##### 



EXHIBIT 13.1
 INTEGRITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED FINANCIAL REPORT
 DECEMBER 31, 2006




---



##### 



INTEGRITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 2006
 TABLE OF CONTENTS
 PageREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    1FINANCIAL STATEMENTSConsolidated balance sheets
    
    
    2Consolidated statements of income
    
    
    3Consolidated statements of comprehensive income
    
    
    4Consolidated statements of stockholders equity
    
    
    5Consolidated statements of cash flows
    
    
    6Notes to consolidated financial statements
    
    
    7-33




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 To the Board of Directors
Integrity Bancshares, Inc.
Alpharetta, Georgia
 Integrity Bancshares, Inc. and subsidiary
   Internal Control-Integrated Framework




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##### 



INTEGRITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
 2006
    
    
    2005AssetsCash and due from banks
    
    $
    5,718,668
    
    
    $
    5,068,295Interest-bearing deposits in banks
    
    
    85,515
    
    
    
    66,786Federal funds sold
    
    
    
    
    
    
    6,243,000Securities available for sale
    
    
    133,923,121
    
    
    
    74,109,900Restricted equity securities, at cost
    
    
    1,727,100
    
    
    
    889,300Loans
    
    
    941,579,864
    
    
    
    651,778,460Less allowance for loan losses
    
    
    9,824,866
    
    
    
    5,612,162Loans, net
    
    
    931,754,998
    
    
    
    646,166,298Premises and equipment
    
    
    15,372,097
    
    
    
    11,864,983Bank owned life insurance
    
    
    20,686,796
    
    
    
    Other assets
    
    
    15,553,029
    
    
    
    8,666,516Total assets
    
    $
    1,124,821,324
    
    
    $
    753,075,078Liabilities and Stockholders EquityLiabilities:Deposits:Noninterest-bearing
    
    $
    20,146,126
    
    
    $
    13,046,167Interest-bearing
    
    
    908,640,657
    
    
    
    661,397,590Total deposits
    
    
    928,786,783
    
    
    
    674,443,757Federal funds purchased
    
    
    1,551,000
    
    
    
    Other borrowings
    
    
    50,000,000
    
    
    
    Subordinated long-term debentures
    
    
    52,022,000
    
    
    
    6,186,000Other liabilities
    
    
    12,089,477
    
    
    
    6,326,137Total liabilities
    
    
    1,044,449,260
    
    
    
    686,955,894Commitments and contingenciesStockholders equity:Common stock, no par value, 50,000,000 shares authorized;
14,764,538 and 14,361,542 shares issued, respectively
    
    
    60,723,092
    
    
    
    56,991,897Retained earnings
    
    
    20,280,356
    
    
    
    10,143,755Accumulated other comprehensive loss
    
    
    (631,384
    )
    
    
    (1,016,468
    )Total stockholders equity
    
    
    80,372,064
    
    
    
    66,119,184Total liabilities and stockholders equity
    
    $
    1,124,821,324
    
    
    $
    753,075,078
 See Notes to Consolidated Financial Statements.
 2




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##### 



INTEGRITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
 2006
    
    
    2005
    
    
    2004Interest income:Loans, including fees
    
    $
    74,371,120
    
    
    $
    41,379,076
    
    
    $
    20,830,692Securities
    
    
    4,943,988
    
    
    
    2,709,786
    
    
    
    1,593,333Federal funds sold
    
    
    316,305
    
    
    
    62,170
    
    
    
    27,906Deposits in banks
    
    
    3,343
    
    
    
    5,015
    
    
    
    3,700Total interest income
    
    
    79,634,756
    
    
    
    44,156,047
    
    
    
    22,455,631Interest expense:Deposits
    
    
    37,233,791
    
    
    
    17,293,051
    
    
    
    6,943,923Federal funds purchased and other borrowings
    
    
    3,900,660
    
    
    
    1,391,202
    
    
    
    627,188Total interest expense
    
    
    41,134,451
    
    
    
    18,684,253
    
    
    
    7,571,111Net interest income
    
    
    38,500,305
    
    
    
    25,471,794
    
    
    
    14,884,520Provision for loan losses
    
    
    4,323,396
    
    
    
    3,566,212
    
    
    
    2,627,348Net interest income after provision
for loan losses
    
    
    34,176,909
    
    
    
    21,905,582
    
    
    
    12,257,172Other income:Service charges on deposit accounts
    
    
    79,186
    
    
    
    61,009
    
    
    
    54,781Income from bank owned life insurance
    
    
    686,796
    
    
    
    
    
    
    
    Other operating income
    
    
    501,652
    
    
    
    509,719
    
    
    
    397,385Total other income
    
    
    1,267,634
    
    
    
    570,728
    
    
    
    452,166Other expenses:Salaries and employee benefits
    
    
    10,733,253
    
    
    
    7,214,234
    
    
    
    4,581,670Equipment and occupancy expenses
    
    
    2,346,768
    
    
    
    1,530,606
    
    
    
    937,537Other operating expenses
    
    
    6,307,846
    
    
    
    3,720,845
    
    
    
    2,402,075Total other expenses
    
    
    19,387,867
    
    
    
    12,465,685
    
    
    
    7,921,282Income before income taxes
    
    
    16,056,676
    
    
    
    10,010,625
    
    
    
    4,788,056Income taxes
    
    
    5,920,075
    
    
    
    3,688,273
    
    
    
    1,775,674Net income
    
    $
    10,136,601
    
    
    $
    6,322,352
    
    
    $
    3,012,382Basic earnings per share
    
    $
    0.69
    
    
    $
    0.45
    
    
    $
    0.28Diluted earnings per share
    
    $
    0.66
    
    
    $
    0.42
    
    
    $
    0.26
 See Notes to Consolidated Financial Statements.
 3




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##### 



INTEGRITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
 2006
    
    
    2005
    
    
    2004Net income
    
    $
    10,136,601
    
    
    $
    6,322,352
    
    
    $
    3,012,382Other comprehensive income (loss):Unrealized gains (losses) on securities available-for-sale:Net unrealized holding gains (losses) arising during
period, net
of (tax) benefits of ($232,846), $479,730, and $155,280,
respectively
    



385,084
    
    
    
    (817,720
    )
    
    
    (261,694
    )Comprehensive income
    
    $
    10,521,685
    
    
    $
    5,504,632
    
    
    $
    2,750,688
 See Notes to Consolidated Financial Statements.
 4




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##### 



INTEGRITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
 AccumulatedCommon Stock
    
    
    
    
    
    
    Other
    
    
    TotalAmount
    
    
    Retained
    
    
    Comprehensive
    
    
    StockholdersShares
    
    
    Paid-in
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalance, December 31, 2003
    
    
    2,744,157
    
    
    $
    19,020,303
    
    
    $
    809,021
    
    
    $
    62,946
    
    
    $
    19,892,270Net income
    
    
    
    
    
    
    
    
    
    
    3,012,382
    
    
    
    
    
    
    
    3,012,382Issuance of common stock
    
    
    1,512,935
    
    
    
    20,309,609
    
    
    
    
    
    
    
    
    
    
    
    20,309,609Stock compensation expense
    
    
    
    
    
    
    602,259
    
    
    
    
    
    
    
    
    
    
    
    602,2593-for-2 common stock split
    
    
    2,128,546
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (261,694
    )
    
    
    (261,694
    )Balance, December 31, 2004
    
    
    6,385,638
    
    
    
    39,932,171
    
    
    
    3,821,403
    
    
    
    (198,748
    )
    
    
    43,554,826Net income
    
    
    
    
    
    
    
    
    
    
    6,322,352
    
    
    
    
    
    
    
    6,322,352Issuance of common stock
    
    
    795,133
    
    
    
    15,744,996
    
    
    
    
    
    
    
    
    
    
    
    15,744,996Stock compensation expense
    
    
    
    
    
    
    1,159,512
    
    
    
    
    
    
    
    
    
    
    
    1,159,512Tax benefit from exercise of stock options
    
    
    
    
    
    
    155,218
    
    
    
    
    
    
    
    
    
    
    
    155,2182-for-1 common stock split
    
    
    7,180,771
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (817,720
    )
    
    
    (817,720
    )Balance, December 31, 2005
    
    
    14,361,542
    
    
    
    56,991,897
    
    
    
    10,143,755
    
    
    
    (1,016,468
    )
    
    
    66,119,184Net income
    
    
    
    
    
    
    
    
    
    
    10,136,601
    
    
    
    
    
    
    
    10,136,601Issuance of common stock
    
    
    402,996
    
    
    
    1,260,491
    
    
    
    
    
    
    
    
    
    
    
    1,260,491Stock compensation expense
    
    
    
    
    
    
    1,557,357
    
    
    
    
    
    
    
    
    
    
    
    1,557,357Tax benefit from exercise of stock options
    
    
    
    
    
    
    913,347
    
    
    
    
    
    
    
    
    
    
    
    913,347Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    385,084
    
    
    
    385,084Balance, December 31, 2006
    
    
    14,764,538
    
    
    $
    60,723,092
    
    
    $
    20,280,356
    
    
    $
    (631,384
    )
    
    $
    80,372,064
 See Notes to Consolidated Financial Statements.
 5




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##### 



INTEGRITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
 2006
    
    
    2005
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    10,136,601
    
    
    $
    6,322,352
    
    
    $
    3,012,382Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation, accretion and amortization
    
    
    783,080
    
    
    
    571,115
    
    
    
    429,654Provision for loan losses
    
    
    4,323,396
    
    
    
    3,566,212
    
    
    
    2,627,348Stock compensation
    
    
    1,557,357
    
    
    
    1,159,512
    
    
    
    602,259Deferred income taxes
    
    
    (2,056,451
    )
    
    
    (1,321,872
    )
    
    
    (531,655
    )Increase in interest receivable
    
    
    (2,858,859
    )
    
    
    (2,114,063
    )
    
    
    (842,526
    )Increase in interest payable
    
    
    5,775,878
    
    
    
    1,239,945
    
    
    
    940,688Excess tax benefits from exercise of options
    
    
    (913,347
    )
    
    
    (155,218
    )
    
    
    Increase (decrease) in income taxes payable
    
    
    976,437
    
    
    
    1,016,244
    
    
    
    (1,701,759
    )Income from bank owned life insurance
    
    
    (686,796
    )
    
    
    
    
    
    
    (Gain) loss on sale of other real estate
    
    
    120,715
    
    
    
    
    
    
    
    (190,024
    )Gain on sale of premises and equipment
    
    
    (354,400
    )
    
    
    (412,500
    )
    
    
    (147,923
    )Net other operating activities
    
    
    (3,729,617
    )
    
    
    671,956
    
    
    
    436,326Net cash provided by operating activities
    
    
    13,073,994
    
    
    
    10,543,683
    
    
    
    4,634,770INVESTING ACTIVITIESNet (increase) decrease in interest-bearing deposits in banks
    
    
    (18,729
    )
    
    
    221,176
    
    
    
    (174,008
    )Net decrease (increase) in federal funds sold
    
    
    6,243,000
    
    
    
    (6,243,000
    )
    
    
    2,439,000Proceeds from maturities of securities available-for-sale
    
    
    15,257,774
    
    
    
    14,650,628
    
    
    
    15,283,233Purchases of securities available-for-sale
    
    
    (74,438,353
    )
    
    
    (41,944,145
    )
    
    
    (36,425,538
    )(Purchases) redemptions of restricted equity securities
    
    
    (837,800
    )
    
    
    343,300
    
    
    
    (582,600
    )Purchase of bank owned life insurance
    
    
    (20,000,000
    )
    
    
    
    
    
    
    Net increase in loans
    
    
    (289,912,095
    )
    
    
    (267,259,858
    )
    
    
    (152,033,595
    )Proceeds from sale of other real estate
    
    
    1,329,225
    
    
    
    
    
    
    
    2,693,669Proceeds from sale of premises and equipment
    
    
    
    
    
    
    
    
    
    
    4,996,500Purchase of premises and equipment
    
    
    (3,950,507
    )
    
    
    (4,155,702
    )
    
    
    (2,333,013
    )Net cash used in investing activities
    
    
    (366,327,485
    )
    
    
    (304,387,601
    )
    
    
    (166,136,352
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    254,343,026
    
    
    
    301,171,506
    
    
    
    141,494,529Net increase (decrease) in federal funds purchased
    
    
    1,551,000
    
    
    
    (4,279,000
    )
    
    
    (5,721,000
    )Net increase in long-term debentures
    
    
    45,836,000
    
    
    
    
    
    
    
    Net proceeds (repayments) from other borrowings
    
    
    50,000,000
    
    
    
    (15,000,000
    )
    
    
    5,000,000Proceeds from exercise of stock options
    
    
    1,260,491
    
    
    
    595,427
    
    
    
    Excess tax benefits from exercise of options
    
    
    913,347
    
    
    
    155,218
    
    
    
    Net proceeds from sale of common stock
    
    
    
    
    
    
    14,994,351
    
    
    
    20,309,609Net cash provided by financing activities
    
    
    353,903,864
    
    
    
    297,637,502
    
    
    
    161,083,138Net increase (decrease) in cash and due from banks
    
    
    650,373
    
    
    
    3,793,584
    
    
    
    (418,444
    )Cash and due from banks at beginning of year
    
    
    5,068,295
    
    
    
    1,274,711
    
    
    
    1,693,155Cash and due from banks at end of year
    
    $
    5,718,668
    
    
    $
    5,068,295
    
    
    $
    1,274,711SUPPLEMENTAL DISCLOSURECash paid for:Interest
    
    $
    35,358,573
    
    
    $
    17,444,308
    
    
    $
    6,630,423Income taxes
    
    $
    8,501,455
    
    
    $
    4,149,119
    
    
    $
    4,009,088NONCASH TRANSACTIONSOther real estate acquired in settlement of loans
    
    $
    2,535,027
    
    
    $
    
    
    
    $
    
 See Notes to Consolidated Financial Statements.
 6




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##### 



INTEGRITY BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
  Basis of Presentation and Accounting Estimates
    Cash, Due From Banks and Cash Flows
   7




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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Securities
   Loans
      8




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Allowance for Loan Losses
    Premises and Equipment
  Buildings
    
    40 yearsEquipment
    
    3-7 years
 Other Real Estate Owned
  9




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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Income Taxes
  Earnings Per Share
  Stock-Based Compensation
 Accounting for Stock Issued to Employees
   10




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Accounting for Stock-Based Compensation
 Years Ended December 31,2005
    
    
    2004Net income, as reported
    
    $
    6,322,352
    
    
    $
    3,012,382Stock-based employee compensation expense
included in net income, net of tax
    
    
    (39,719
    )
    
    
    230,673Pro forma net income
    
    $
    6,282,633
    
    
    $
    3,243,055Earnings per share:Basic  as reported
    
    $
    0.45
    
    
    $
    0.28Basic  pro forma
    
    $
    0.45
    
    
    $
    0.30Diluted  as reported
    
    $
    0.42
    
    
    $
    0.26Diluted  pro forma
    
    $
    0.42
    
    
    $
    0.28
  Comprehensive Income
  Reclassification of Certain Expenses
  Recent Developments
 Accounting Changes and Error Corrections
 Accounting Changes and Error Corrections, a
Replacement of APB Opinion 20 and FASB Statement 3
 11




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Accounting for Servicing of Financial Assets
 Accounting for Servicing of Financial
Assets  an amendment of FASB Statement 140 Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities
 Accounting for Uncertainty in Income Taxes
 Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement 109 Accounting for Income Taxes
 Fair Value Measurements
 Fair Value Measurements
 Considering the Effects of Misstatements
 Financial
Statements  Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
 12




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2.
    
    SECURITIES AVAILABLE FOR SALE
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2006:Equity securities
    
    $
    1,712,000
    
    
    $
    
    
    
    $
    
    
    
    $
    1,712,000Government sponsored agencies
    
    
    18,995,102
    
    
    
    119,288
    
    
    
    (34,350
    )
    
    
    19,080,040Mortgage-backed securities
    
    
    114,210,987
    
    
    
    191,349
    
    
    
    (1,271,255
    )
    
    
    113,131,081$
    134,918,089
    
    
    $
    310,637
    
    
    $
    (1,305,605
    )
    
    $
    133,923,121December 31, 2005:Equity securities
    
    $
    876,000
    
    
    $
    
    
    
    $
    
    
    
    $
    876,000Mortgage-backed securities
    
    
    74,846,798
    
    
    
    27,040
    
    
    
    (1,639,938
    )
    
    
    73,233,900$
    75,722,798
    
    
    $
    27,040
    
    
    $
    (1,639,938
    )
    
    $
    74,109,900
  Amortized
    
    
    FairCost
    
    
    ValueDue from one to five years
    
    $
    18,995,102
    
    
    $
    19,080,040Mortgage-backed securities
    
    $
    114,210,987
    
    
    $
    113,131,081$
    133,206,089
    
    
    $
    132,211,121
   13




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2.
    
    SECURITIES AVAILABLE FOR SALE (Continued)
  Less Than 12 Months
    
    
    12 Months or More
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesDecember 31, 2006Government
sponsored
agencies
    
    $
    4,965,650
    
    
    $
    (34,350
    )
    
    $
    
    
    
    $
    
    
    
    $
    4,965,650
    
    
    $
    (34,350
    )Mortgage-backed
securities
    
    
    20,273,163
    
    
    
    (41,818
    )
    
    
    51,985,197
    
    
    
    (1,229,437
    )
    
    
    72,258,360
    
    
    
    (1,271,255
    )Total
    
    $
    25,238,813
    
    
    $
    (76,168
    )
    
    $
    51,985,197
    
    
    $
    (1,229,437
    )
    
    $
    77,224,010
    
    
    $
    (1,305,605
    )December 31, 2005Mortgage-backed
securities
    
    $
    43,274,798
    
    
    $
    (853,476
    )
    
    $
    22,009,964
    
    
    $
    (786,462
    )
    
    $
    65,284,762
    
    
    $
    (1,639,938
    )
   14




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 3.
    
    LOANS
  December 31,2006
    
    
    2005Commercial
    
    $
    47,802,843
    
    
    $
    46,295,635Real estate
 construction
    
    
    658,970,814
    
    
    
    384,989,612Real estate
 commercial
    
    
    189,419,723
    
    
    
    191,399,868Real estate
 mortgage
    
    
    44,598,285
    
    
    
    27,974,565Consumer installment and other
    
    
    1,193,707
    
    
    
    1,426,619941,985,372
    
    
    
    652,086,299Deferred loan fees
    
    
    (405,508
    )
    
    
    (307,839
    )Allowance for loan losses
    
    
    (9,824,866
    )
    
    
    (5,612,162
    )Loans, net
    
    $
    931,754,998
    
    
    $
    646,166,298
  Years Ended December 31,2006
    
    
    2005
    
    
    2004Balance, beginning of year
    
    $
    5,612,162
    
    
    $
    3,433,130
    
    
    $
    3,572,984Provision for loan losses
    
    
    4,323,396
    
    
    
    3,566,212
    
    
    
    2,627,348Loans charged off
    
    
    (159,959
    )
    
    
    (1,442,451
    )
    
    
    (2,841,802
    )Recoveries of loans
previously charged off
    
    
    49,267
    
    
    
    55,271
    
    
    
    74,600Balance, end of year
    
    $
    9,824,866
    
    
    $
    5,612,162
    
    
    $
    3,433,130
 Accounting by Creditors for Impairment of a Loan
   Balance, beginning of year
    
    $
    11,926,835Advances
    
    
    13,290,233Repayments
    
    
    (1,934,599
    )Change in Directors
    
    
    (2,258,878
    )Balance, end of year
    
    $
    21,023,591
 15




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 4. PREMISES AND EQUIPMENT
 Premises and equipment are summarized as follows:
 December 31,2006
    
    
    2005Land
    
    $
    5,362,270
    
    
    $
    4,145,780Buildings
    
    
    7,015,395
    
    
    
    4,770,443Construction in progress
    
    
    792,601
    
    
    
    1,707,171Equipment
    
    
    3,696,924
    
    
    
    2,601,626Leasehold Improvements
    
    
    603,618
    
    
    
    24,85617,470,808
    
    
    
    13,249,876Accumulated depreciation
    
    
    (2,098,711
    )
    
    
    (1,384,893
    )$
    15,372,097
    
    
    $
    11,864,983
 In 2003, the Company purchased from a director of the Company, an administrative
building adjacent to its main office building at a cost of $2.6 million. In August,
2004 the Company sold to an unrelated party the administrative building and related
improvements, with a book value of $2.9 million, for $5.0 million cash in a
sale-leaseback transaction. A five year non-renewable operating lease on the
building was entered into between the Bank and the buyer, with minimum annual lease
payments of $560,000. The resulting $2.1 million gain on sale was deferred and is
being recognized over the life of the lease. The unamortized balance of $1,099,875
and $1,512,375 of the deferred gain is included in other liabilities at December 31,
2006 and 2005, respectively.On January 31, 2007, the Bank repurchased the administrative building at a cost of
$6 million. The balance of unamortized gain on sale of $1,066,000 was offset
against the purchase price.The Company has a loan production office in Cumming (Forsyth County), Georgia in
which office space is leased. A one-year non-renewable operating lease was entered
into in August, 2005. Extended for a period of nine months, this lease expires on
May 31, 2007. In 2006, the Company entered into a contract with a third party
builder to construct an additional branch banking facility in Cumming to replace the
loan production office. The full-service branch was under construction at December
31, 2006, and is scheduled to open in mid-2007. A second loan production office was
opened in December 2006 in Buford (Gwinnett County), Georgia in which office space
is also leased. A 12.5 month non-renewable operating lease was entered into in
December 2006. There was also an expansion project under way at December 31, 2006
to build out additional space in the above administrative building. The same party
that was building the Cumming office was also completing this project. As of
December 31, 2006, the total estimated costs to complete this project and the
Cumming office were $1.1 million.Total rental expense was $641,581, $614,540, and $210,457 for the years ended
December 31, 2006, 2005 and 2004, respectively.Future minimum lease payments as of December 31, 2006 are as follows:
 2007
    
    $
    593,8002008
    
    
    560,0002009
    
    
    373,333$
    1,527,133
 16




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 5. DEPOSITS
 The aggregate amount of time deposits in denominations of $100,000 or more at
December 31, 2006 and 2005 was $169,614,614 and $135,473,297, respectively. The
scheduled maturities of time deposits at December 31, 2006 are as follows:
 2007
    
    $
    596,862,1392008
    
    
    112,260,9002009
    
    
    29,623,4272010
    
    
    5,784,8992011
    
    
    6,700,073$
    751,231,438
 At December 31, 2006, total time deposits included $247,988,365 of brokered
deposits. At December 31, 2005, total time deposits included $150,585,785 of
brokered deposits.Overdraft demand deposits reclassified to loans totaled $1,183 and $2,688 at
December 31, 2006 and 2005, respectively.
 NOTE 6. OTHER BORROWINGS
 Other borrowings consist of the following:
 December 31,2006
    
    
    2005Reverse Repurchase Agreement, interest payable quarterly
at the three month LIBOR minus 0.50% until August 14, 2007,
then fixed at 4.84% until maturity at August 13, 2013, callable
on August 14, 2007 or any quarterly period thereafter
    
    $
    15,000,000
    
    
    $
    Reverse Repurchase Agreement, interest payable quarterly
at the three month LIBOR minus 0.50% until September 13, 2007,
then fixed at 4.48% until maturity at September 13, 2013,
callable
on September 13, 2007 or any quarterly period thereafter
    
    
    15,000,000
    
    
    
    Reverse Repurchase Agreement, interest payable quarterly
at the three month LIBOR minus 0.87% until June 5, 2008,
then fixed at 4.57% until maturity at December 5, 2013, callable
on June 8, 2008 or any quarterly period thereafter
    
    
    15,000,000
    
    
    
    Federal Home Loan Bank Daily Rate Credit Advance, interest
payable monthly at variable rates set daily , due December 27,
2007
    
    
    5,000,000
    
    
    
    $
    50,000,000
    
    
    $
    
 17




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6. OTHER BORROWINGS (Continued)
 In late 2006, the Company entered into several reverse repurchase agreements
which have sevenyear terms, and the rates are floating for a portion of the term
and fixed for the balance. These instruments are collateralized with
mortgage-backed securities.The Company has a line of credit with the Federal Home Loan Bank that was $57
million at December 31, 2006. Any advances from the Federal Home Loan Bank are
collateralized with certain qualifying loans of approximately $52 million,
mortgage-backed securities of $5.0 million, and Federal Home Loan Bank stock of $1.7
million. The Company also had available unused lines of credit with various
financial institutions totaling $69 million at December 31, 2006. There were no
other advances outstanding at December 31, 2006 or 2005.
 NOTE 7. SUBORDINATED LONG-TERM DEBENTURES
 Subordinated long-term debentures consist of the following:
 December 31,2006
    
    
    2005Floating rate junior subordinated debentures, interest payable
quarterly at the three month LIBOR plus 2.85%, due
December 17, 2033. The rate at December 31, 2006 was 8.21%
    
    $
    6,186,000
    
    
    $
    6,186,000Floating rate junior subordinated debentures, interest payable
quarterly at the three month LIBOR plus 1.44%,
due March 15, 2036. The rate at December 31, 2006 was 6.80%
    
    
    27,836,000
    
    
    
    Floating rate subordinated debentures, interest payable quarterly
at prime, due October 30, 2014. The rate at December 31, 2006
was 8.25%
    
    
    18,000,000
    
    
    
    $
    52,022,000
    
    
    $
    6,186,000
 In 2003, the Company formed a wholly-owned grantor trust to issue cumulative trust
preferred securities to the public. The grantor trust has invested the proceeds of
the trust preferred securities in junior subordinated debentures of the Company.
The trust preferred securities can be redeemed prior to maturity at the option of
the Company on or after December 17, 2008. The sole assets of the grantor trust are
the Junior Subordinated Deferrable Interest Debentures of the Company (the
Debentures) held by the grantor trust. The Debentures have the same interest rate
(three month LIBOR plus 2.85%, floating) as the trust preferred securities. The
Company has the right to defer interest payments on the Debentures at any time or
from time to time for a period not exceeding 20 consecutive quarters provided that
no extension period may extend beyond the stated maturity of the related Debentures.
During any such extension period, distributions on the trust preferred certificates
would also be deferred.In February 2006, the Company formed a second wholly-owned grantor trust to issue
cumulative trust preferred securities to the public. The grantor trust has invested
the proceeds of the trust preferred securities in junior subordinated debentures of
the Company. The trust preferred securities can be redeemed prior to maturity at
the option of the Company on or after March 15, 2011. The sole assets of the
grantor trust are the Junior Subordinated Deferrable Interest Debentures of the
Company (the Debentures) held by the grantor trust. The Debentures have the same
interest rate (three month LIBOR plus 1.44%, floating) as the trust preferred
securities.
 18




---



##### 



The Company has the right to defer interest payments on the Debentures at any time
or from time to time for a period not exceeding 20 consecutive quarters provided
that no extension period may extend beyond the stated maturity of the related
Debentures. During any such extension period, distributions on the trust preferred
certificates would also be deferred.
 19




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 7. SUBORDINATED LONG-TERM DEBENTURES (Continued)
 Payment of periodic cash distributions and payment upon liquidation or
redemption with respect to the trust preferred securities are guaranteed by the
Company to the extent of funds held by the grantor trusts (the Preferred Securities
Guarantee). The Preferred Securities Guarantee, when taken together with the
Companys other obligations under the Debentures, constitute a full and
unconditional guarantee, on a subordinated basis, by the Company of payments due on
the trust preferred securities.
 In October 2006, the Bank issued subordinated debentures with a term of seven years.
Interest is payable quarterly, and there is no prepayment penalty. The debentures
were issued to three financial institutions and totaled $18 million. For regulatory
purposes, these debt instruments can be included in Tier two capital. The Bank is
required to establish reserves to fund the repayment of the subordinated debentures.
 NOTE 8. STOCK-BASED COMPENSATION
 As of December 31, 2006, the Company has two stock-based compensation plans
that allow for grants of incentive stock options and nonqualified stock
options. One of the plans is an employee plan which permits the granting of
stock options to employees for up to 1,950,000 shares of common stock, and the
other is a director plan which permits the granting of stock options to
directors for up to 585,000 shares of common stock. Under both plans, stock
options granted generally have an exercise price no less than the
fair market value of the underlying stock at the date of grant. The general
terms of the plans include a vesting period (usually five years) with an
exercisable period not to exceed ten years. Dividends are not paid on
unexercised options and dividends are not subject to vesting. Option awards
provide for accelerated vesting if there is a change in control (as defined in
the plan). As of December 31, 2006, approximately 332,536 awards
could be granted under the employee plan, and 2,000 awards could be granted
under the director plan.In January 2003 the Company granted to its President options to
acquire 5% of the Companys outstanding shares. The options were divided into
two groups: (1) the fixed number of options equal to 5% of the Companys
outstanding shares on the grant date (the Original Option); and (2) the
additional options that accrue by virtue of increases in the Companys
outstanding shares (the Additional Option). In August 2006 the Presidents
option agreement was amended to limit the shares obtainable under the
Additional Option. Specifically, the option agreement was amended to provide
that the total number of shares obtainable pursuant to both the Original Option
and the Additional Option will not exceed 731,672 (as adjusted for stock
splits, stock dividends, and similar recapitalizations), which equaled 5% of
the outstanding shares on the date of the amendment. The effect of this
amendment was to cut off further increases of the Additional Option when the
number of outstanding shares of the Company increased.The fair value of each option granted was estimated on the date of
grant using the Black-Scholes-Merton option valuation model. Expected
volatilities are based on historical volatility of the Companys stock. The
Company uses historical data to estimate option exercise, employee termination,
forfeitures and expected dividends within the valuation model. Separate groups
of employees that have similar historical exercise behavior are considered
separately for valuation purposes. The expected term of options granted is
estimated based on the short-cut method. The risk-free rate for periods within
the estimated life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant. The key assumptions used to determine the fair
value of options are presented in the table below.
 20




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8. STOCK-BASED COMPENSATION (Continued)
 Years Ended December 31,2006
    
    2005
    
    2004Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Average expected life
    
    2.08  - 7.50 years
    
    
    10 years
    
    
    10 yearsExpected volatility
    
    
    30.00
    %
    
    
    30.40
    %
    
    
    0.01
    %Forfeiture rate
    
    
    3.00
    %
    
    
    3.00
    %
    
    
    3.00
    %Risk-free interest rate
    
    
    4.60% - 5.07
    %
    
    
    4.25
    %
    
    
    4.52
    %
 Employee Plan
 The following table summarizes our stock options activity for year
ended December 31, 2006:
 Weighted-Weighted-
    
    AverageAverage
    
    RemainingExercise
    
    Contractual
    
    AggregateShares
    
    Price
    
    Term (Years)
    
    Intrinsic ValueOutstanding at beginning of year
    
    
    1,409,072
    
    
    $
    4.67Granted (below market)
    
    
    13,590
    
    
    
    2.45Granted (at market)
    
    
    124,000
    
    
    
    12.19Exercised
    
    
    (161,996
    )
    
    
    3.29Terminated
    
    
    (170,200
    )
    
    
    9.70Outstanding at end of year
    
    
    1,214,466
    
    
    $
    4.89
    
    
    
    4.92
    
    
    $
    9,862,000Options exercisable at year-end
    
    
    573,710
    
    
    $
    3.97
    
    
    
    6.75
    
    
    $
    5,166,000
 The weighted-average grant-date fair value of options granted during the years ended
December 31, 2006, 2005 and 2004 was $5.86, $6.72 and $3.28, respectively.Total intrinsic value of options exercised was $1,426,784,
$1,604,889 and $ 0 for the years ended December 31, 2006, 2005 and 2004,
respectively. The total fair value of options vested during the years ended
December 31, 2006, 2005 and 2004 was $562,744, $1,478,574 and $674,870,
respectively.The compensation cost charged against income for the years ended
December 31, 2006, 2005 and 2004 were $1,557,358, $1,159,512 and $602,259,
respectively. Income tax benefits recognized for the respective years were
$460,953, $455,031 and $227,267.Cash received from the exercise of options was $533,714 for the year ended December
31, 2006. The tax benefit realized for the tax deductions from option exercise of
the share-based payment arrangements totaled $8,059 for the year ended December 31,
2006.
 21




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8. STOCK-BASED COMPENSATION (Continued)
 As of December 31, 2006, there was $1.1 million of total unrecognized
compensation cost related to the nonvested share based compensation
arrangements granted under the option plan. That cost is expected to be
recognized over a weighted-average period of 1.68 years.Information pertaining to employee options outstanding at December 31, 2006 is as
follows:
 Options Outstanding
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseExercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$2.45
    
    
    789,466
    
    
    3.03 years
    
    $
    2.45
    
    
    
    379,255
    
    
    $
    2.454.50
    
    
    153,000
    
    
    7.67 years
    
    
    4.50
    
    
    
    127,600
    
    
    
    4.5011.00  14.25
    
    
    272,000
    
    
    8.88 years
    
    
    12.18
    
    
    
    66,855
    
    
    
    11.621,214,466
    
    
    4.92 years
    
    
    4.89
    
    
    
    573,710
    
    
    
    3.97
 Director Plan
 The following table shows option activity of the Director Plan for
the year ended December 31, 2006.
 Weighted-Weighted-
    
    AverageAverage
    
    RemainingExercise
    
    Contractual
    
    AggregateShares
    
    Price
    
    Term (Years)
    
    Intrinsic ValueOutstanding at beginning of year
    
    
    538,000
    
    
    $
    3.85Granted
    
    
    
    
    
    
    Exercised
    
    
    (241,000
    )
    
    
    3.01Terminated
    
    
    
    
    
    
    Outstanding at end of year
    
    
    297,000
    
    
    $
    4.52
    
    
    
    6.75
    
    
    $
    2,504,000Options exercisable at year-end
    
    
    297,000
    
    
    $
    4.52
    
    
    
    6.75
    
    
    $
    2,504,000
 The weighted-average grant-date fair value of options granted during the years ended
December 31, 2006, 2005 and 2004 was $0, $5.80 and $0, respectively.Total intrinsic value of options exercised was $2.3 million,
$405,000, and $0 for the years ended December 31, 2006, 2005 and 2004,
respectively. The total fair value of options vested during the years ended
December 31, 2006, 2005 and 2004 was $0, $510,400 and $0, respectively.There was no compensation cost charged against income for the years
ended December 31, 2006, 2005 and 2004 for options under this plan, therefore,
no income tax benefits.
 
 22




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 8. STOCK-BASED COMPENSATION (Continued)
 Cash received from the exercise of options was $658,850 for the year ended
December 31, 2006. The tax benefit realized for the tax deductions from option
exercise of the share-based payment arrangements totaled $905,305 for the year ended
December 31, 2006.As of December 31, 2006, there was no unrecognized compensation
cost related to nonvested share based compensation arrangements granted under
the option plan.Information pertaining to director options outstanding at December 31, 2006 is as
follows:
 Options Outstanding
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseExercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$2.45
    
    
    225,000
    
    
    6.22 years
    
    $
    2.45
    
    
    
    225,000
    
    
    $
    2.4511.00
    
    
    72,000
    
    
    8.42 years
    
    
    11.00
    
    
    
    72,000
    
    
    
    11.00297,000
    
    
    6.75 years
    
    
    4.52
    
    
    
    297,000
    
    
    
    4.52
 NOTE 9. EMPLOYEE BENEFIT PLAN
 The Company has a 401(k) retirement plan covering substantially all employees.
Contributions to the plan charged to expense amounted to $255,507, $191,075 and
$104,132 for the years ended December 31, 2006, 2005 and 2004,
respectively.
 NOTE 10. INCOME TAXES
 Income tax expense consists of the following:
 Years Ended December 31,2006
    
    
    2005
    
    
    2004Current
    
    $
    7,976,526
    
    
    $
    5,010,145
    
    
    $
    2,307,329Deferred
    
    
    (2,056,451
    )
    
    
    (1,321,872
    )
    
    
    (531,655
    )Income tax expense
    
    $
    5,920,075
    
    
    $
    3,688,273
    
    
    $
    1,775,674
 23




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 10. INCOME TAXES (Continued)
 The Companys income tax differs from the amounts computed by applying the
federal income tax statutory rates to income before income taxes. A reconciliation
of the differences is as follows:
 Years Ended December 31,2006
    
    
    2005
    
    
    2004Income tax at statutory federal rate
    
    $
    5,619,837
    
    
    $
    3,404,056
    
    
    $
    1,627,939State taxes
    
    
    405,527
    
    
    
    319,025
    
    
    
    144,432Bank owned life insurance income
    
    
    (240,379
    )
    
    
    
    
    
    
    Stock-based compensation
    
    
    129,547
    
    
    
    
    
    
    
    Other items
    
    
    5,543
    
    
    
    (34,808
    )
    
    
    3,303Income tax expense
    
    $
    5,920,075
    
    
    $
    3,688,273
    
    
    $
    1,775,674
 The components of deferred income taxes are as follows:
 December 31,2006
    
    
    2005Deferred tax assets:Deferred gain on sale-leaseback
    
    $
    425,424
    
    
    $
    584,975Deferred loan fees
    
    
    156,847
    
    
    
    119,070Loan loss reserves
    
    
    3,518,189
    
    
    
    1,808,175Stock compensation
    
    
    1,175,826
    
    
    
    716,617Nonaccrual loan interest
    
    
    36,445
    
    
    
    52,041Securities available for sale
    
    
    363,583
    
    
    
    596,4305,676,314
    
    
    
    3,877,308Deferred tax liabilities:Depreciation
    
    
    234,459
    
    
    
    259,057Net deferred taxes
    
    $
    5,441,855
    
    
    $
    3,618,251
 24




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 11. EARNINGS PER SHARE
 Presented below is a summary of the components used to
calculate basic and diluted earnings per common share.
 Years Ended December 31,2006
    
    
    2005
    
    
    2004Basic Earnings Per Share:Weighted average common shares outstanding
    
    
    14,594,208
    
    
    
    14,050,847
    
    
    
    10,809,936Net income
    
    $
    10,136,601
    
    
    $
    6,322,352
    
    
    $
    3,012,382Basic earnings per share
    
    $
    0.69
    
    
    $
    0.45
    
    
    $
    0.28Diluted Earnings Per Share:Weighted average common shares outstanding
    
    
    14,594,208
    
    
    
    14,050,847
    
    
    
    10,809,936Net effect of the assumed exercise of stock
options based on the treasury stock method
using average market prices for the year
    
    
    824,469
    
    
    
    910,700
    
    
    
    742,740Total weighted average common shares and
common stock equivalents outstanding
    
    
    15,418,677
    
    
    
    14,961,547
    
    
    
    11,552,676Net income
    
    $
    10,136,601
    
    
    $
    6,322,352
    
    
    $
    3,012,382Diluted earnings per share
    
    $
    0.66
    
    
    $
    0.42
    
    
    $
    0.26
 NOTE 12. COMMITMENTS AND CONTINGENCIES
 Loan Commitments
   December 31,2006
    
    
    2005Commitments to extend credit
    
    $
    332,168,227
    
    
    $
    220,048,484Standby letters of credit
    
    
    1,958,215
    
    
    
    1,396,042$
    334,126,442
    
    
    $
    221,444,526
 25




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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 12. COMMITMENTS AND CONTINGENCIES (Continued)
    Employment Agreements
  Contingencies
  26




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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 13. CONCENTRATIONS OF CREDIT
 The Company originates primarily commercial, commercial real estate,
residential real estate, and consumer loans to customers in Fulton County and
surrounding counties. The ability of the majority of the Companys customers to
honor their contractual loan obligations is dependent on the economy in these areas.Ninety-five percent of the Companys loan portfolio is secured by real estate, of
which a substantial portion is secured by real estate in the Companys primary
market area. Accordingly, the ultimate collectibility of the loan portfolio is
susceptible to changes in market conditions in the Companys primary market area.The Company, as a matter of policy, does not generally extend credit to any single
borrower or group of related borrowers in excess of 25% of the Banks statutory
capital, or approximately $21,000,000.
 NOTE 14. REGULATORY MATTERS
 The Bank is subject to certain restrictions on the amount of dividends that may
be declared without prior regulatory approval. At December 31, 2006, approximately
$6,005,000 of dividends could be declared without regulatory approval.The Company and Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct material effect on
the Companys and Banks financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and Bank must
meet specific capital guidelines that involve quantitative measures of the assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. Capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and other
factors.Quantitative measures established by regulation to ensure capital adequacy require
the Company and Bank to maintain minimum amounts and ratios of Total and Tier I
capital to risk-weighted assets, as defined, and of Tier I capital to average
assets, as defined. Management believes, as of December 31, 2006 and 2005, the
Company and Bank met all capital adequacy requirements to which they are subject.As of December 31, 2006, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized, the
Bank must maintain minimum Total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the following table. There are no conditions or events since
that notification that management believes have changed the Banks category. Prompt
corrective action provisions are not applicable to bank holding companies.
 27




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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 14. REGULATORY MATTERS (Continued)
 The Company and Banks actual capital amounts and ratios are presented in the
following table:
 To Be WellFor Capital
    
    Capitalized UnderAdequacy
    
    Prompt CorrectiveActual
    
    Purposes
    
    Action Provisions(Dollars in thousands)
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioDecember 31, 2006:Total Capital to Risk Weighted
AssetsConsolidated
    
    $
    141,827
    
    
    
    12.80
    %
    
    $
    88,655
    
    
    
    8
    %
    
    
    N/A
    
    
    
    N/ABank
    
    $
    136,393
    
    
    
    12.35
    %
    
    $
    88,370
    
    
    
    8
    %
    
    $
    110,463
    
    
    
    10
    %Tier I Capital to Risk Weighted
AssetsConsolidated
    
    $
    108,004
    
    
    
    9.75
    %
    
    $
    44,327
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/ABank
    
    $
    108,568
    
    
    
    9.83
    %
    
    $
    44,185
    
    
    
    4
    %
    
    $
    66,278
    
    
    
    6
    %Tier I Capital to Average AssetsConsolidated
    
    $
    108,004
    
    
    
    10.03
    %
    
    $
    43,092
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/ABank
    
    $
    108,568
    
    
    
    10.12
    %
    
    $
    42,929
    
    
    
    4
    %
    
    $
    53,661
    
    
    
    5
    %December 31, 2005:Total Capital to Risk Weighted AssetsConsolidated
    
    $
    78,747
    
    
    
    10.60
    %
    
    $
    59,408
    
    
    
    8
    %
    
    
    N/A
    
    
    
    N/ABank
    
    $
    76,655
    
    
    
    10.35
    %
    
    $
    59,247
    
    
    
    8
    %
    
    $
    74,059
    
    
    
    10
    %Tier I Capital to Risk Weighted AssetsConsolidated
    
    $
    73,135
    
    
    
    9.85
    %
    
    $
    29,704
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/ABank
    
    $
    71,044
    
    
    
    9.59
    %
    
    $
    29,623
    
    
    
    4
    %
    
    $
    44,435
    
    
    
    6
    %Tier I Capital to Average AssetsConsolidated
    
    $
    73,135
    
    
    
    10.06
    %
    
    $
    29,082
    
    
    
    4
    %
    
    
    N/A
    
    
    
    N/ABank
    
    $
    71,044
    
    
    
    9.80
    %
    
    $
    28,999
    
    
    
    4
    %
    
    $
    36,248
    
    
    
    5
    %
 28




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##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS
 The fair value of a financial instrument is the current amount that would be
exchanged between willing parties, other than in a forced liquidation. Fair value
is best determined based upon quoted market prices. However, in many instances,
there are no quoted market prices for the Companys various financial instruments.
In cases where quoted market prices are not available, fair value is based on
discounted cash flows or other valuation techniques. These techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. Accordingly, the fair value estimates may not be
realized in an immediate settlement of the instrument. SFAS No. 107, Disclosures
about Fair Value of Financial Instruments,excludes certain financial instruments
and all nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented may not necessarily represent the underlying
fair value of the Company.The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments.Cash, Due From Banks and Interest-Bearing Deposits in Banks:The carrying amounts
of cash, due from banks and interest-bearing deposits in banks approximate fair
values.Securities:Fair values for securities are based on available quoted market prices.
The carrying values of equity securities with no readily determinable fair value
approximate fair values.Loans:The carrying amount of variable-rate loans that reprice frequently and have
no significant change in credit risk approximates fair value. The fair value of
fixed-rate loans is estimated based on discounted contractual cash flows, using
interest rates currently being offered for loans with similar terms to borrowers
with similar credit quality. The fair value of impaired loans is estimated based on
discounted contractual cash flows or underlying collateral values, where applicable.Deposits:The carrying amount of demand deposits, savings deposits, and
variable-rate certificates of deposit approximates fair value. The fair value of
fixed-rate certificates of deposit is estimated based on discounted contractual cash
flows using interest rates currently being offered for certificates of similar
maturities.Federal Funds Purchased and Other Borrowings:The carrying amount of variable rate
borrowings, federal funds purchased, and securities sold under repurchase agreements
approximate fair value. The fair value of fixed rate other borrowings are
estimated based on discounted contractual cash flows using the current incremental
borrowing rates for similar type borrowing arrangements.Long-term debentures:The fair value of the long-term debentures estimates their
carrying value due to the variable rate nature of the debentures.Accrued Interest:The carrying amounts of accrued interest approximate their fair
values.
 29




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
 Off-Balance sheet Instruments:The carrying amount of commitments to extend
credit and standby letters of credit approximates fair value. The carrying amount
of the off-balance sheet financial instruments is based on fees charged to enter
into such agreements.The carrying amount and estimated fair value of the Companys financial instruments
were as follows:
 December 31, 2006
    
    December 31, 2005Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assets:Cash, due from banks and
interest-bearing deposits
in banks
    
    $
    5,804,184
    
    
    $
    5,804,184
    
    
    $
    5,135,081
    
    
    $
    5,135,081Federal funds sold
    
    
    
    
    
    
    
    
    
    
    6,243,000
    
    
    
    6,243,000Securities
    
    
    135,650,221
    
    
    
    135,650,221
    
    
    
    74,999,200
    
    
    
    74,999,200Loans, net
    
    
    931,754,998
    
    
    
    932,287,998
    
    
    
    646,166,298
    
    
    
    645,746,165Accrued interest receivable
    
    
    6,796,616
    
    
    
    6,796,616
    
    
    
    3,937,756
    
    
    
    3,937,756Financial liabilities:Deposits
    
    
    928,786,783
    
    
    
    929,362,783
    
    
    
    674,443,757
    
    
    
    674,056,559Federal funds purchased
    
    
    1,551,000
    
    
    
    1,551,000
    
    
    
    
    
    
    
    Other borrowings
    
    
    50,000,000
    
    
    
    50,000,000
    
    
    
    
    
    
    
    Accrued interest payable
    
    
    8,315,189
    
    
    
    8,315,189
    
    
    
    2,539,311
    
    
    
    2,539,311Long-term debentures
    
    
    52,022,000
    
    
    
    52,022,000
    
    
    
    6,186,000
    
    
    
    6,186,000
 NOTE 16. SUPPLEMENTAL FINANCIAL DATA
 Components of other operating expenses in excess of 1% of revenue are as
follows:
 Years Ended December 31,2006
    
    2005
    
    2004Data processing
    
    $
    713,006
    
    
    $
    573,864
    
    
    $
    368,421Board of Director fees
    
    
    592,610
    
    
    
    540,570
    
    
    
    379,500Consulting fees
    
    
    467,416
    
    
    
    462,494
    
    
    
    120,747
 30




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17. PARENT COMPANY FINANCIAL INFORMATION
 The following information presents the condensed balance sheets as of December
31, 2006 and 2005 and statements of income and cash flows of Integrity Bancshares,
Inc. for each of the years in the three-year period ended December 31, 2006.
 CONDENSED BALANCE SHEETS
 2006
    
    
    2005AssetsCash
    
    $
    1,947,625
    
    
    $
    55,200Interest-bearing deposits in banks
    
    
    53,926
    
    
    
    53,470Investment in subsidiary
    
    
    107,936,702
    
    
    
    70,027,935Securities available for sale
    
    
    1,712,000
    
    
    
    876,000Other assets
    
    
    2,852,948
    
    
    
    1,310,253Total assets
    
    $
    114,503,201
    
    
    $
    72,322,858LiabilitiesOther borrowings
    
    $
    34,022,000
    
    
    $
    6,186,000Other liabilities
    
    
    109,137
    
    
    
    17,674Total liabilities
    
    
    34,131,137
    
    
    
    6,203,674Stockholders equity
    
    
    80,372,064
    
    
    
    66,119,184Total liabilities and stockholders equity
    
    $
    114,503,201
    
    
    $
    72,322,858
 31




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17. PARENT COMPANY FINANCIAL INFORMATION (Continued)
 CONDENSED STATEMENTS OF INCOME
 2006
    
    
    2005
    
    
    2004Income:Dividend income from subsidiary
    
    $
    800,000
    
    
    $
    250,000
    
    
    $
    Interest income
    
    
    61,322
    
    
    
    11,437
    
    
    
    8,817Total income
    
    
    861,322
    
    
    
    261,437
    
    
    
    8,817Expenses:Stock compensation
    
    
    243,647
    
    
    
    1,159,512
    
    
    
    602,259Interest
    
    
    2,132,537
    
    
    
    401,195
    
    
    
    288,675Other
    
    
    678,143
    
    
    
    402,300
    
    
    
    212,521Total expenses
    
    
    3,054,327
    
    
    
    1,963,007
    
    
    
    1,103,455Loss before income tax benefits and
undistributed income of subsidiary
    
    
    (2,193,005
    )
    
    
    (1,701,570
    )
    
    
    (1,094,638
    )Income tax benefits
    
    
    (1,119,634
    )
    
    
    (761,727
    )
    
    
    (413,070
    )Loss before equity in undistributed
income of subsidiary
    
    
    (1,073,371
    )
    
    
    (939,843
    )
    
    
    (681,568
    )Equity in undistributed income of subsidiary
    
    
    11,209,972
    
    
    
    7,262,195
    
    
    
    3,693,950Net income
    
    $
    10,136,601
    
    
    $
    6,322,352
    
    
    $
    3,012,382
 32




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 17. PARENT COMPANY FINANCIAL INFORMATION (Continued)
 CONDENSED STATEMENTS OF CASH FLOWS
 2006
    
    
    2005
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    10,136,601
    
    
    $
    6,322,352
    
    
    $
    3,012,382Adjustments to reconcile net income to net
cash used in operating activities:Equity in undistributed income of subsidiary
    
    
    (11,209,972
    )
    
    
    (7,262,195
    )
    
    
    (3,693,950
    )Stock compensation
    
    
    243,647
    
    
    
    1,159,512
    
    
    
    602,259Excess tax benefits from exercise of options
    
    
    (913,347
    )
    
    
    (155,218
    )
    
    
    Deferred income taxes
    
    
    (56,329
    )
    
    
    (441,659
    )
    
    
    (211,015
    )(Increase) decrease in income tax receivable
    
    
    (588,019
    )
    
    
    37,206
    
    
    
    (250,496
    )Net other operating activities
    
    
    (729,538
    )
    
    
    23,226
    
    
    
    24,433Net cash used in operating activities
    
    
    (3,116,957
    )
    
    
    (316,776
    )
    
    
    (516,387
    )INVESTING ACTIVITIESNet increase in interest-bearing deposits in banks
    
    
    (456
    )
    
    
    (341
    )
    
    
    (321
    )Investment in subsidiary
    
    
    (25,000,000
    )
    
    
    (15,600,000
    )
    
    
    (20,000,000
    )Net cash used in investing activities
    
    
    (25,000,456
    )
    
    
    (15,600,341
    )
    
    
    (20,000,321
    )FINANCING ACTIVITIESProceeds from other borrowings
    
    
    27,836,000
    
    
    
    
    
    
    
    Proceeds from exercise of stock options
    
    
    1,260,491
    
    
    
    595,427
    
    
    
    Excess tax benefits from exercise of options
    
    
    913,347
    
    
    
    155,218
    
    
    
    Net proceeds from sale of common stock
    
    
    
    
    
    
    14,994,351
    
    
    
    20,309,609Net cash provided by financing activities
    
    
    30,009,838
    
    
    
    15,744,996
    
    
    
    20,309,609Net increase (decrease) in cash
    
    
    1,892,425
    
    
    
    (172,121
    )
    
    
    (207,099
    )Cash at beginning of year
    
    
    55,200
    
    
    
    227,321
    
    
    
    434,420Cash at end of year
    
    $
    1,947,625
    
    
    $
    55,200
    
    
    $
    227,321
 33