    takes reasonable steps to verify that, prior to sharing, the financial institution or
association of financial institutions with which it intends to share information has
submitted a notice to FinCEN;
    
    limits the use of shared information to identifying and reporting on money laundering or
terrorist activities, determining whether to establish or maintain an account or engage in
a transaction, or assisting it in complying with the Bank Security Act; and
    
    maintains adequate procedures to protect the security and confidentiality of the
information.
  Future Legislation
  16




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ITEM 1A. RISK FACTORS
 Risk Factors
  The markets for our services are highly competitive and we face substantial competition.
   Changes in interest rates could have an adverse effect on our income.
   We have a significant amount of construction loans, which are subject to additional risks
unique to the building industry that could negatively affect our net income.
  
    
    land values may decline;
    
    developers or builders may fail to complete or develop projects;
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
    
    municipalities may place moratoriums on building;
    
    developers may fail to sell the improved real estate;
    
    there may be construction delays and cost overruns;
    
    collateral may prove insufficient; or
    
    permanent financing may not be obtained in a timely manner.
  Because a significant portion of our loan portfolio is secured by real estate, any negative
conditions affecting real estate may harm our business.
  If our allowance for loan losses is not adequate to cover actual losses, our net income may
decrease.
   If economic conditions in our market areas deteriorate, our business may be negatively
affected.
  Losing key personnel will negatively affect us.
  18




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We do not intend to pay dividends on our common stock.
  We have a limited operating history.
  We encounter technological change continually and have fewer resources than many of our
competitors to invest in technological improvements.
  We are subject to significant government regulations, including new legislation, that affect
our operations and may result in higher operating costs or increased competition for us.
     
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  19




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ITEM 2. DESCRIPTION OF PROPERTY
 Main Office and Administrative Building
   Roswell
  Vinings
  Duluth
  Cumming
  North Gwinnett
  20




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ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5.
MARKET FOR THE COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER
PURCHASES OF EQUITY
SECURITIES
 Market information
     Number of shares traded
    
    High selling price
    
    Low selling price2006:First Quarter
    
    
    743,800
    
    
    $
    14.75
    
    
    $
    11.50Second Quarter
    
    
    959,800
    
    
    
    14.90
    
    
    
    12.00Third Quarter
    
    
    329,400
    
    
    
    14.00
    
    
    
    11.50Fourth Quarter
    
    
    649,754
    
    
    
    14.49
    
    
    
    12.502005:First Quarter
    
    
    371,900
    
    
    $
    11.00
    
    
    $
    8.00Second Quarter
    
    
    479,900
    
    
    
    12.20
    
    
    
    9.75Third Quarter
    
    
    164,700
    
    
    
    12.75
    
    
    
    10.75Fourth Quarter
    
    
    538,600
    
    
    
    15.95
    
    
    
    11.00
  21




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PERFORMANCE GRAPH
  Total
Return Performance
 
 Period EndingIndex
    
    
    09/30/04
    
    
    12/31/04
    
    
    06/30/05
    
    
    12/31/05
    
    
    06/30/06
    
    
    12/31/06Integrity Bancshares, Inc.
    
    
    
    100.00
    
    
    
    
    172.37
    
    
    
    
    189.47
    
    
    
        232.89
    
    
    
    
    191.84
    
    
    
    
    204.47NASDAQ Composite
    
    
    
    100.00
    
    
    
    
    112.19
    
    
    
    
    106.44
    
    
    
    
    117.50
    
    
    
    
    116.24
    
    
    
    
    129.71SNL Southeast Bank Index
    
    
    
    100.00
    
    
    
    
    109.67
    
    
    
    
    107.64
    
    
    
    
    112.26
    
    
    
    
    118.82
    
    
    
    
    131.64
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ITEM 6. SELECTED FINANCIAL DATA
  (Dollars in thousands, except share and per share data)
    
    As of December 31,Balance Sheet Data
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Total assets
    
    $
    1,124,821
    
    
    $
    753,075
    
    
    $
    446,175
    
    
    $
    279,748
    
    
    $
    144,364Investment securities
    
    
    135,650
    
    
    
    74,999
    
    
    
    49,161
    
    
    
    27,853
    
    
    
    10,750Loans
    
    
    941,580
    
    
    
    651,778
    
    
    
    385,906
    
    
    
    238,919
    
    
    
    128,008Allowance for loan losses
    
    
    9,825
    
    
    
    5,612
    
    
    
    3,433
    
    
    
    3,573
    
    
    
    1,105Deposits
    
    
    928,787
    
    
    
    674,444
    
    
    
    373,272
    
    
    
    231,778
    
    
    
    120,133Federal Home Loan Bank advances
    
    
    5,000
    
    
    
    0
    
    
    
    15,000
    
    
    
    16,000
    
    
    
    7,000Other short-term borrowings
    
    
    1,551
    
    
    
    0
    
    
    
    4,279
    
    
    
    10,000
    
    
    
    3,115Long-term debentures
    
    
    97,022
    
    
    
    6,186
    
    
    
    6,186
    
    
    
    0
    
    
    
    0Stockholders equity
    
    
    80,372
    
    
    
    66,119
    
    
    
    43,555
    
    
    
    19,892
    
    
    
    13,819
 Year Ended December 31,Statement of Income Data
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Interest income
    
    $
    79,635
    
    
    $
    44,156
    
    
    $
    22,456
    
    
    $
    14,190
    
    
    $
    6,815Interest expense
    
    
    41,135
    
    
    
    18,684
    
    
    
    7,571
    
    
    
    4,964
    
    
    
    2,884Net interest income
    
    
    38,500
    
    
    
    25,472
    
    
    
    14,885
    
    
    
    9,226
    
    
    
    3,931Provision for loan losses
    
    
    4,323
    
    
    
    3,566
    
    
    
    2,627
    
    
    
    2,488
    
    
    
    713Net interest income after
provision for loan losses
    
    
    34,177
    
    
    
    21,906
    
    
    
    12,258
    
    
    
    6,738
    
    
    
    3,218Noninterest income
    
    
    1,268
    
    
    
    571
    
    
    
    452
    
    
    
    189
    
    
    
    88Noninterest expenses
    
    
    19,388
    
    
    
    12,466
    
    
    
    7,922
    
    
    
    4,671
    
    
    
    2,481Income tax expense
    
    
    5,920
    
    
    
    3,688
    
    
    
    1,776
    
    
    
    462
    
    
    
    0Net income
    
    
    10,137
    
    
    
    6,322
    
    
    
    3,012
    
    
    
    1,794
    
    
    
    825
 Per Share DataBook value per share at year end
    
    $
    5.44
    
    
    $
    4.60
    
    
    $
    3.41
    
    
    $
    2.42
    
    
    $
    2.15Basic earnings per share
    
    
    .69
    
    
    
    .45
    
    
    
    .28
    
    
    
    .23
    
    
    
    .14Diluted earnings per share
    
    
    .66
    
    
    
    .42
    
    
    
    .26
    
    
    
    .23
    
    
    
    .14Weighted-average shares outstanding  basic
    
    
    14,594,208
    
    
    
    14,050,847
    
    
    
    10,809,936
    
    
    
    7,717,584
    
    
    
    5,695,170Weighted-average shares outstanding  diluted
    
    
    15,418,677
    
    
    
    14,961,547
    
    
    
    11,552,676
    
    
    
    7,950,576
    
    
    
    5,695,170Dividends declared
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Dividend payout ratio
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 RatiosReturn on average assets
    
    
    1.07
    %
    
    
    1.05
    %
    
    
    .86
    %
    
    
    .81
    %
    
    
    .85
    %Return on average equity
    
    
    13.83
    %
    
    
    11.37
    %
    
    
    9.15
    %
    
    
    9.72
    %
    
    
    7.30
    %Average equity/average assets
    
    
    7.75
    %
    
    
    9.22
    %
    
    
    9.34
    %
    
    
    8.35
    %
    
    
    11.65
    %Net interest margin
    
    
    4.23
    %
    
    
    4.33
    %
    
    
    4.39
    %
    
    
    4.37
    %
    
    
    4.23
    %Non-performing assets/total loans and other
real estate
    
    
    1.47
    %
    
    
    .25
    %
    
    
    .20
    %
    
    
    1.28
    %
    
    
    0
    %Allowance for loan losses/total loans
    
    
    1.04
    %
    
    
    .86
    %
    
    
    .89
    %
    
    
    1.50
    %
    
    
    .86
    %Noninterest expense/net interest income and
noninterest income
    
    
    48.75
    %
    
    
    48.25
    %
    
    
    52.15
    %
    
    
    49.61
    %
    
    
    61.74
    %
 23




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
  Forward-Looking Statements
  Critical Accounting Policies
   Allowance for Loan Losses
  24




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Fourth Quarter 2006
  Quarters endedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,(In thousands)
    
    2006
    
    2006
    
    2006
    
    2006Interest income
    
    $
    16,572
    
    
    $
    19,265
    
    
    $
    21,046
    
    
    $
    22,752Interest expense
    
    
    7,739
    
    
    
    9,487
    
    
    
    11,042
    
    
    
    12,866Net interest income
    
    
    8,833
    
    
    
    9,778
    
    
    
    10,004
    
    
    
    9,886Provision for loan losses
    
    
    1,291
    
    
    
    848
    
    
    
    351
    
    
    
    1,833Net income
    
    
    2,177
    
    
    
    2,781
    
    
    
    3,366
    
    
    
    1,813Net income per share  basic
    
    
    .15
    
    
    
    .19
    
    
    
    .23
    
    
    
    .12Net income per share  diluted
    
    
    .14
    
    
    
    .18
    
    
    
    .22
    
    
    
    .12
 Quarters endedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,(In thousands)
    
    2005
    
    2005
    
    2005
    
    2005Interest income
    
    $
    8,287
    
    
    $
    9,994
    
    
    $
    11,369
    
    
    $
    14,506Interest expense
    
    
    3,206
    
    
    
    4,118
    
    
    
    4,926
    
    
    
    6,434Net interest income
    
    
    5,081
    
    
    
    5,876
    
    
    
    6,443
    
    
    
    8,072Provision for loan losses
    
    
    572
    
    
    
    664
    
    
    
    765
    
    
    
    1,565Net income
    
    
    1,334
    
    
    
    1,475
    
    
    
    1,898
    
    
    
    1,615Net income per share  basic (1)
    
    
    0.10
    
    
    
    0.11
    
    
    
    0.13
    
    
    
    0.11Net income per share  diluted
(1)
    
    
    0.09
    
    
    
    0.10
    
    
    
    0.12
    
    
    
    0.11
 
 (1)
    
    adjusted for the two-for-one stock split declared in fourth quarter 2005.    25




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2006 Overview
  26




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Financial Condition as of December 31, 2006 and 2005
      27




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Liquidity and Capital Resources
        ActualRegulatoryMinimumConsolidated
    
    Bank
    
    RequirementLeverage capital ratios
    
    
    10.03
    %
    
    
    10.12
    %
    
    
    5.00
    %Risk-based capital ratios:Tier one capital
    
    
    9.75
    
    
    
    9.83
    
    
    
    6.00Total capital
    
    
    12.80
    
    
    
    12.35
    
    
    
    10.00
   29




---



##### Table of Contents



Results of Operations for the Years Ended December 31, 2006, 2005 and 2004
 Net Interest Income
     30




---



##### Table of Contents



Provision for Loan Losses
   31




---



##### Table of Contents



Noninterest Income
  (Dollars in Thousands)
    
    2006
    
    2005
    
    2004Income from bank-owned life insurance
    
    $
    687
    
    
    $
    
    
    
    $
    Gain on sale of fixed assets
    
    
    354
    
    
    
    410
    
    
    
    148Overdraft fees
    
    
    45
    
    
    
    38
    
    
    
    40ATM network and surcharge fees
    
    
    38
    
    
    
    24
    
    
    
    8Wire transfer fees
    
    
    36
    
    
    
    27
    
    
    
    21Service charge income
    
    
    34
    
    
    
    23
    
    
    
    15Gain on sale of foreclosed assets
    
    
    
    
    
    
    
    
    
    
    190Other
    
    
    74
    
    
    
    49
    
    
    
    30Noninterest income
    
    $
    1,268
    
    
    $
    571
    
    
    $
    452
   32




---



##### Table of Contents



Noninterest Expense
  (Dollars in Thousands)
    
    2006
    
    2005
    
    2004Salaries and employee benefits
    
    $
    10,733
    
    
    $
    7,214
    
    
    $
    4,582Net occupancy and equipment
    
    
    2,347
    
    
    
    1,531
    
    
    
    938Legal/professional services
    
    
    933
    
    
    
    625
    
    
    
    181Loan collection and origination
    
    
    856
    
    
    
    267
    
    
    
    263Non-profit contributions
    
    
    770
    
    
    
    380
    
    
    
    197Data processing
    
    
    713
    
    
    
    574
    
    
    
    368Directors fees
    
    
    593
    
    
    
    541
    
    
    
    380Audit and exam fees
    
    
    458
    
    
    
    237
    
    
    
    170Marketing and community relations
    
    
    418
    
    
    
    249
    
    
    
    235Supplies/printing
    
    
    237
    
    
    
    140
    
    
    
    130Travel and entertainment
    
    
    207
    
    
    
    77
    
    
    
    40Telephone
    
    
    168
    
    
    
    85
    
    
    
    59Dues and memberships
    
    
    156
    
    
    
    67
    
    
    
    21Other
    
    
    799
    
    
    
    479
    
    
    
    357Noninterest expense
    
    $
    19,388
    
    
    $
    12,466
    
    
    $
    7,921
    33




---



##### Table of Contents



Income Tax
  Asset/Liability Management
  34




---



##### Table of Contents



35




---



##### Table of Contents



0  3
    
    4 - 6
    
    7 - 12
    
    1  5
    
    Over 5(Dollars in Thousands)
    
    Months
    
    Months
    
    Months
    
    Years
    
    Years
    
    TotalInterest-earning assets:Interest-bearing deposits in banks
    
    $
    86
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    86Securities
    
    
    1,022
    
    
    
    0
    
    
    
    9
    
    
    
    117,920
    
    
    
    14,972
    
    
    
    133,923Federal Home Loan Bank Stock
    
    
    1,727
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,727Loans
    
    
    900,956
    
    
    
    5,304
    
    
    
    10,835
    
    
    
    23,344
    
    
    
    1,141
    
    
    
    941,580Total interest-earning assets
    
    $
    903,791
    
    
    $
    5,304
    
    
    $
    10,844
    
    
    $
    141,264
    
    
    $
    16,113
    
    
    $
    1,077,316Interest-bearing liabilities:Interest-bearing demand deposits
    
    $
    125,446
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    125,446Savings and money markets
    
    
    31,963
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    31,963Time deposits
    
    
    108,532
    
    
    
    135,244
    
    
    
    346,682
    
    
    
    160,774
    
    
    
    0
    
    
    
    751,232Federal funds purchased
    
    
    1,551
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,551Other borrowings
    
    
    50,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    50,000Long-term debentures
    
    
    52,022
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    52,022Total interest-bearing liabilities
    
    $
    369,514
    
    
    $
    135,244
    
    
    $
    346,682
    
    
    $
    160,774
    
    
    $
    0
    
    
    $
    1,012,214Interest rate sensitivity gap
    
    $
    534,277
    
    
    $
    (129,940
    )
    
    $
    (335,838
    )
    
    $
    (19,510
    )
    
    $
    16,113
    
    
    $
    65,102Cumulative interest rate sensitivity gap
    
    $
    534,277
    
    
    $
    404,337
    
    
    $
    68,499
    
    
    $
    48,989
    
    
    $
    65,102Interest rate sensitivity gap ratio
    
    
    2.45
    
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.88
    
    
    
    Cumulative interest rate sensitivity gap
ratio
    
    
    2.45
    
    
    
    1.80
    
    
    
    1.08
    
    
    
    1.05
    
    
    
    1.06
 Selected Financial Information and Statistical Data
  36




---



##### Table of Contents



Average balances, interest income, and interest expense
  Analysis of Net Interest Income
for the Years Ended December 31, 2006, 2005, and 2004
 2006
    
    
    2005
    
    
    2004Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/(Dollars in thousands)
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    RateAssets:Deposits in banks
    
    $
    113
    
    
    $
    3
    
    
    
    2.65
    %
    
    $
    209
    
    
    $
    5
    
    
    
    2.39
    %
    
    $
    301
    
    
    $
    4
    
    
    
    1.33
    %Taxable investment
securities
    
    
    100,732
    
    
    
    4,945
    
    
    
    4.91
    
    
    
    60,812
    
    
    
    2,710
    
    
    
    4.46
    
    
    
    35,599
    
    
    
    1,593
    
    
    
    4.47Federal funds sold
    
    
    6,568
    
    
    
    316
    
    
    
    4.81
    
    
    
    1,858
    
    
    
    62
    
    
    
    3.34
    
    
    
    2,460
    
    
    
    28
    
    
    
    1.14Loans (1)
    
    
    803,026
    
    
    
    74,371
    
    
    
    9.26
    
    
    
    525,836
    
    
    
    41,379
    
    
    
    7.87
    
    
    
    301,040
    
    
    
    20,831
    
    
    
    6.92Allowance for loan losses
    
    
    (7,250
    )
    
    
    
    
    
    
    
    
    
    
    (4,572
    )
    
    
    
    
    
    
    
    
    
    
    (3,639
    )Cash and due from banks
    
    
    5,172
    
    
    
    
    
    
    
    
    
    
    
    3,575
    
    
    
    
    
    
    
    
    
    
    
    2,634Other assets
    
    
    36,973
    
    
    
    
    
    
    
    
    
    
    
    15,118
    
    
    
    
    
    
    
    
    
    
    
    13,404Total Assets
    
    $
    945,334
    
    
    
    
    
    
    
    
    
    
    $
    602,836
    
    
    
    
    
    
    
    
    
    
    $
    351,799Total interest-earning
assets
    
    $
    910,439
    
    
    
    79,635
    
    
    
    8.75
    
    
    $
    588,715
    
    
    
    44,156
    
    
    
    7.50
    
    
    $
    339,400
    
    
    
    22,456
    
    
    
    6.62Liabilities:Noninterest-bearing
demand
    
    $
    16,552
    
    
    
    
    
    
    
    
    
    
    $
    11,961
    
    
    
    
    
    
    
    
    
    
    $
    9,971Interest bearing demand
and savings
    
    
    165,380
    
    
    
    6,799
    
    
    
    4.11
    
    
    
    183,121
    
    
    
    5,974
    
    
    
    3.26
    
    
    
    137,661
    
    
    
    3,432
    
    
    
    2.49Time
    
    
    619,090
    
    
    
    30,435
    
    
    
    4.92
    
    
    
    313,816
    
    
    
    11,319
    
    
    
    3.61
    
    
    
    142,106
    
    
    
    3,512
    
    
    
    2.47Total deposits
    
    
    801,022
    
    
    
    
    
    
    
    
    
    
    
    508,898
    
    
    
    
    
    
    
    
    
    
    
    289,738Other borrowings
    
    
    62,341
    
    
    
    3,901
    
    
    
    6.26
    
    
    
    34,040
    
    
    
    1,391
    
    
    
    4.09
    
    
    
    27,100
    
    
    
    627
    
    
    
    2.31Other liabilities
    
    
    8,662
    
    
    
    
    
    
    
    
    
    
    
    4,309
    
    
    
    
    
    
    
    
    
    
    
    2,099Stockholders equity
    
    
    73,309
    
    
    
    
    
    
    
    
    
    
    
    55,589
    
    
    
    
    
    
    
    
    
    
    
    32,862Total liabilities and
stockholders
equity
    
    $
    945,334
    
    
    
    
    
    
    
    
    
    
    $
    602,836
    
    
    
    
    
    
    
    
    
    
    $
    351,799Total interest-bearing
liabilities
    
    $
    846,811
    
    
    
    41,135
    
    
    
    4.86
    
    
    $
    530,977
    
    
    
    18,684
    
    
    
    3.52
    
    
    $
    306,867
    
    
    
    7,571
    
    
    
    2.47Net interest income
    
    
    
    
    
    $
    38,500
    
    
    
    
    
    
    
    
    
    
    $
    25,472
    
    
    
    
    
    
    
    
    
    
    $
    14,885Net interest margin (2)
    
    
    
    
    
    
    
    
    
    
    4.23
    
    
    
    
    
    
    
    
    
    
    
    4.33
    
    
    
    
    
    
    
    
    
    
    
    4.39Net interest spread (3)
    
    
    
    
    
    
    
    
    
    
    3.89
    
    
    
    
    
    
    
    
    
    
    
    3.98
    
    
    
    
    
    
    
    
    
    
    
    4.15
 
 (1)
    
    Interest income from loans includes total fee income of approximately $5.2 million, $4.4
million, and $2.8 million for the years ended December 31, 2006, 2005 and 2004, respectively.
The average balance of non-accrual loans included in average loans was $2,019,000, $1,127,000,
and $2,138,000 in 2006, 2005 and 2004, respectively.(2)
    
    Net interest margin is net interest income divided by average interest-earning assets.(3)
    
    Interest rate spread is the weighted average yield on interest-earning assets minus the
average rate on interest-bearing liabilities. Rate and Volume Analysis
  
    
    change in rate (change in rate multiplied by old volume); and
 37




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##### Table of Contents




    
    change in volume (change in volume multiplied by old rate);
    
    a combination of change in rate and change in volume.
  Year Ended December 31,
    
    Year Ended December 31,2006 vs. 2005
    
    2005 vs. 2004Changes Due To:
    
    Changes Due To:(Dollars in Thousands)
    
    Volume
    
    Rate
    
    Total
    
    Volume
    
    Rate
    
    TotalIncrease (decrease) in:Income from interest-earning assets:Loans
    
    $
    24,702
    
    
    $
    8,290
    
    
    $
    32,992
    
    
    $
    17,358
    
    
    $
    3,190
    
    
    $
    20,548Investment securities
    
    
    1,864
    
    
    
    371
    
    
    
    2,235
    
    
    
    1,124
    
    
    
    (7
    )
    
    
    1,117Federal funds sold
    
    
    216
    
    
    
    38
    
    
    
    254
    
    
    
    (5
    )
    
    
    39
    
    
    
    34Deposits with other banks
    
    
    (3
    )
    
    
    1
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    2
    
    
    
    1Total interest income
    
    
    26,779
    
    
    
    8,700
    
    
    
    35,479
    
    
    
    18,476
    
    
    
    3,224
    
    
    
    21,700Expense from interest-bearing
liabilities:NOW accounts
    
    
    (554
    )
    
    
    990
    
    
    
    436
    
    
    
    1,371
    
    
    
    1,161
    
    
    
    2,532Money market accounts
    
    
    190
    
    
    
    195
    
    
    
    385
    
    
    
    (10
    )
    
    
    19
    
    
    
    9Savings accounts
    
    
    1
    
    
    
    3
    
    
    
    4
    
    
    
    0
    
    
    
    1
    
    
    
    1Time deposits
    
    
    13,922
    
    
    
    5,194
    
    
    
    19,116
    
    
    
    5,656
    
    
    
    2,151
    
    
    
    7,807Federal funds purchased
    
    
    5
    
    
    
    70
    
    
    
    75
    
    
    
    46
    
    
    
    57
    
    
    
    103Federal Home Loan Bank advances
    
    
    437
    
    
    
    (549
    )
    
    
    (112
    )
    
    
    101
    
    
    
    448
    
    
    
    549Subordinated debentures
    
    
    259
    
    
    
    0
    
    
    
    259
    
    
    
    0
    
    
    
    112
    
    
    
    112Long-term debt
    
    
    2,292
    
    
    
    (4
    )
    
    
    2,288
    
    
    
    
    
    
    
    
    
    
    
    Total interest expense
    
    
    16,552
    
    
    
    5,899
    
    
    
    22,451
    
    
    
    7,164
    
    
    
    3,949
    
    
    
    11,113Net interest income
    
    $
    10,227
    
    
    $
    2,801
    
    
    $
    13,028
    
    
    $
    11,312
    
    
    $
    (725
    )
    
    $
    10,587
 Investment Portfolio
 Types of Investments
  December 31,(Dollars in Thousands)
    
    2006
    
    
    2005
    
    
    2004Mortgage-backed securities
    
    $
    114,211
    
    
    $
    74,847
    
    
    $
    47,553U.S. Government Sponsored Agencies
    
    
    18,995
    
    
    
    
    
    
    
    Equity securities
    
    
    3,439
    
    
    
    1,765
    
    
    
    2,109$
    136,645
    
    
    $
    76,612
    
    
    $
    49,662
 38




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##### Table of Contents



Maturities
  December 31,2006
    
    
    2005
    
    
    2004Year-endWeightedAmortized
    
    
    Fair
    
    
    Avg.
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair(Dollars in Thousands)
    
    Cost
    
    
    Value
    
    
    Yield(1)
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    ValueMortgage-backed
securitiesOver one year
through five years
    
    $
    2,618
    
    
    $
    2,581
    
    
    
    4.14
    %
    
    $
    3,120
    
    
    $
    3,045
    
    
    $
    4,038
    
    
    $
    4,072Over five years
through ten years
    
    
    7,026
    
    
    
    7,004
    
    
    
    5.46
    
    
    
    2,496
    
    
    
    2,499
    
    
    
    
    
    
    
    Over ten years
    
    
    104,567
    
    
    
    103,546
    
    
    
    5.03
    
    
    
    69,232
    
    
    
    67,690
    
    
    
    43,515
    
    
    
    43,166U.S. Government
Sponsored AgenciesOver one year
through five years
    
    
    18,995
    
    
    
    19,080
    
    
    
    5.16$
    133,206
    
    
    $
    132,211
    
    
    
    5.05
    %
    
    $
    74,848
    
    
    $
    73,234
    
    
    $
    47,553
    
    
    $
    47,238
 
 (1)
    
    Yields were computed using coupon interest, adding discount accretion or subtracting premium
amortization, as appropriate, on a ratable basis over the life of each security. The weighted
average yield for each maturity range was computed using the carrying value of each security
in that range. 39




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##### Table of Contents



Loan Portfolio
 Types of Loans
  December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002% of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of(Dollars in Thousands)
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    Loans
    
    
    Amount
    
    
    LoansCommercial
    
    $
    47,803
    
    
    
    5
    %
    
    $
    46,296
    
    
    
    7
    %
    
    $
    11,181
    
    
    
    3
    %
    
    $
    16,071
    
    
    
    7
    %
    
    $
    11,751
    
    
    
    9
    %Real estate-construction
    
    
    658,971
    
    
    
    70
    
    
    
    384,990
    
    
    
    59
    
    
    
    214,104
    
    
    
    56
    
    
    
    123,882
    
    
    
    52
    
    
    
    51,715
    
    
    
    40Real estate-commercial
    
    
    189,420
    
    
    
    20
    
    
    
    191,400
    
    
    
    30
    
    
    
    141,129
    
    
    
    36
    
    
    
    81,481
    
    
    
    34
    
    
    
    62,487
    
    
    
    49Real estate-mortgage
    
    
    44,598
    
    
    
    5
    
    
    
    27,974
    
    
    
    4
    
    
    
    18,972
    
    
    
    5
    
    
    
    16,920
    
    
    
    7
    
    
    
    1,453
    
    
    
    1Consumer installment
and other
    
    
    1,193
    
    
    
    
    
    
    
    1,426
    
    
    
    
    
    
    
    614
    
    
    
    
    
    
    
    723
    
    
    
    
    
    
    
    856
    
    
    
    1941,985
    
    
    
    100
    %
    
    
    652,086
    
    
    
    100
    %
    
    
    386,000
    
    
    
    100
    %
    
    
    239,077
    
    
    
    100
    %
    
    
    128,262
    
    
    
    100
    %Less:Allowance for loan
losses
    
    
    (9,825
    )
    
    
    
    
    
    
    (5,612
    )
    
    
    
    
    
    
    (3,433
    )
    
    
    
    
    
    
    (3,573
    )
    
    
    
    
    
    
    (1,104
    )Deferred loan fees
    
    
    (405
    )
    
    
    
    
    
    
    (308
    )
    
    
    
    
    
    
    (94
    )
    
    
    
    
    
    
    (158
    )
    
    
    
    
    
    
    (255
    )Net loans
    
    $
    931,755
    
    
    
    
    
    
    $
    646,166
    
    
    
    
    
    
    $
    382,473
    
    
    
    
    
    
    $
    235,346
    
    
    
    
    
    
    $
    126,903
 Maturities and Sensitivities of Loans to Changes in Interest Rates
  December 31,(Dollars in Thousands)
    
    2006
    
    
    2005CommercialOne year or less
    
    $
    43,933
    
    
    $
    16,036After one through five years
    
    
    2,504
    
    
    
    28,202After five years
    
    
    1,366
    
    
    
    2,05847,803
    
    
    
    46,296ConstructionOne year or less
    
    
    392,356
    
    
    
    81,371After one through five years
    
    
    266,147
    
    
    
    298,639After five years
    
    
    468
    
    
    
    4,980658,971
    
    
    
    384,990Real Estate MortgageOne year or less
    
    
    100,299
    
    
    
    17,053After one through five years
    
    
    121,458
    
    
    
    164,557After five years
    
    
    12,261
    
    
    
    37,764234,018
    
    
    
    219,374Consumer & OtherOne year or less
    
    
    850
    
    
    
    1,202After one through five years
    
    
    308
    
    
    
    220After five years
    
    
    35
    
    
    
    41,193
    
    
    
    1,426$
    941,985
    
    
    $
    652,086
 40




---



##### Table of Contents



December 31,(Dollars in Thousands)
    
    2006
    
    
    2005Predetermined interest rates
    
    $
    21,643
    
    
    $
    1,092Floating or adjustable interest rates
    
    
    382,904
    
    
    
    535,332$
    404,547
    
    
    $
    536,424
 Risk Elements
  December 31,(Dollars in Thousands)
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Non-accrual loans
    
    $
    13,351
    
    
    $
    1,652
    
    
    $
    779
    
    
    $
    2,869
    
    
    $
    0Loans contractually past due 90 days or
more as to interest or principal payments
and still accruing
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Restructured loans
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Loans, now current about which there are
serious doubts as to the ability of the
borrower to comply with loan repayment
terms
    
    
    389
    
    
    
    817
    
    
    
    307
    
    
    
    480
    
    
    
    0Interest income that would have been
recorded on non-accrual and restructured
loans under original terms
    
    
    141
    
    
    
    186
    
    
    
    19
    
    
    
    141
    
    
    
    0Interest income that was recorded on
non-accrual and restructured loans
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    41




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##### Table of Contents



Summary of Loan Loss Experience
  Year Ended December 31,(Dollars in Thousands)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Average amount of loans outstanding
    
    $
    803,026
    
    
    $
    525,836
    
    
    $
    301,040
    
    
    $
    184,430
    
    
    $
    79,864Balance of allowance for loan losses
at beginning of year
    
    $
    5,612
    
    
    $
    3,433
    
    
    $
    3,573
    
    
    $
    1,104
    
    
    $
    392Loans charged off:Consumer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    Real estate mortgage
    
    
    (159
    )
    
    
    (879
    )
    
    
    (550
    )
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    (563
    )
    
    
    (2,292
    )
    
    
    
    
    
    
    (159
    )
    
    
    (1,442
    )
    
    
    (2,842
    )
    
    
    (20
    )
    
    
    Loans recovered:Real estate mortgage
    
    
    
    
    
    
    55
    
    
    
    75
    
    
    
    
    
    
    
    Commercial
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49
    
    
    
    55
    
    
    
    75
    
    
    
    
    
    
    
    Net charge-offs
    
    
    (110
    )
    
    
    (1,387
    )
    
    
    (2,767
    )
    
    
    (20
    )
    
    
    Additions to allowance charged to operating
expense during year
    
    
    4,323
    
    
    
    3,566
    
    
    
    2,627
    
    
    
    2,489
    
    
    
    712Balance of allowance for loan losses at
end of year
    
    $
    9,825
    
    
    $
    5,612
    
    
    $
    3,433
    
    
    $
    3,573
    
    
    $
    1,104Ratio of net loans charged off during the
year to average loans outstanding
    
    
    0.01
    %
    
    
    0.26
    %
    
    
    0.92
    %
    
    
    0.01
    %
    
    
    
 Allowance for Loan Losses
   42




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##### Table of Contents



December 31, 2006
    
    
    December 31, 2005
    
    
    December 31, 2004
    
    
    December 31, 2003
    
    
    December 31, 2002Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percentof loans
    
    
    
    
    
    
    of loans
    
    
    
    
    
    
    of loans
    
    
    
    
    
    
    loans in
    
    
    
    
    
    
    of loansin each
    
    
    
    
    
    
    in each
    
    
    
    
    
    
    in each
    
    
    
    
    
    
    each
    
    
    
    
    
    
    in eachcategory
    
    
    
    
    
    
    category
    
    
    
    
    
    
    category
    
    
    
    
    
    
    category
    
    
    
    
    
    
    category(Dollars in
    
    
    
    
    
    to total
    
    
    
    
    
    
    to total
    
    
    
    
    
    
    to total
    
    
    
    
    
    
    to total
    
    
    
    
    
    
    to totalThousands)
    
    Amount
    
    
    loans
    
    
    Amount
    
    
    loans
    
    
    Amount
    
    
    loans
    
    
    Amount
    
    
    loans
    
    
    Amount
    
    
    loansCommercial
    
    $
    435
    
    
    
    5.07
    %
    
    $
    427
    
    
    
    7.10
    %
    
    $
    243
    
    
    
    2.90
    %
    
    $
    1,368
    
    
    
    6.73
    %
    
    $
    101
    
    
    
    9.16
    %Real
estate-construction
    
    
    6,363
    
    
    
    69.96
    
    
    
    3,156
    
    
    
    59.04
    
    
    
    1,828
    
    
    
    55.46
    
    
    
    1,087
    
    
    
    51.85
    
    
    
    446
    
    
    
    40.32Real
estate-commercial
    
    
    2,442
    
    
    
    20.11
    
    
    
    1,761
    
    
    
    29.35
    
    
    
    1,196
    
    
    
    36.56
    
    
    
    921
    
    
    
    34.08
    
    
    
    538
    
    
    
    48.72Real estate-mortgage
    
    
    575
    
    
    
    4.73
    
    
    
    257
    
    
    
    4.29
    
    
    
    161
    
    
    
    4.92
    
    
    
    191
    
    
    
    7.04
    
    
    
    13
    
    
    
    1.13Consumer
installment loans
and other
    
    
    10
    
    
    
    0.13
    
    
    
    11
    
    
    
    .22
    
    
    
    5
    
    
    
    0.16
    
    
    
    6
    
    
    
    .30
    
    
    
    6
    
    
    
    .67$
    9,825
    
    
    
    100.00
    
    
    $
    5,612
    
    
    
    100.00
    
    
    $
    3,433
    
    
    
    100.00
    
    
    $
    3,573
    
    
    
    100.00
    
    
    $
    1,104
    
    
    
    100.00
 Deposits
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(Dollars in Thousands)
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentNon-interest-bearing demand
deposits
    
    $
    16,552
    
    
    
    
    %
    
    $
    11,961
    
    
    
    
    %
    
    $
    9,971
    
    
    
    
    %Interest-bearing demand deposits
    
    
    165,046
    
    
    
    4.12
    
    
    
    182,877
    
    
    
    3.27
    
    
    
    137,384
    
    
    
    2.50Savings deposits
    
    
    334
    
    
    
    1.73
    
    
    
    244
    
    
    
    0.82
    
    
    
    277
    
    
    
    0.47Time deposits
    
    
    619,090
    
    
    
    4.92
    
    
    
    313,816
    
    
    
    3.61
    
    
    
    142,106
    
    
    
    2.47Total
    
    $
    801,022
    
    
    
    
    
    
    $
    508,898
    
    
    
    
    
    
    $
    289,738
  (Dollars in Thousands)
    
    December 31, 2006Three months or less
    
    $
    44,613Over three through six months
    
    
    54,562Over six through twelve months
    
    
    57,022Over twelve months
    
    
    13,418Total
    
    $
    169,615
 43




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##### Table of Contents



Return on Assets and Stockholders Equity
  Year Ended December 31,2006
    
    2005Return on assets (1)
    
    
    1.07
    %
    
    
    1.05
    %Return on equity (2)
    
    
    13.83
    
    
    
    11.37Dividend payout ratio (3)
    
    
    0
    
    
    
    0Equity to assets ratio (4)
    
    
    7.75
    
    
    
    9.22
 
 (1)
    
    Net income divided by average total assets.(2)
    
    Net income divided by average equity.(3)
    
    Dividends declared per share of common stock divided by net income per share.(4)
    
    Average common equity divided by average total assets Commitments and Contractual Obligations
  (Dollars in Thousands)
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterDemand and Savings
    
    $
    177,556
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Time Deposits
    
    
    596,862
    
    
    
    112,261
    
    
    
    29,623
    
    
    
    5,785
    
    
    
    6,700
    
    
    
    FHLB Advances
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other borrowed funds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,000Long-term debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    52,022Commitments to customers
under lines of credit
    
    
    334,126
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commitments under lease
agreements
    
    
    594
    
    
    
    560
    
    
    
    373
    
    
    
    
    
    
    
    
    
    
    
    $
    1,114,138
    
    
    $
    112,821
    
    
    $
    29,996
    
    
    $
    5,785
    
    
    $
    6,700
    
    
    $
    97,022
 44




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##### Table of Contents



Off-Balance Sheet Arrangements
  Effects of Inflation
  45




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Expected Maturity Date(Dollars in thousands)
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    Total
    
    
    Fair ValueAssetsInvestment SecuritiesFixed rate
    
    $
    10,497
    
    
    $
    9,320
    
    
    $
    11,265
    
    
    $
    29,792
    
    
    $
    27,910
    
    
    $
    1,493
    
    
    $
    90,277
    
    
    $
    89,622Average interest rate
    
    
    5.24
    %
    
    
    5.24
    %
    
    
    5.23
    %
    
    
    5.19
    %
    
    
    5.18
    %
    
    
    4.85
    %
    
    
    5.16
    %Variable rate
    
    
    4,373
    
    
    
    4,006
    
    
    
    4,253
    
    
    
    9,244
    
    
    
    20,660
    
    
    
    2,104
    
    
    
    44,640
    
    
    
    44,301Average interest rate
    
    
    4.74
    %
    
    
    4.79
    %
    
    
    5.48
    %
    
    
    6.71
    %
    
    
    6.95
    %
    
    
    7.00
    %
    
    
    6.35
    %LoansFixed rate
    
    
    28,061
    
    
    
    9,779
    
    
    
    13,053
    
    
    
    213
    
    
    
    1,172
    
    
    
    51
    
    
    
    52,329
    
    
    
    52,862Average interest rate
    
    
    7.39
    %
    
    
    8.40
    %
    
    
    8.63
    %
    
    
    7.73
    %
    
    
    6.69
    %
    
    
    5.75
    %
    
    
    7.87
    %Variable rate
    
    
    528,857
    
    
    
    283,904
    
    
    
    64,390
    
    
    
    2,674
    
    
    
    8,993
    
    
    
    433
    
    
    
    889,251
    
    
    
    889,251Average interest rate
    
    
    8.89
    %
    
    
    8.83
    %
    
    
    8.67
    %
    
    
    8.88
    %
    
    
    9.20
    %
    
    
    9.04
    %
    
    
    8.86
    %Interest-bearing deposits
with other banksVariable rate
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    86Average interest rate
    
    
    2.65
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.65
    %LiabilitiesInterest-bearing deposits
and savingsVariable rate
    
    
    156,523
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156,523
    
    
    
    156,523Average interest rate
    
    
    4.12
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.12
    %Time deposits
    
    
    597,037
    
    
    
    112,763
    
    
    
    29,777
    
    
    
    12,541
    
    
    
    
    
    
    
    
    
    
    
    752,118
    
    
    
    752,694Average interest rate
    
    
    5.31
    %
    
    
    5.05
    %
    
    
    5.31
    %
    
    
    5.15
    %
    
    
    
    
    
    
    
    
    
    
    5.26
    %Variable rate short-term
borrowings
    
    
    6,551
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,551
    
    
    
    6,551Average interest rate
    
    
    5.35
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.35
    %Variable rate long-term
borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,022
    
    
    
    97,022
    
    
    
    96,453Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.14
    %
    
    
    6.14
    %
 46




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
     /s/ Steven M. SkowSteven M. SkowPresident and Chief Executive Officer/s/ Suzanne LongSuzanne LongChief Financial Officer
 47




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal ControlIntegrated Framework
    Internal Control-Integrated Framework Internal Control-Integrated Framework
 48




---



##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
  49




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##### Table of Contents



PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 www.myintegritybank.com.
 
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
  Equity
Compensation Plan Table(a)
    
    (b)
    
    (c)Weighted-
    
    Number of securitiesaverage exercise
    
    remaining available forNumber of securities
    
    price of
    
    future issuance underto be issued upon
    
    outstanding
    
    equity compensationexercise of
    
    options,
    
    plans (excludingoutstanding options,
    
    warrants and
    
    securities reflected inPlan category
    
    warrants and rights
    
    rights
    
    column (a))Equity compensation
plans approved by
security holders
    
    
    1,511,466
    
    
    $
    4.81
    
    
    
    334,538Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,511,466
    
    
    $
    4.81
    
    
    
    334,538
  
 ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  50




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##### Table of Contents



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  ExhibitNumber
    

Description3.1
    
    Articles of incorporation, as amended (incorporated by reference to Exhibit
3.1 to Form SB-2 filed by the Registrant on January 25, 2000  File No.
333-95335)3.2
    
    Bylaws (incorporated by reference to Exhibit 3.2 to Form SB-2 filed by the
Registrant on January 25, 2000  File Nos. 333-95335)10.1
    
    Employment agreement with Steven M. Skow (incorporated by reference to
Exhibit 10.1 to the Registrants Form 10-QSB for the period ended June 30,
2003 as filed with the SEC on August 29, 2003)*10.2
    
    2003 Stock Option Plan (incorporated by reference to Exhibit 10.5 to the
Registrants Form 10-QSB for the period ended June 30, 2003 as filed with the
SEC on August 29, 2003)*10.3
    
    Amendment No. 1 to 2003 Stock Option Plan (incorporated by reference to
Exhibit 10.6 to the Registrants Form 10-KSB for the period ended December
31, 2004 as filed with the SEC on March 30, 2005)*10.4
    
    Amendment No. 2 to 2003 Stock Option Plan (incorporated by reference to
Exhibit 10.7 to the Registrants Form 10-KSB for the period ended December
31, 2004 as filed with the SEC on March 30, 2005)*10.5
    
    2003 Directors Stock Option Plan (incorporated by reference to Exhibit 10.6
to the Registrants Form 10-QSB for the period ended June 30, 2003 as filed
with the SEC on August 29, 2003)*10.6
    
    Amendment No. 3 to 2003 Stock Option Plan*13.1
    
    Integrity Bancshares, Inc. Financial Statements as of December 31, 200621
    
    Subsidiaries of the Registrant23
    
    Consent of Mauldin & Jenkins, LLC31.1
    
    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 
 *
    
    Denotes management contract or compensatory plan or arrangement. 51




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##### Table of Contents



SIGNATURES
  INTEGRITY BANCSHARES, INC.(Registrant)By:
    /s/ Steven M. SkowSteven M. SkowPresident and Chief
Executive Officer

Date: March 13, 2007  /s/ Steven M. Skow

Steven M. Skow, President,
Chief Executive Officer and Director
[Principal Executive Officer]
    
    
    
    Date: March 13, 2007/s/ Suzanne Long
    
    
    
    Date: March 13, 2007Suzanne Long, Senior Vice-
President & C.F.O
[Principal Financial Officer and
Principal Accounting Officer]/s/ Clinton M. Day
    
    
    
    Date: March 12, 2007Clinton M. Day, Director/s/ Joseph J. Ernest
    
    
    
    Date: March 12, 2007Joseph J. Ernest, Director/s/ Don C. Hartsfield
    
    
    
    Date: March 13, 2007Don C. Hartsfield, Director/s/ Jack S. Murphy
    
    
    
    Date: March 12, 2007Jack S. Murphy, Director/s/ Richard H. Peden, Sr.
    
    
    
    Date: March 12, 2007Richard H. Peden, Sr, Director/s/ Charles J. Puckett
    
    
    
    Date: March 12, 2007Charles J. Puckett, Director/s/ Gerald O. Reynolds
    
    
    
    Date: March 12, 2007Gerald O. Reynolds, Director/s/Robert S. Wholey
    
    
    
    Date: March 12, 2007Robert S. Wholey, Director
 52