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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, 2005
 Commission file number: 333-95335
 INTEGRITY BANCSHARES, INC.
 Georgia
    
    58-2508612(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification Number)
 11140 State Bridge Road
P.O. Box 2008
Alpharetta, Georgia 30022
 (770) 777-0324
 
  o þ
  o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer  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 the Common Equity, Related Shareholder Matters, and Issuer Repurchases of Equity Securities
    
    216.
    Selected Financial Data
    
    227.
    Managements Discussion and Analysis of Financial Condition
And Results of Operation
    
    237a.
    Quantitative and Qualitative Disclosures About Market Risk
    
    448.
    Financial Statements and Supplementary Data
    
    459.
    Not applicable
    
    459A.
    Controls and Procedures
    
    459B.
    Other Information
    
    47Part III10.
    Directors and Executive Officers of the Registrant
    
    4811.
    Executive Compensation
    
    4812.
    Security Ownership of Certain Beneficial Owners
and Management
    
    4813.
    Certain Relationships and Related Transactions
    
    4814.
    Principal Accountant Fees and Services
    
    48Part IV15.
    Exhibits and Financial Statement Schedules
    
    49Signatures
    
    50EX-3.2 ARTICLES OF AMENDMENTEX-13.1 INTEGRITY BANCSHARES, INC. FINANCIAL STATEMENTS AS OF DECEMBER 31, 2005EX-23 CONSENT OF MAULDIN & JENKINS, LLCEX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE PFOEX-32.1 SECTION 906, CERTIFICAITON OF THE CEOEX-32.2 SECTION 906, CERTIFICATION OF THE PFO
  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
      5




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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 (i.e. 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.
    
    Off-balance sheet credit risks.
     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 financial institution is required to pledge against public monies.
    
    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 financial institutions liability structure.
 Industry and competition
   Employees
  7




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Supervision and Regulation
 General
   Integrity Bancshares, Inc
   
    
    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.
   8




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
    
    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.
   Integrity Bank
   Gramm-Leach-Bliley Act of 1999
    9




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
    
    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
    
    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.
  10




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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
    
    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
    11




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Support of subsidiary institution
  Prompt corrective action
  12




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
    
    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;
    
    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
  13




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Safety and soundness standards
  Community Reinvestment Act
    USA PATRIOT Act
  14




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
    
    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.
  
    
    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.
 15




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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.
   Because a significant portion of our loan portfolio is secured by real estate, any negative
conditions affecting real estate may harm our business.
  17




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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;
    
    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.
  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
    Table of Contents    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
 None
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ITEM 2. DESCRIPTION OF PROPERTY
 Main Office and Administrative Building
   Roswell
  Vinings
  Duluth
  Cumming
  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 REPURCHASES OF
EQUITY SECURITIES
 Market information
    Number of shares traded
    
    High selling price
    
    Low selling price2005: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
    
    
    
    11.002004:First Quarter
    
    
    27,750
    
    
    $
    5.34
    
    
    $
    4.34Second Quarter
    
    
    178,254
    
    
    
    5.10
    
    
    
    4.34Third Quarter
    
    
    130,706
    
    
    
    6.59
    
    
    
    4.50Fourth Quarter
    
    
    390,822
    
    
    
    11.34
    
    
    
    6.17
   21




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ITEM 6. SELECTED FINANCIAL DATA
  As of December 31,(Dollars in thousands, except share and per share data)
    
    2005
    
    2004
    
    2003
    
    2002
    
    2001Balance Sheet DataTotal assets
    
    $
    753,075
    
    
    $
    446,175
    
    
    $
    279,748
    
    
    $
    144,364
    
    
    $
    57,994Investment securities
    
    
    74,810
    
    
    
    49,161
    
    
    
    27,853
    
    
    
    10,750
    
    
    
    10,049Loans
    
    
    651,778
    
    
    
    385,906
    
    
    
    238,919
    
    
    
    128,008
    
    
    
    43,963Allowance for loan losses
    
    
    5,612
    
    
    
    3,433
    
    
    
    3,573
    
    
    
    1,105
    
    
    
    392Deposits
    
    
    674,444
    
    
    
    373,272
    
    
    
    231,778
    
    
    
    120,133
    
    
    
    41,242Federal Home Loan Bank advances
    
    
    0
    
    
    
    15,000
    
    
    
    16,000
    
    
    
    7,000
    
    
    
    5,000Other short-term borrowings
    
    
    0
    
    
    
    4,279
    
    
    
    10,000
    
    
    
    3,115
    
    
    
    2,799Long-term debentures
    
    
    6,186
    
    
    
    6,186
    
    
    
    0
    
    
    
    0
    
    
    
    0Stockholders equity
    
    
    66,119
    
    
    
    43,555
    
    
    
    19,892
    
    
    
    13,819
    
    
    
    8,749
 Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Statement of Income DataInterest income
    
    $
    44,156
    
    
    $
    22,456
    
    
    $
    14,190
    
    
    $
    6,815
    
    
    $
    3,105Interest expense
    
    
    18,684
    
    
    
    7,571
    
    
    
    4,964
    
    
    
    2,884
    
    
    
    1,695Net interest income
    
    
    25,472
    
    
    
    14,885
    
    
    
    9,226
    
    
    
    3,931
    
    
    
    1,410Provision for loan losses
    
    
    3,566
    
    
    
    2,627
    
    
    
    2,488
    
    
    
    713
    
    
    
    336Net interest income after
provision for loan losses
    
    
    21,906
    
    
    
    12,258
    
    
    
    6,738
    
    
    
    3,218
    
    
    
    1,074Noninterest income
    
    
    762
    
    
    
    612
    
    
    
    189
    
    
    
    88
    
    
    
    54Noninterest expenses
    
    
    12,658
    
    
    
    8,082
    
    
    
    4,671
    
    
    
    2,481
    
    
    
    1,946Income tax expense
    
    
    3,688
    
    
    
    1,776
    
    
    
    462
    
    
    
    0
    
    
    
    0Net income (loss)
    
    
    6,322
    
    
    
    3,012
    
    
    
    1,794
    
    
    
    825
    
    
    
    (818
    )Per Share DataBook value per share at year end
    
    $
    4.60
    
    
    $
    3.41
    
    
    $
    2.42
    
    
    $
    2.15
    
    
    $
    1.81Basic earnings (losses) per share
    
    
    .45
    
    
    
    .28
    
    
    
    .23
    
    
    
    .14
    
    
    
    (.17
    )Diluted earnings (losses) per share
    
    
    .42
    
    
    
    .26
    
    
    
    .23
    
    
    
    .14
    
    
    
    (.17
    )Weighted-average shares outstanding  basic
    
    
    14,050,847
    
    
    
    10,809,936
    
    
    
    7,717,584
    
    
    
    5,695,170
    
    
    
    4,848,584Weighted-average shares outstanding  diluted
    
    
    14,961,547
    
    
    
    11,552,676
    
    
    
    7,950,576
    
    
    
    5,695,170
    
    
    
    4,848,584Dividends declared
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Dividend payout ratio
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %RatiosReturn on average assets
    
    
    1.05
    %
    
    
    .86
    %
    
    
    .81
    %
    
    
    .85
    %
    
    
    (2.05
    )%Return on average equity
    
    
    11.37
    %
    
    
    9.15
    %
    
    
    9.72
    %
    
    
    7.30
    %
    
    
    (8.34
    )%Average equity/average assets
    
    
    9.22
    %
    
    
    9.34
    %
    
    
    8.35
    %
    
    
    11.65
    %
    
    
    24.55
    %Net interest margin
    
    
    4.33
    %
    
    
    4.39
    %
    
    
    4.37
    %
    
    
    4.23
    %
    
    
    3.79
    %Non-performing assets/total loans and other
real estate
    
    
    .25
    %
    
    
    .20
    %
    
    
    1.28
    %
    
    
    0
    %
    
    
    0
    %Allowance for loan losses/total loans
    
    
    .86
    %
    
    
    .89
    %
    
    
    1.50
    %
    
    
    .86
    %
    
    
    .89
    %Noninterest expense/net interest income and
noninterest income
    
    
    48.25
    %
    
    
    52.15
    %
    
    
    49.61
    %
    
    
    61.74
    %
    
    
    132.92
    %
 22




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
  Forward-Looking Statements
  Critical Accounting Policies
   Allowance for Loan Losses
  23




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Fourth Quarter 2005
  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
 Quarters endedMarch 31,
    
    June 30,
    
    September 30,
    
    December 31,(In thousands)
    
    2004
    
    2004
    
    2004
    
    2004Interest income
    
    $
    4,556
    
    
    $
    5,053
    
    
    $
    5,996
    
    
    $
    6,851Interest expense
    
    
    1,472
    
    
    
    1,562
    
    
    
    1,973
    
    
    
    2,564Net interest income
    
    
    3,084
    
    
    
    3,491
    
    
    
    4,023
    
    
    
    4,287Provision for loan losses
    
    
    141
    
    
    
    572
    
    
    
    1,609
    
    
    
    305Net income
    
    
    887
    
    
    
    864
    
    
    
    256
    
    
    
    1,005Net income
per share  basic (1)
    
    
    0.11
    
    
    
    0.09
    
    
    
    0.02
    
    
    
    0.08Net income
per share  diluted
(1)
    
    
    0.10
    
    
    
    0.08
    
    
    
    0.02
    
    
    
    0.08
 
 (1)
    
    adjusted for the two-for-one stock split declared in fourth quarter 2005.    24




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2005 Overview
  25




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Financial Condition as of December 31, 2005 and 2004
  December 31,2005
    
    
    2004(Dollars in Thousands)Cash and due from banks
    
    $
    5,135
    
    
    $
    1,563Federal funds sold
    
    
    6,243
    
    
    
    Securities
    
    
    73,924
    
    
    
    47,928Restricted equity securities
    
    
    889
    
    
    
    1,233Loans, net
    
    
    646,166
    
    
    
    382,473Premises and equipment
    
    
    11,865
    
    
    
    8,608Other assets
    
    
    8,853
    
    
    
    4,370$
    753,075
    
    
    $
    446,175Total deposits
    
    $
    674,444
    
    
    $
    373,272Federal funds purchased
    
    
    
    
    
    
    4,279Other borrowings
    
    
    6,186
    
    
    
    21,186Other liabilities
    
    
    6,326
    
    
    
    3,883Shareholders equity
    
    
    66,119
    
    
    
    43,555$
    753,075
    
    
    $
    446,175
     26




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Liquidity and Capital Resources
        ActualRegulatoryMinimumConsolidated
    
    Bank
    
    RequirementLeverage capital ratios
    
    
    10.06
    %
    
    
    9.80
    %
    
    
    5.00
    %Risk-based capital ratios:Tier one capital
    
    
    9.85
    
    
    
    9.59
    
    
    
    6.00Total capital
    
    
    10.60
    
    
    
    10.35
    
    
    
    10.00
   28




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Off-Balance Sheet Arrangements
  Effects of Inflation
  29




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Results of Operations for the Years Ended December 31, 2005, 2004 and 2003
  Year Ended December 31,(Dollars in Thousands)
    
    2005
    
    
    2004
    
    
    2003Interest income
    
    $
    44,156
    
    
    $
    22,456
    
    
    $
    14,190Interest expense
    
    
    18,684
    
    
    
    7,571
    
    
    
    4,964Net interest income
    
    
    25,472
    
    
    
    14,885
    
    
    
    9,226Provision for loan losses
    
    
    3,566
    
    
    
    2,627
    
    
    
    2,488Other income
    
    
    762
    
    
    
    612
    
    
    
    189Other expenses
    
    
    12,658
    
    
    
    8,082
    
    
    
    4,671Pretax income
    
    
    10,010
    
    
    
    4,788
    
    
    
    2,256Income taxes
    
    
    3,688
    
    
    
    1,776
    
    
    
    462Net income
    
    
    6,322
    
    
    
    3,012
    
    
    
    1,794
 Net Interest Income
       30




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##### Table of Contents



Provision for Loan Losses
    31




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##### Table of Contents



Noninterest Income
  2005
    
    
    2004
    
    
    2003Gain (loss) on sale of fixed asset
    
    $
    410,308
    
    
    $
    147,923
    
    
    $
    (13,186
    )Rental income
    
    
    191,674
    
    
    
    160,563
    
    
    
    93,132Service charge income
    
    
    22,513
    
    
    
    15,142
    
    
    
    16,363Overdraft fees
    
    
    38,496
    
    
    
    39,639
    
    
    
    47,495Wire transfer fees
    
    
    27,146
    
    
    
    20,842
    
    
    
    16,110ATM network and surcharge fees
    
    
    24,523
    
    
    
    7,803
    
    
    
    4,033Other
    
    
    47,742
    
    
    
    220,817
    
    
    
    25,651Noninterest income
    
    
    762,402
    
    
    
    612,729
    
    
    
    189,598
   Noninterest Expense
  2005
    
    
    2004
    
    
    2003Salaries and employee benefits
    
    $
    7,214,234
    
    
    $
    4,581,670
    
    
    $
    2,522,914Net occupancy and equipment
    
    
    1,722,280
    
    
    
    1,098,100
    
    
    
    584,236Legal/professional services
    
    
    625,008
    
    
    
    180,988
    
    
    
    248,631Data processing
    
    
    573,864
    
    
    
    368,421
    
    
    
    279,425Directors fees
    
    
    540,570
    
    
    
    379,500
    
    
    
    122,000Non-profit contributions
    
    
    379,915
    
    
    
    196,831
    
    
    
    85,149Loan collection and origination
    
    
    266,931
    
    
    
    263,119
    
    
    
    105,474Marketing and community relations
    
    
    249,486
    
    
    
    235,264
    
    
    
    147,722Audit and exam fees
    
    
    236,961
    
    
    
    169,832
    
    
    
    139,516Supplies/printing
    
    
    139,644
    
    
    
    130,195
    
    
    
    100,702Occupational and business licenses
    
    
    89,909
    
    
    
    58,945
    
    
    
    19,568Telephone
    
    
    85,112
    
    
    
    58,554
    
    
    
    41,215Training and meeting
    
    
    84,545
    
    
    
    59,469
    
    
    
    38,968Other
    
    
    448,900
    
    
    
    300,957
    
    
    
    235,099Noninterest expense
    
    
    12,657,359
    
    
    
    8,081,845
    
    
    
    4,670,619
 32




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##### Table of Contents



Income Tax
  33




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##### Table of Contents



Asset/Liability Management
       34




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##### Table of Contents



0  3
    
    
    4  6
    
    
    7  12
    
    
    1  5
    
    
    Over 5Months
    
    
    Months
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    Total(Dollars in thousands)Interest-earning assets:Interest-bearing deposits in banks
    
    $
    67
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    67Federal funds sold
    
    
    6,243
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    6,243Securities
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    63,037
    
    
    
    10,802
    
    
    
    73,924Federal Home Loan Bank Stock
    
    
    889
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    889Loans
    
    
    620,311
    
    
    
    2,699
    
    
    
    8,770
    
    
    
    19,178
    
    
    
    820
    
    
    
    651,778Total interest-earning assets
    
    $
    627,510
    
    
    $
    2,784
    
    
    $
    8,770
    
    
    $
    82,215
    
    
    $
    11,622
    
    
    $
    732,901Interest-bearing liabilities:Interest-bearing demand deposits
    
    $
    163,487
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    163,487Savings and money markets
    
    
    9,768
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    9,768Time deposits
    
    
    88,316
    
    
    
    113,266
    
    
    
    239,782
    
    
    
    42,779
    
    
    
    3,999
    
    
    
    488,142Subordinated debentures
    
    
    6,186
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    6,186Total interest-bearing liabilities
    
    $
    267,757
    
    
    $
    113,266
    
    
    $
    239,782
    
    
    $
    42,779
    
    
    $
    3,999
    
    
    $
    667,583Interest rate sensitivity gap
    
    $
    359,753
    
    
    $
    (110,482
    )
    
    $
    (231,012
    )
    
    $
    39,436
    
    
    $
    7,623
    
    
    $
    65,318Cumulative interest rate sensitivity gap
    
    $
    359,753
    
    
    $
    249,271
    
    
    $
    18,259
    
    
    $
    57,695
    
    
    $
    65,318Interest rate sensitivity gap ratio
    
    
    2.34
    
    
    
    0.02
    
    
    
    .04
    
    
    
    1.92
    
    
    
    2.91Cumulative interest rate sensitivity gap ratio
    
    
    2.34
    
    
    
    1.65
    
    
    
    1.03
    
    
    
    1.09
    
    
    
    1.10
 Selected Financial Information and Statistical Data
  Average balances, interest income, and interest expense
  35




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##### Table of Contents



Analysis of Net Interest Income
for the Years Ended December 31, 2005, 2004, and 2003
 2005
    
    
    2004
    
    
    2003Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)Assets:Deposits in banks
    
    $
    209
    
    
    $
    5
    
    
    
    2.39
    %
    
    
    
    
    
    $
    301
    
    
    $
    4
    
    
    
    1.33
    %
    
    $
    757
    
    
    $
    10
    
    
    
    1.29
    %Taxable investment
securities
    
    
    60,812
    
    
    
    2,710
    
    
    
    4.46
    
    
    
    
    
    
    
    35,599
    
    
    
    1,593
    
    
    
    4.47
    
    
    
    21,167
    
    
    
    878
    
    
    
    4.15Federal funds sold
    
    
    1,858
    
    
    
    62
    
    
    
    3.34
    
    
    
    
    
    
    
    2,460
    
    
    
    28
    
    
    
    1.14
    
    
    
    4,561
    
    
    
    49
    
    
    
    1.07Loans (1)
    
    
    525,836
    
    
    
    41,379
    
    
    
    7.87
    
    
    
    
    
    
    
    301,040
    
    
    
    20,831
    
    
    
    6.92
    
    
    
    184,430
    
    
    
    13,253
    
    
    
    7.19Allowance for loan
losses
    
    
    (4,572
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,639
    )
    
    
    
    
    
    
    
    
    
    
    (1,700
    )Cash and due from banks
    
    
    3,575
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,634
    
    
    
    
    
    
    
    
    
    
    
    2,876Other assets
    
    
    15,118
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,404
    
    
    
    
    
    
    
    
    
    
    
    8,971Total Assets
    
    $
    602,836
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    351,799
    
    
    
    
    
    
    
    
    
    
    $
    221,062Total interest-earning
assets
    
    $
    588,715
    
    
    
    44,156
    
    
    
    7.50
    
    
    
    
    
    
    $
    339,400
    
    
    
    22,456
    
    
    
    6.62
    
    
    $
    210,915
    
    
    
    14,190
    
    
    
    6.73Liabilities:Noninterest-bearing
demand
    
    $
    11,961
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,971
    
    
    
    
    
    
    
    
    
    
    $
    7,047Interest bearing
demand and savings
    
    
    183,121
    
    
    
    5,974
    
    
    
    3.26
    
    
    
    
    
    
    
    137,661
    
    
    
    3,432
    
    
    
    2.49
    
    
    
    63,312
    
    
    
    1,429
    
    
    
    2.26Time
    
    
    313,816
    
    
    
    11,319
    
    
    
    3.61
    
    
    
    
    
    
    
    142,106
    
    
    
    3,512
    
    
    
    2.47
    
    
    
    122,177
    
    
    
    3,353
    
    
    
    2.74Total deposits
    
    
    508,898
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    289,738
    
    
    
    
    
    
    
    
    
    
    
    192,536Other borrowings
    
    
    34,040
    
    
    
    1,391
    
    
    
    4.09
    
    
    
    
    
    
    
    27,100
    
    
    
    627
    
    
    
    2.31
    
    
    
    8,952
    
    
    
    183
    
    
    
    2.04Other liabilities
    
    
    4,309
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,099
    
    
    
    
    
    
    
    
    
    
    
    1,111Shareholders equity
    
    
    55,589
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,862
    
    
    
    
    
    
    
    
    
    
    
    18,463Total liabilities
and shareholders
equity
    
    $
    602,836
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    351,799
    
    
    
    
    
    
    
    
    
    
    $
    221,062Total interest-bearing
liabilities
    
    $
    530,977
    
    
    
    18,684
    
    
    
    3.52
    
    
    
    
    
    
    $
    306,867
    
    
    
    7,571
    
    
    
    2.47
    
    
    $
    194,441
    
    
    
    4,965
    
    
    
    2.55Net interest income
    
    
    
    
    
    $
    25,472
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14,885
    
    
    
    
    
    
    
    
    
    
    $
    9,225Net interest margin (2)
    
    
    
    
    
    
    
    
    
    
    4.33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.39
    
    
    
    
    
    
    
    
    
    
    
    4.37Net interest spread (3)
    
    
    
    
    
    
    
    
    
    
    3.98
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.15
    
    
    
    
    
    
    
    
    
    
    
    4.18
 
 (1)
    
    Interest income from loans includes total fee income of approximately $4.4 million, $2.8
million, and $1.9 million for the years ended December 31, 2005, 2004 and 2003, respectively.
The average balance of non-accrual loans included in average loans was $1,127,000, $2,138,000,
and $273,000 in 2005, 2004 and 2003, 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
    
    change in volume (change in volume multiplied by old rate);
    
    a combination of change in rate and change in volume.
  36




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##### Table of Contents



Year Ended December 31,
    
    Year Ended December 31,2005 vs. 2004
    
    
    
    
    
    2004 vs. 2003Changes Due To:
    
    
    
    
    
    Changes Due To:Volume
    
    Rate
    
    Total
    
    Volume
    
    Rate
    
    TotalIncrease (decrease) in:Income from interest-earning assets:Loans
    
    $
    17,358
    
    
    $
    3,190
    
    
    $
    20,548
    
    
    $
    8,095
    
    
    $
    (517
    )
    
    $
    7,578Investment securities
    
    
    1,124
    
    
    
    (7
    )
    
    
    1,117
    
    
    
    652
    
    
    
    63
    
    
    
    715Federal funds sold
    
    
    (5
    )
    
    
    39
    
    
    
    34
    
    
    
    (24
    )
    
    
    3
    
    
    
    (21
    )Deposits with other banks
    
    
    (1
    )
    
    
    2
    
    
    
    1
    
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Total interest income
    
    
    18,476
    
    
    
    3,224
    
    
    
    21,700
    
    
    
    8,717
    
    
    
    (451
    )
    
    
    8,266Expense from interest-bearing
liabilities:NOW accounts
    
    
    1,371
    
    
    
    1,161
    
    
    
    2,532
    
    
    
    1,823
    
    
    
    127
    
    
    
    1,950Money market accounts
    
    
    (10
    )
    
    
    19
    
    
    
    9
    
    
    
    47
    
    
    
    6
    
    
    
    53Savings accounts
    
    
    0
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    (1
    )
    
    
    0Time deposits
    
    
    5,656
    
    
    
    2,151
    
    
    
    7,807
    
    
    
    522
    
    
    
    (363
    )
    
    
    159Federal funds purchased
    
    
    46
    
    
    
    57
    
    
    
    103
    
    
    
    19
    
    
    
    1
    
    
    
    20Federal Home Loan Bank advances
    
    
    101
    
    
    
    448
    
    
    
    549
    
    
    
    166
    
    
    
    13
    
    
    
    179Subordinated debentures
    
    
    0
    
    
    
    112
    
    
    
    112
    
    
    
    238
    
    
    
    7
    
    
    
    245Total interest expense
    
    
    7,164
    
    
    
    3,949
    
    
    
    11,113
    
    
    
    2,816
    
    
    
    (210
    )
    
    
    2,606Net interest income
    
    $
    11,312
    
    
    $
    (725
    )
    
    $
    10,587
    
    
    $
    5,901
    
    
    $
    (241
    )
    
    $
    5,660
 Investment Portfolio
 Types of Investments
  December 31,(Dollars in Thousands)
    
    2005
    
    
    2004
    
    
    2003Mortgage-backed securities
    
    $
    73,234
    
    
    $
    47,238
    
    
    $
    26,513Equity securities
    
    
    1,579
    
    
    
    1,923
    
    
    
    1,340$
    74,813
    
    
    $
    49,161
    
    
    $
    27,853
   37




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##### Table of Contents



Maturities
  (Dollars inThousands)
    
    December 31, 2005
    
    December 31, 2004
    
    December 31, 2003Year-endAmortized
    
    Fair
    
    Weighted
    
    Amortized
    
    Fair
    
    Amortized
    
    FairCost
    
    Value
    
    Avg. Yield
    
    Cost
    
    Value
    
    Cost
    
    ValueMortgage-backed
securities
Over one year
through five years
    
    $
    3,120
    
    
    $
    3,045
    
    
    
    4.17
    %
    
    $
    4,038
    
    
    $
    4,072
    
    
    $
    415
    
    
    $
    427Over five years
through ten years
    
    
    2,496
    
    
    
    2,499
    
    
    
    5.31
    
    
    
    
    
    
    
    
    
    
    
    794
    
    
    
    817Over ten years
    
    
    69,232
    
    
    
    67,690
    
    
    
    4.64
    
    
    
    43,515
    
    
    
    43,166
    
    
    
    25,202
    
    
    
    25,269$
    74,848
    
    
    $
    73,234
    
    
    
    4.64
    
    
    $
    47,553
    
    
    $
    47,238
    
    
    $
    26,411
    
    
    $
    26,513
 
 (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. Loan Portfolio
 Types of Loans
  December 31,2005
    
    2004
    
    2003
    
    2002
    
    2001(Dollars in Thousands)
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % of
    
    
    
    
    
    % ofAmount
    
    Loans
    
    Amount
    
    Loans
    
    Amount
    
    Loans
    
    Amount
    
    Loans
    
    Amount
    
    LoansCommercial
    
    $
    46,296
    
    
    
    7
    %
    
    $
    11,181
    
    
    
    3
    %
    
    $
    16,071
    
    
    
    7
    %
    
    $
    11,751
    
    
    
    9
    %
    
    $
    3,558
    
    
    
    8
    %Real estate-construction
    
    
    384,990
    
    
    
    59
    
    
    
    214,104
    
    
    
    56
    
    
    
    123,882
    
    
    
    52
    
    
    
    51,715
    
    
    
    40
    
    
    
    22,522
    
    
    
    51Real estate-mortgage
    
    
    219,374
    
    
    
    34
    
    
    
    160,101
    
    
    
    41
    
    
    
    98,401
    
    
    
    41
    
    
    
    63,940
    
    
    
    50
    
    
    
    17,134
    
    
    
    39Consumer installment
and other
    
    
    1,426
    
    
    
    
    
    
    
    614
    
    
    
    
    
    
    
    723
    
    
    
    
    
    
    
    856
    
    
    
    1
    
    
    
    867
    
    
    
    2652,086
    
    
    
    100
    %
    
    
    386,000
    
    
    
    100
    %
    
    
    239,077
    
    
    
    100
    %
    
    
    128,262
    
    
    
    100
    %
    
    
    44,081
    
    
    
    100
    %Less:Allowance for loan
losses
    
    
    (5,612
    )
    
    
    
    
    
    
    (3,433
    )
    
    
    
    
    
    
    (3,573
    )
    
    
    
    
    
    
    (1,104
    )
    
    
    
    
    
    
    (392
    )Deferred loan fees
    
    
    (308
    )
    
    
    
    
    
    
    (94
    )
    
    
    
    
    
    
    (158
    )
    
    
    
    
    
    
    (255
    )
    
    
    
    
    
    
    (118
    )Net loans
    
    $
    646,166
    
    
    
    
    
    
    $
    382,473
    
    
    
    
    
    
    $
    235,346
    
    
    
    
    
    
    $
    126,903
    
    
    
    
    
    
    $
    43,571
 38




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##### Table of Contents



Maturities and Sensitivities of Loans to Changes in Interest Rates
  December 31,
    
    December 31,(Dollars in Thousands)
    
    2005
    
    2004CommercialOne year or less
    
    $
    16,036
    
    
    $
    8,622After one through five years
    
    
    28,202
    
    
    
    2,228After five years
    
    
    2,058
    
    
    
    33146,296
    
    
    
    11,181ConstructionOne year or less
    
    
    81,371
    
    
    
    129,544After one through five years
    
    
    298,639
    
    
    
    81,726After five years
    
    
    4,980
    
    
    
    2,834384,990
    
    
    
    214,104Real Estate MortgageOne year or less
    
    
    17,053
    
    
    
    63,448After one through five years
    
    
    164,557
    
    
    
    85,486After five years
    
    
    37,764
    
    
    
    11,167219,374
    
    
    
    160,101Consumer & OtherOne year or less
    
    
    1,202
    
    
    
    491After one through five years
    
    
    220
    
    
    
    123After five years
    
    
    4
    
    
    
    1,426
    
    
    
    614$
    652,086
    
    
    $
    386,000
  December 31,
    
    December 31,(Dollars in Thousands)
    
    2005
    
    2004Predetermined interest rates
    
    $
    1,092
    
    
    $
    12,984Floating or adjustable interest rates
    
    
    535,332
    
    
    
    170,911$
    536,424
    
    
    $
    183,895
 39




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##### Table of Contents



Risk Elements
  (Dollars in Thousands)
    
    December 31,2005
    
    2004Non-accrual loans
    
    $
    1,652
    
    
    $
    779Loans contractually past due 90 days or
more as to interest or principal payments
and still accruing
    
    
    0
    
    
    
    0Restructured loans
    
    
    0
    
    
    
    0Loans, now current about which there are
serious doubts as to the ability of the
borrower to comply with loan repayment
terms
    
    
    817
    
    
    
    307Interest income that would have been
recorded on non-accrual and restructured
loans under original terms
    
    
    186
    
    
    
    19Interest income that was recorded on
non-accrual and restructured loans
    
    
    0
    
    
    
    0
    40




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##### Table of Contents



Summary of Loan Loss Experience
  Year Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in Thousands)Average amount of loans
outstanding
    
    $
    525,836
    
    
    $
    301,040
    
    
    $
    184,430
    
    
    $
    79,864
    
    
    $
    26,108Balance of allowance for
loan losses
at beginning of year
    
    $
    3,433
    
    
    $
    3,573
    
    
    $
    1,104
    
    
    $
    392
    
    
    $
    56Loans charged off:Consumer
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    Real estate mortgage
    
    
    (879
    )
    
    
    (550
    )
    
    
    
    
    
    
    
    
    
    
    Commercial
    
    
    (563
    )
    
    
    (2,292
    )
    
    
    
    
    
    
    
    
    
    
    (1,442
    )
    
    
    (2,842
    )
    
    
    (20
    )
    
    
    
    
    
    
    Loans recovered:Real estate mortgage
    
    
    55
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    75
    
    
    
    
    
    
    
    
    
    
    
    Net charge-offs
    
    
    (1,387
    )
    
    
    (2,767
    )
    
    
    (20
    )
    
    
    
    
    
    
    Additions to allowance
charged to operating
expense during year
    
    
    3,566
    
    
    
    2,627
    
    
    
    2,489
    
    
    
    712
    
    
    
    336Balance of allowance for
loan losses
at end of year
    
    $
    5,612
    
    
    $
    3,433
    
    
    $
    3,573
    
    
    $
    1,104
    
    
    $
    392Ratio of net loans charged
off during the
year to average loans
outstanding
    
    
    0.26
    %
    
    
    0.92
    %
    
    
    0.01
    %
    
    
    
    
    
    
    
 Allowance for Loan Losses
   41




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##### Table of Contents



December 31, 2005
    
    December 31, 2004
    
    December 31, 2003
    
    December 31, 2002
    
    December 31, 2001Percent
    
    
    
    
    
    Percent
    
    
    
    
    
    Percent
    
    
    
    
    
    Percent
    
    
    
    
    
    Percent ofof loans
    
    
    
    
    
    of loans
    
    
    
    
    
    of loans
    
    
    
    
    
    of loans
    
    
    
    
    
    loansin
    
    
    
    
    
    in
    
    
    
    
    
    in
    
    
    
    
    
    in
    
    
    
    
    
    ineach
    
    
    
    
    
    each
    
    
    
    
    
    each
    
    
    
    
    
    each
    
    
    
    
    
    eachcategory
    
    
    
    
    
    category
    
    
    
    
    
    category
    
    
    
    
    
    category
    
    
    
    
    
    categoryto total
    
    
    
    
    
    to total
    
    
    
    
    
    to total
    
    
    
    
    
    to total
    
    
    
    
    
    to totalAmount
    
    loans
    
    Amount
    
    loans
    
    Amount
    
    loans
    
    Amount
    
    loans
    
    Amount
    
    loans(Dollars in Thousands)Commercial
    
    $
    427
    
    
    
    7.10
    %
    
    $
    243
    
    
    
    2.90
    %
    
    $
    1,368
    
    
    
    6.73
    %
    
    $
    101
    
    
    
    9.16
    %
    
    $
    32
    
    
    
    8.07
    %Real
estate-construction
    
    
    3,156
    
    
    
    59.04
    
    
    
    1,828
    
    
    
    55.46
    
    
    
    1,087
    
    
    
    51.85
    
    
    
    446
    
    
    
    40.32
    
    
    
    200
    
    
    
    51.09Real estate-mortgage
    
    
    2,018
    
    
    
    33.64
    
    
    
    1,357
    
    
    
    41.48
    
    
    
    1,112
    
    
    
    41.12
    
    
    
    551
    
    
    
    49.85
    
    
    
    152
    
    
    
    38.87Consumer
installment loans
and other
    
    
    11
    
    
    
    .22
    
    
    
    5
    
    
    
    0.16
    
    
    
    6
    
    
    
    .30
    
    
    
    6
    
    
    
    .67
    
    
    
    8
    
    
    
    1.97$
    5,612
    
    
    
    100.00
    
    
    $
    3,433
    
    
    
    100.00
    
    
    $
    3,573
    
    
    
    100.00
    
    
    $
    1,104
    
    
    
    100.00
    
    
    $
    392
    
    
    
    100.00
 Deposits
  42




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##### Table of Contents



Year Ended December 31,2005
    
    2004
    
    2003(Dollars in Thousands)
    
    Amount
    
    Percent
    
    Amount
    
    Percent
    
    Amount
    
    PercentNon-interest-bearing demand
deposits
    
    $
    6,769
    
    
    
    
    %
    
    $
    9,971
    
    
    
    
    %
    
    $
    7,047
    
    
    
    
    %Interest-bearing demand deposits
    
    
    182,877
    
    
    
    3.27
    
    
    
    137,384
    
    
    
    2.50
    
    
    
    63,137
    
    
    
    2.26Savings deposits
    
    
    244
    
    
    
    0.82
    
    
    
    277
    
    
    
    0.47
    
    
    
    175
    
    
    
    0.55Time deposits
    
    
    313,816
    
    
    
    3.61
    
    
    
    142,106
    
    
    
    2.47
    
    
    
    122,177
    
    
    
    2.74Total
    
    
    503,706
    
    
    
    
    
    
    
    289,738
    
    
    
    
    
    
    
    192,536
  (Dollars in Thousands)
    
    December 31, 2005Three months or less
    
    $
    14,684Over three through six months
    
    
    38,083Over six through twelve months
    
    
    78,172Over twelve months
    
    
    4,534Total
    
    
    135,473
   Return on Assets and Shareholders Equity
  Year Ended December 31,2005
    
    2004Return on assets (1)
    
    
    1.05
    %
    
    
    0.86
    %Return on equity (2)
    
    
    11.37
    
    
    
    9.15Dividend payout ratio (3)
    
    
    0
    
    
    
    0Equity to assets ratio (4)
    
    
    9.22
    
    
    
    9.34
 
 (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 43




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##### Table of Contents



ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Expected Maturity Date(Dollars in thousands)
    
    2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    Thereafter
    
    Total
    
    Fair ValueAssetsInvestment SecuritiesFixed rate
    
    $
    8,492
    
    
    $
    7,421
    
    
    $
    6,469
    
    
    $
    2,737
    
    
    $
    7,368
    
    
    $
    690
    
    
    $
    33,177
    
    
    $
    32,178Average interest rate
    
    
    4.77
    %
    
    
    4.77
    %
    
    
    4.77
    %
    
    
    4.75
    %
    
    
    4.75
    %
    
    
    
    %
    
    
    4.77
    %Variable rate
    
    
    4,753
    
    
    
    5,292
    
    
    
    4,595
    
    
    
    7,443
    
    
    
    16,823
    
    
    
    3,454
    
    
    
    42,360
    
    
    
    41,746Average interest rate
    
    
    5.65
    %
    
    
    6.41
    %
    
    
    6.41
    %
    
    
    6.41
    %
    
    
    6.41
    %
    
    
    6.41
    %
    
    
    6.32
    %LoansFixed rate
    
    
    14,650
    
    
    
    11,440
    
    
    
    485
    
    
    
    206
    
    
    
    575
    
    
    
    153
    
    
    
    27,509
    
    
    
    24,106Average interest rate
    
    
    7.02
    %
    
    
    6.39
    %
    
    
    7.61
    %
    
    
    7.17
    %
    
    
    6.73
    %
    
    
    5.75
    %
    
    
    6.75
    %Variable rate
    
    
    316,241
    
    
    
    187,556
    
    
    
    98,758
    
    
    
    12,671
    
    
    
    6,280
    
    
    
    2,763
    
    
    
    624,269
    
    
    
    627,593Average interest rate
    
    
    7.92
    %
    
    
    7.92
    %
    
    
    7.93
    %
    
    
    8.01
    %
    
    
    7.90
    %
    
    
    3.53
    %
    
    
    7.90
    %Federal funds soldVariable rate
    
    
    6,243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,243
    
    
    
    6,243Average interest rate
    
    
    3.34
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.34
    %Interest-bearing deposits
with other banksVariable rate
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67
    
    
    
    67Average interest rate
    
    
    2.39
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.39
    %LiabilitiesInterest-bearing deposits
and savingsVariable rate
    
    
    172,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172,825
    
    
    
    172,825Average interest rate
    
    
    3.73
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.73
    %Time deposits
    
    
    442,148
    
    
    
    32,383
    
    
    
    10,043
    
    
    
    3,999
    
    
    
    
    
    
    
    
    
    
    
    488,573
    
    
    
    488,186Average interest rate
    
    
    4.09
    %
    
    
    4.34
    %
    
    
    4.03
    %
    
    
    4.09
    %
    
    
    
    
    
    
    
    
    
    
    4.11
    %Variable rate long-term
borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,186
    
    
    
    6,186
    
    
    
    6,186Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.49
    %
    
    
    6.49
    %
 44




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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
 45




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal ControlIntegrated Framework
    Internal Control-Integrated Framework Internal Control-Integrated Framework
 46




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##### Table of Contents



/s/ MAULDIN & JENKINS, LLCAtlanta, GeorgiaJanuary 27, 2006
 Changes in Internal Control Over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION
  47




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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
    
    
    1,228,996
    
    
    $
    5.60
    
    
    
    1,925Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,228,996
    
    
    $
    5.60
    
    
    
    1,925
 
 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  48




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##### Table of Contents



ITEM 15. EXHIBITS, LIST 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
    
    
    Articles of Amendment filed June 10, 2005.3.3
    
    
    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
    
    
    Employment agreement with Rita Gray (incorporated by reference to Exhibit
10.4 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
    
    
    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)*10.4
    
    
    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)*10.5
    
    
    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)*10.6
    
    
    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)*13.1
    
    
    Integrity Bancshares, Inc. Financial Statements as of December 31, 200521
    
    
    Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to
the Registrants Form 10-KSB for the period ended December 31, 2004 as filed
with the SEC on March 30, 2005)23
    
    
    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. 49




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##### Table of Contents



SIGNATURES
  INTEGRITY BANCSHARES, INC.(Registrant)By:

    /s/ Steven M. SkowSteven M. SkowPresident and Chief Executive OfficerDate: March 15, 2006
  /s/ Steven M. Skow
    
    Date: March 15, 2006Steven M. Skow, President,Chief Executive Officer and Director[Principal Executive Officer]/s/ Suzanne Long
    
    Date: March 15, 2006Suzanne Long, Senior Vice-President & C.F.O[Principal Financial Officer and Principal Accounting Officer]/s/ Clinton M. Day
    
    Date: March 15, 2006Clinton M. Day, Director/s/Alan K. Arnold
    
    Date: March 15, 2006Alan K. Arnold, Director/s/James E. Bridges

James E. Bridges, Director
    
    Date: March 15, 2006/s/ Joseph J. Ernest

Joseph J. Ernest, Director
    
    Date: March 15, 2006/s/ Don C. Hartsfield

Don C. Hartsfield, Director
    
    Date: March 14, 2006/s/ Jack S. Murphy

Jack S. Murphy, Director
    
    Date: March 15, 2006
 50




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##### Table of Contents



/s/ Richard H. Peden, Sr.
    
    Date: March 15, 2006Richard H. Peden, Sr, Director/s/ Charles J. Puckett
    
    Date: March 14, 2006Charles J. Puckett, Director/s/ Gerald O. Reynolds
    
    Date: March 14, 2006Gerald O. Reynolds, Director/s/ Robert S. Wholey
    
    Date: March 15, 2006Robert S. Wholey, Director
 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS
  51