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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 10-KSB þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004 o
    
    TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to Commission file number: 333-95335 INTEGRITY BANCSHARES, INC. Georgia
    
    58-2508612(State or Other Jurisdiction
    
    (I.R.S. Employer Identification Number)of Incorporation or Organization)
 11140 State Bridge Road
P.O. Box 2008
Alpharetta, Georgia 30022
(Address of Principal Executive Offices) (770) 777-0324
(Issuers Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. YesþNo Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the best of the
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB. þ Revenues for the Registrants fiscal year ended December 31, 2004, totaled $23,068,360. The
aggregate market value of the Registrants outstanding Common Stock held by nonaffiliates of the
Registrant on March 14, 2005 was $91,208,894 (based on the last public trade on March 11, 2005). There were 6,493,597 shares of Common Stock outstanding as of March 14, 2005 Transitional Small Business Disclosure Format (check one): Yes  ; No þ DOCUMENTS INCORPORATED BY REFERENCE None




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INTEGRITY BANCSHARES, INC.
Annual Report on Form 10-KSB
For the Fiscal Year Ended December 31, 2004 Table of Contents Item
    
    
    
    PageNumber
    
    
    
    NumberPart I1.
    
    Description of Business
    
    
    32.
    
    Description of Property
    
    
    163.
    
    Legal Proceedings
    
    
    174.
    
    Submission of Matters to a Vote of Security Holders
    
    
    17Part II5.
    
    Market for Common Equity, Related Shareholder Matters and Small Business Issuer Purchases of Equity Securities
    
    
    176.
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    187.
    
    Financial Statements
    
    
    348.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    358A.
    
    Controls and Procedures
    
    
    358B.
    
    Other Information
    
    
    35Part III9.
    
    Directors and Executive Officers of the Registrant
    
    
    3510.
    
    Executive Compensation
    
    
    3711.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    4412.
    
    Certain Relationships and Related Transactions
    
    
    4613.
    
    Exhibits, List and Reports on Form 8-K
    
    
    4714.
    
    Principal Accountant Fees and Services
    
    
    48Signatures
    
    
    49EX-10.6 AMENDMENT NO. 1 TO 2003 STOCK OPTION PLANEX-10.7 AMENDMENT NO. 2 TO 2003 STOCK OPTION PLANEX-13.1 FINANCIAL STATEMENTS AS OF 12-31-2004EX-21 SUBSIDIARIES OF THE REGISTRANTEX-23 CONSENT OF MAULDIN & JENKINS, LLCEX-31.1 302 CERTIFICATION OF CEOEX-31.2 302 CERTIFICATION OF CFOEX-32.1 906 CERTIFICATION OF CEOEX-32.2 906 CERTIFICATION OF CFO
  2




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PART I 
 ITEM 1. DESCRIPTION OF BUSINESS Integrity Bancshares, Inc. Integrity Bancshares, Inc. (we or us) was organized in November, 1999 as a Georgia
corporation for the purpose of acquiring all of the common stock of Integrity Bank (the Bank), a
Georgia bank which opened for business on November 1, 2000. We are a bank holding company within
the meaning of the Bank Holding Company Act of 1956 and the Georgia Bank Holding Company Act. We were organized to facilitate the Banks ability to serve its customers requirements for
financial services. The holding company structure provides flexibility for expansion of our banking
business through the possible acquisition of other financial institutions and the provision of
additional banking-related services which the traditional commercial bank may not provide under
present laws. We have no present plans to acquire any operating subsidiaries other than the Bank.
However, we may make acquisitions in the future if such acquisitions are deemed to be in the best
interest of our shareholders. Any acquisitions will be subject to certain regulatory approvals and
requirements. Future expansion is planned by opening one or two new branches of the Bank each year
in a high-growth area of metro Atlanta. Integrity Bank Integrity Bank is a full service commercial bank located at 11140 State Bridge Road,
Alpharetta, Fulton County, Georgia 30022. The Banks primary service area is Northern Fulton
County, Georgia. However, the Bank also serves the adjacent counties, or parts thereof, of Cobb,
Gwinnett, and Forsyth to a lesser extent. Each of the above counties has experienced population growth ranging from 0.3% (Fulton) to
25.8% (Forsyth) from 2000-2003. This growth has driven commercial development, which creates
lending and deposit opportunities for community banks. We expect the growth to continue at similar
levels into the foreseeable future, although a general or regional economic slowdown could cause
growth to slow substantially. The population growth is not concentrated in any particular age
group, so the demographics for the population is not expected to change significantly as the areas
grow. Currently, the median age of the residents in our service areas is comparable to the state
as a whole. The principal business of the Bank is to accept deposits from the public and to make loans and
other investments. The principal source of funds for the Banks loans and other investments are
customer deposit accounts, which include non-interest bearing demand accounts, time deposits,
savings and other interest bearing transaction accounts, and amortization and prepayments of loans
and investments. Other sources of funds include time deposits issued through an Internet
advertising network and Federal Home Loan Bank borrowings. The amount and term of each funding
source is dependent on our funding needs for loans and investments. When funding needs are
identified, each funding source is evaluated to determine which mix would be the best source for
the funding need. The principal sources of income for the Bank are interest and fees collected on loans, and
interest and dividends collected on other investments. The principal expenses of the Bank are
interest paid on interest bearing deposits and other borrowings, employee compensation, office
expenses and other overhead expenses. Types of Loans Below is a description of the principal categories of loans made by the Bank and the relative
risks involved with each category. 3




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Construction and Development Loans The Bank makes residential construction and development loans to customers in our market area.
Loans are granted for both speculative projects and those being built with end buyers already
secured. This type loan is subject primarily to market and general economic risk caused by
inventory build-up in periods of economic prosperity. During times of economic stress this type
loan has typically had a greater degree of risk than other loan types. To mitigate that risk, the
board of directors and management reviews the entire portfolio on a monthly basis. The percentage
of our portfolio being built on a speculative basis is tracked very closely. On a quarterly basis
the portfolio is segmented by market area to allow analysis of exposure and a comparison to current
inventory levels in these areas. To further mitigate risk, this type loan is accorded a larger
percentage loan loss allowance than other loan types. Loan policy also provides for limits on
speculative lending by borrower and by real estate project. Construction and development loans amounted to $214 million as of December 31, 2004, which
equals approximately 55% of the total loan portfolio. Commercial and Residential Real Estate The Bank grants loans to borrowers secured by commercial and residential real estate located
in our market area. In underwriting these type loans we consider the historic and projected future
cash flows of the real estate. We make an assessment of the physical condition and general
location of the property and the effect these factors will have on its future desirability from a
tenant standpoint. Commercial real estate offers some risks not found in traditional residential real estate
lending. Repayment is dependent upon successful management and marketing of properties and on the
level of expense necessary to maintain the property. Repayment of these loans may be adversely
affected by conditions in the real estate market or the general economy. Also, commercial real
estate loans typically involve relatively large loan balances to single borrowers. To mitigate
these risks, we monitor our loan concentration and loans are audited by a third party auditor.
This type loan generally has a shorter maturity than other loan types giving the Bank an
opportunity to reprice, restructure or decline to renew the credit. Commercial and residential real estate loans amounted to $160 million as of December 31, 2004,
which equals approximately 41% of the total loan portfolio. Commercial and Industrial Loans To a lesser degree, the Bank makes loans to small and medium sized businesses in our primary
trade area for purposes such as new or upgrades to plant and equipment, inventory acquisition and
various working capital purposes. Commercial loans are granted to borrowers based on cash flow,
ability to repay and degree of management expertise. This type loan may be subject to many
different types of risk, which will differ depending on the particular industry a borrower is
engaged in. General risks to an industry, or segment of an industry, are monitored by senior
management on an ongoing basis. On a regular basis, commercial and industrial borrowers are
required to submit statements of financial condition relative to their business to The Bank for
review. This type loan will usually be collateralized by general intangibles, inventory, equipment or
real estate. Collateral is subject to risk relative to conversion to a liquid asset if necessary
as well as risks associated with degree of specialization, mobility and general collectability in a
default situation. To mitigate this risk to collateral, these types of loans are underwritten to
strict standards including valuations and general acceptability based on the Banks ability to
monitor its ongoing health and value. Commercial and industrial loans amounted to $11 million as of December 31, 2004, which equals
approximately 3% of the total loan portfolio. Consumer Loans On a limited basis, the Bank offers a variety of consumer loans to retail customers in the
communities we serve. Consumer loans in general carry a moderate degree of risk compared to other
loans. Risk on consumer type 4




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loans is generally managed through policy limitations on debt levels consumer borrowers may carry
and limitations on loan terms and amounts depending upon collateral type. Various types of consumer loans include the following:  
    Home equity loans  open and closed end
    Vehicle financing
    Loans secured by deposits
    Overdraft protection lines
    Secured and unsecured personal loans Consumer loans amounted to $0.6 million as of December 31, 2004, which equals less than 1% of
the total loan portfolio. Loan participations The Bank sells loan participations in the ordinary course of business when an originated loan
exceeds its legal lending limit as defined by state banking laws. These loan participations are
sold to other financial institutions without recourse, and the Bank retains a portion of the
interest income as a fee for servicing the sold loans. As of December 31, 2004 the Bank had 66 sold loan participations with a total principal amount
of $60 million, which equals approximately 15.6% of our total loan portfolio. The Bank will also purchase loan participations from time to time from other banks in the
ordinary course of business, usually without recourse. Purchased loan participations are
underwritten in accordance with the Banks loan policy and represent a source of loan growth to the
Bank. The Bank believes that the risk related to purchased loan participations is consistent with
other similar type loans in the loan portfolio. If a purchased loan participation defaults, The
Bank usually has no recourse against the selling bank but will take other commercially reasonable
steps to minimize its loss. As of December 31, 2004 the Bank had 8 purchased loan participations. The total principal
amount of these participations was $11 million, which equals approximately 3% of the total loan
portfolio. Loan participations are also a component of the Banks liquidity management. Loans can be
purchased as a means of increasing interest income when excess liquidity is available, since loans
typically yield a higher rate of interest than short-term cash investments. Conversely, loans can
be sold as needed as a means of obtaining liquidity. Managements policy for determining the loan loss allowance The allowance for loan losses represents managements assessment of the risk associated with
extending credit and its evaluation of the quality of the loan portfolio. In calculating the
adequacy of the loan loss allowance, management evaluates the following factors:  
    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. 5




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
    Possible deterioration in collateral segments or other portfolio concentrations.
    Historical loss experience (when available) used for pools of loans (ie. collateral
types, borrowers, purposes, etc.)
    Changes in the quality of the institutions loan review system and the degree of
oversight by the Banks Board of Directors.
    The effect of external factors such as competition and the legal and regulatory
requirement on the level of estimated credit losses in the Banks current loan
portfolio.
    Off-balance sheet credit risks. These factors are evaluated at least quarterly and changes in the asset quality of individual
loans are evaluated more frequently as needed. All of our loans are assigned individual loan grades when underwritten. The Bank, using
guidance established by the FDIC and the State of Georgia Department of Banking and Finance, has
established minimum general reserves based on the asset quality grade of the loan. General reserve
factors applied to each rating grade are based upon managements experience and common industry and
regulatory guidelines. After a loan is underwritten and booked, loans are monitored or reviewed by the account
officer, management, and external loan review personnel during the life of the loan. Payment
performance is monitored monthly for the entire loan portfolio, account officers contact customers
during the course of business and may be able to ascertain if weaknesses are developing with the
borrower, external loan personnel perform an independent review annually, and federal and state
banking regulators perform periodic reviews of the loan portfolio. If weaknesses develop in an
individual loan relationship and are detected then the loan is downgraded and higher reserves are
assigned based upon managements assessment of the weaknesses in the loan that may affect full
collection of the debt. If a loan does not appear to be fully collectible as to principal and
interest then the loan is recorded as a non-accruing loan and further accrual of interest is
discontinued while previously accrued but uncollected interest is reserved against income. If we
believe that a loan will not be collected in full then the allowance for loan and lease losses is
increased to reflect managements estimate of potential exposure of loss. Our net loan losses to average total loans was 0.01% percent for the year ended 2003 and 0.92%
for 2004. Historical performance is not an indicator of future performance and forward results
could differ materially, but management believes that based upon historical performance, known
factors, managements judgment, and regulatory methodologies, that the current methodology used to
determine the adequacy of the allowance for loan and lease losses is reasonable. Our allowance for loan losses is also subject to regulatory examinations and determinations as
to adequacy, which may take into account such factors as the methodology used to calculate the
allowance for loan losses and the size of the allowance for loan losses in comparison to a group of
peer banks identified by the regulators. During their routine examinations of banks regulatory
agencies may require a bank to make additional provisions to its allowance for loan losses when, in
the opinion of the regulators, credit evaluations and allowance for loan loss methodology differ
materially from those of management. While it is our policy to charge off in the current period loans for which a loss is
considered probable, there are additional risks of future losses which cannot be quantified
precisely or attributed to particular loans or classes of loans. Because these risks include the
state of the economy, managements judgment as to the adequacy of the allowance is necessarily
approximate and imprecise. 6




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Managements policy for investing in securities Funds that are not otherwise needed to meet the loan demand of the Bank may be invested in
accordance with the Banks investment policy. The purpose of the investment policy is to provide a
guideline by which these funds can best be invested to earn the maximum return for the Bank, yet
still maintain sufficient liquidity to meet fluctuations in the Banks loan demand and deposit
structure. The investment policy adheres to the following objectives:  
    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 The Bank currently has four branch offices. Three of the branches are full-service. Two of
the full-service branches are in Northern Fulton County. The third full-service branch is located
in neighboring Cobb County. A loan production office is located in neighboring Gwinnett County.
The loan production office is currently in a leased office space, but a full-service branch is
expected to be completed in 2005 and will replace the loan production office. All of these counties have a competitive banking market with established banks of all sizes.
However, we believe that the growth in these counties will allow new branches to establish a loan
and deposit base and allow them to become profitable in a reasonable period of time. A key
component of our growth strategy is to hire experienced bankers in growing areas of Metropolitan
Atlanta before we acquire building locations. New locations are then built in areas where the
employees customer base is located. Employees The Bank had 47 full-time employees as of February 28, 2005. Integrity Bancshares, Inc. does
not have any employees who are not also employees of the Bank. Supervision and regulation General We are subject to state and federal banking laws and regulations that impose specific
requirements or restrictions and provide for general regulatory oversight over virtually all
aspects of our operations. These laws and regulations generally are intended to protect depositors,
not shareholders. This discussion is only a summary of various statutory and regulatory provisions.
This summary is qualified by reference to the particular statutory and regulatory provisions. Any
change in applicable laws or regulations may have a material effect on our business and prospects. Beginning with the enactment of the Financial Institutions Reform, Recovery and Enforcement
Act of 1989, numerous additional regulatory requirements have been placed on the banking industry
during the past 15 7




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years. On November 12, 1999, the President signed into law a financial services modernization act
which effectively repealed the anti-affiliation provisions of the 1933 Glass-Steagall Act and the
1956 Bank Holding Company Act. Legislative changes and the policies of various regulatory
authorities may affect our operations. We are unable to reasonably predict the nature or the extent
of the effect on our business and earnings that fiscal or monetary policies, economic control or
new federal or state legislation may have in the future. Integrity Bancshares, Inc Integrity Bancshares, Inc. is a bank holding company registered with the Board of Governors of
the Federal Reserve System and the Georgia Department of Banking and Finance under the Bank Holding
Company Act of 1956, as amended, and the Georgia Bank Holding Company Act. We are subject to the
supervision, examination and reporting requirements of the Bank Holding Company Act and the
regulations of the Federal Reserve, and the Georgia Bank Holding Company Act and the regulations of
the Georgia Department of Banking and Finance. The Bank Holding Company Act requires every bank holding company to obtain the prior approval
of the Federal Reserve before:  
    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. The Bank Holding Company Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any combination or
conspiracy to monopolize or attempt to monopolize the business of banking in any part of the United
States. In addition, the Federal Reserve will not approve a transaction the effect of which may be
substantially to lessen competition or to tend to create a monopoly, or that in any other manner
would be in restraint of trade. However, such transactions may be approved in the event the
anti-competitive effects of the proposed transaction are clearly outweighed by the public interest
in meeting the convenience and needs of the communities to be served. The Federal Reserve is also
required to consider the financial and managerial resources and future prospects of the bank
holding companies and banks involved and the convenience and needs of the communities to be served.
Consideration of financial resources generally focuses on capital adequacy, and consideration of
convenience and needs issues generally focuses on the parties performance under the Community
Reinvestment Act of 1977. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 facilitates interstate
branching and permits the establishment of agency relationships across state lines. The Interstate
Banking Act also permits bank holding companies to acquire banks in any state without regard to
whether the transaction is prohibited under the laws of such state, subject to certain state
provisions, including minimum age requirements of banks that are the target of the acquisition. The
minimum age of local banks subject to interstate acquisition is five years. In response to the Interstate Banking Act, the Georgia General Assembly adopted the Georgia
Interstate Banking Act, which provides that:  
    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. Additionally, in 1996, the Georgia General Assembly adopted the Georgia Interstate Branching
Act, which permits Georgia-based banks and bank holding companies owning banks outside of Georgia
and all non-Georgia banks and bank holding companies owning banks in Georgia the right to merge any
bank into an interstate branch 8




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network. The Georgia Interstate Branching Act also allows banks to establish de novo branches on an
unlimited basis throughout Georgia, subject to the prior approval of the Georgia Department of
Banking and Finance. Except as amended by the Gramm-Leach-Bliley Act of 1999 discussed below, the Bank Holding
Company Act generally prohibits a bank holding company from engaging in activities other than
banking or managing or controlling banks or other permissible subsidiaries. Bank holding companies
are also generally prohibited from acquiring or retaining direct or indirect control of any company
engaged in any activities other than those activities determined by the Federal Reserve to be so
closely related to banking or managing or controlling banks as to be a proper incident thereto.
Activities determined by the Federal Reserve to fall within this category include acquiring or
servicing loans, leasing personal property, conducting discount securities brokerage activities,
performing certain data processing services, acting as agent or broker in selling certain types of
credit insurance, and performing certain insurance underwriting activities. The BHC Act does not
place territorial limitations on permissible non-banking activities of bank holding companies. The
Federal Reserve has the power to order a bank holding company or its subsidiaries to terminate any
non-banking activity when it has reasonable cause to believe that continuation of such activity
constitutes a serious risk to the safety and soundness of any bank subsidiary of that bank holding
company. Integrity Bank Integrity Bank is incorporated under the laws of the State of Georgia and is subject to
examination by the Georgia Department of Banking and Finance. The Georgia Department regulates all
areas of the Banks commercial banking operations, including, without limitation, loans, deposits,
reserves, mergers, reorganizations, issuance of securities, payment of dividends, and the
establishment of branches. The Bank is also a member of the Federal Deposit Insurance Corporation, and as such, the FDIC,
to the maximum extent provided by law, insures its deposits. The Bank is also subject to numerous
state and federal statutes and regulations that affect its business, activities, and operations.
The FDIC and the Georgia Department of Banking and Finance regularly examine the operations of the
Bank and have the power to prevent the continuance or development of unsafe or unsound banking
practices or other violations of law. Gramm-Leach-Bliley Act of 1999 On November 12, 1999, the President signed into law the Gramm-Leach-Bliley Act of 1999, which
breaks down many of the barriers to affiliations among banks and securities firms, insurance
companies, and other financial service providers. This new law provides financial organizations
with the flexibility to structure new affiliations through a holding company structure or a
financial subsidiary. As a result, the number and type of entities competing with us in our markets
could increase. The Gramm-Leach-Bliley Act also covers various topics such as insurance, unitary thrifts,
privacy protection provisions for customers of financial institutions, the Federal Home Loan Bank
systems modernization, automatic teller machine reform, the Community Reinvestment Act and certain
changes related to the securities industry. The legislation amends the Bank Holding Company Act to clarify that a bank holding company may
hold shares of any company that the Federal Reserve has determined to be engaged in activities that
were sufficiently closely related to banking. This act also amends the Bank Holding Company Act to
establish a new type of bank holding company  the financial holding company. Financial holding
companies have the authority to engage in financial activities in which other bank holding
companies may not engage. Financial holding companies may also affiliate with companies that are
engaged in financial activities. These financial activities include activities that are:  
    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. 9




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The Federal Reserve and the Secretary of the Treasury may determine which activities meet
these standards. However, the Gramm-Leach-Bliley Act explicitly lists certain activities as being
financial in nature. For example, some of these activities are:  
    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. The Gramm-Leach-Bliley Act also directs the Federal Reserve to adopt a regulation or order
defining certain additional activities as financial in nature, to the extent that they are
consistent with that act. These include:  
    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. Not all bank holding companies may become financial holding companies. A bank holding company
must meet three requirements before becoming a financial holding company:  
    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. With only a few exceptions, in order to exercise the powers granted to them under the
Gramm-Leach-Bliley Act, a financial holding company or insured depository institution also must
meet the Community Reinvestment Acts requirements. If any insured depository institution did not
receive a Community Reinvestment Act rating of at least satisfactory at its most recent
examination, the regulatory agencies are to prevent the insured depository institution or financial
holding company from exercising the new powers, either directly or through a subsidiary. Payment of dividends Integrity Bancshares, Inc. is a legal entity separate and distinct from our banking
subsidiary. Our principal source of cash flow, including cash flow to pay dividends to our
shareholders, is dividends from Integrity Bank. There are statutory and regulatory limitations on
the payment of dividends by the Bank, as well as by us to our shareholders. 10




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If, in the opinion of the federal banking regulators, a depository institution under its
jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending
on the financial condition of the depository institution, could include the payment of dividends),
such authority may require, after notice and hearing, that such institution cease and desist from
such practice. The federal banking agencies have indicated that paying dividends that deplete a
depository institutions capital base to an inadequate level would be an unsafe and unsound banking
practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA), a
depository institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See Prompt Corrective Action. Moreover,
the federal agencies have issued policy statements that provide that bank holding companies and
insured banks should generally only pay dividends out of current operating earnings. In addition, the Georgia Financial Institutions Code and the regulations of the Georgia
Department of Banking and Finance provide:  
    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%. Applying these dividend restrictions, and without prior approval of the Georgia Department of
Banking and Finance, as of December 31, 2004, the Bank could pay a maximum dividend of $1,846,975
to us. Our ability to pay dividends may also be affected or limited by other factors, such as the
requirement to maintain adequate capital above regulatory guidelines. Capital adequacy We are required to comply with the capital adequacy standards established by the Federal
Reserve, and the Federal Deposit Insurance Corporation in the case of the Bank. There are two basic
measures of capital adequacy for bank holding companies that have been promulgated by the Federal
Reserve: a risk-based measure and a leverage measure. All applicable capital standards must be
satisfied for a bank holding company to be considered in compliance. The risk-based capital standards are designed to make regulatory capital requirements more
sensitive to differences in risk profiles among banks and bank holding companies, to account for
off-balance sheet exposure, and to minimize disincentives for holding liquid, low-risk assets.
Assets and off-balance-sheet items are assigned to broad risk categories, each with appropriate
weights. The resulting capital ratios represent capital as a percentage of total risk-weighted
assets and off-balance sheet items. The minimum guideline for the ratio of total capital to risk-weighted assets is 8.0%. At least
half of total capital must be comprised of Tier 1 Capital, which is common stock, undivided
profits, minority interests in the equity accounts of consolidated subsidiaries and non-cumulative
perpetual preferred stock, less goodwill and certain other intangible assets. The remainder may
consist of Tier 2 Capital, which is subordinated debt, other preferred stock and a limited amount
of loan loss reserves. As of December 31, 2004, the Banks total risk-based capital ratio and its
Tier 1 risk-based capital ratio were 12.18% and 11.37%, respectively. 11




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In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank
holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average
assets, less goodwill and certain other intangible assets, of 3.0% for bank holding companies that
meet specified criteria. All other bank holding companies generally are required to maintain a
leverage ratio of at least 3%, plus an additional cushion of 100 to 200 basis points. The Banks
leverage ratio as of December 31, 2004 was 11.30%. The guidelines also provide that bank holding
companies experiencing internal growth or making acquisitions will be expected to maintain strong
capital positions substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the Federal Reserve has indicated that it will consider a
tangible Tier 1 Capital leverage ratio and other indicia of capital strength in evaluating
proposals for expansion or new activities. In December, 2003 we raised $6 million through the issuance of trust preferred securities.
These securities have a 30-year maturity, are callable without penalty after five years, and pay a
floating rate based on three-month LIBOR plus 285 basis points. The principal balance of these
securities is includable in tier one capital. These proceeds were used to pay off a $2 million
balance on a line of credit with a correspondent bank and to pay off $4 million of subordinated
debentures that were issued by the Bank in September, 2003. To obtain regulatory approval for the line of credit, we were required by the Federal Reserve
Bank of Atlanta to maintain a well-capitalized status on a consolidated basis as well as for the
Bank until November 1, 2005. The capital ratios required for a well-capitalized status are: (i)
Total Capital of 10.0% or greater, (ii) Tier I Capital of 6.0% or greater, and (iii) a Leverage
Capital Ratio of 5.0% or greater. We exceeded all of the required ratios as of December 31, 2004.
The Bank is also subject to risk-based and leverage capital requirements adopted by the Federal
Deposit Insurance Corporation, which are substantially similar to those adopted by the Federal
Reserve for bank holding companies. The Bank was in compliance with applicable minimum capital
requirements as of December 31, 2004. Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies,
including issuance of a capital directive, the termination of deposit insurance by the Federal
Deposit Insurance Corporation, a prohibition on the taking of brokered deposits, and certain other
restrictions on its business. As described below, substantial additional restrictions can be
imposed upon FDIC-insured depository institutions that fail to meet applicable capital
requirements. See Prompt Corrective Action. The federal bank regulators continue to indicate their desire to raise capital requirements
applicable to banking organizations beyond their current levels. In this regard, the Federal
Reserve and the Federal Deposit Insurance Corporation have recently adopted regulations requiring
regulators to consider interest rate risk in the evaluation of a banks capital adequacy. The bank
regulatory agencies have recently established a methodology for evaluating interest rate risk which
sets forth guidelines for banks with excessive interest rate risk exposure to hold additional
amounts of capital against such exposures. Support of subsidiary institution Under Federal Reserve policy, we are expected to act as a source of financial strength for,
and to commit resources to support, the Bank. This support may be required at times when, absent
such Federal Reserve policy, we may not be inclined to provide such support. In addition, any
capital loans by a bank holding company to its banking subsidiary are subordinate in right of
payment to deposits and to certain other indebtedness of such bank. In the event of a bank holding
companys bankruptcy, any commitment by a bank holding company to a federal bank regulatory agency
to maintain the capital of a banking subsidiary will be assumed by the bankruptcy trustee and
entitled to a priority of payment. Prompt corrective action The Federal Deposit Insurance Corporation Improvement Act of 1991 was enacted in large measure
to improve the supervision and examination of insured depository institutions in an effort to
reduce the number of bank failures and the resulting demands on the deposit insurance system. This
law establishes a system of prompt corrective action to resolve the problems of undercapitalized
institutions. Under this system, the federal banking regulators have established five capital
categories (well capitalized, adequately capitalized, undercapitalized, 12




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significantly undercapitalized and critically undercapitalized) and are required to take certain
mandatory supervisory actions, and are authorized to take other discretionary actions, with respect
to institutions in the three undercapitalized categories. The severity of such actions depends upon
the capital category in which the institution is placed. Generally, subject to a narrow exception,
the banking regulator is required to appoint a receiver or conservator for an institution that is
critically undercapitalized. The federal banking agencies have specified by regulation the relevant
capital level for each category. Under the regulations, an FDIC-insured bank will be:  
    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. A depository institution may be deemed to be in a capitalization category that is lower than
is indicated by its actual capital position if it receives an unsatisfactory examination rating in
any one of four categories. As a depository institution moves downward through the capitalization
categories, the degree of regulatory scrutiny will increase and the permitted activities of the
institution will decrease. An FDIC-insured bank is generally prohibited from making any capital distribution, including
dividend payments, or paying any management fee to its holding company if the bank would thereafter
be undercapitalized. Undercapitalized banks are subject to growth limitations and are required
to submit a capital restoration plan. The federal regulators may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions and is likely to
succeed in restoring the banks capital. In addition, for a capital restoration plan to be
acceptable, the banks parent holding company must guarantee that the institution will comply with
such capital restoration plan. The aggregate liability of the parent company is limited to the
lesser of an amount equal to 5.0% of the banks total assets at the time it became
undercapitalized and the amount necessary to bring the institution into compliance with all
applicable capital standards. If a bank fails to submit an acceptable plan, it is treated as if it
is significantly undercapitalized. Significantly undercapitalized institutions may be subject
to a number of requirements and restrictions, including orders to sell sufficient voting stock to
become adequately capitalized, requirements to reduce total assets, and cessation of receipt of
deposits from correspondent banks. Critically undercapitalized institutions are subject to the
appointment of a receiver or conservator. A bank that is not well capitalized is subject to
certain limitations relating to so-called brokered deposits. As of December 31, 2004, the Bank had the requisite capital levels to qualify as well
capitalized. FDIC insurance assessments The Federal Deposit Insurance Corporation has adopted a risk-based assessment system for
insured depository institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. The risk-based assessment system assigns
an institution to one of three capital categories: well capitalized, adequately capitalized or
undercapitalized. These three categories are substantially similar to the prompt corrective action
categories described above, with the undercapitalized category including institutions that are
undercapitalized, significantly undercapitalized and critically undercapitalized for prompt
corrective action 13




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purposes. The FDIC also assigns an institution to one of three supervisory subgroups within each
capital group. The supervisory subgroup to which an institution is assigned is based on an
evaluation provided to the FDIC by the institutions primary federal regulator and information
which the FDIC determines to be relevant to the risk posed to the deposit insurance funds. An
institutions insurance assessment rate is then determined based on the capital category and
supervisory category to which it is assigned. The combination of capital groups and supervisory
subgroups results in nine assessment risk classifications to which different assessment rates are
applied. The FDIC may terminate the insurance of the deposits of the Bank upon a finding that the Bank
has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, order or condition the FDIC has imposed. Safety and soundness standards The federal bank regulatory agencies have adopted a set of guidelines prescribing safety and
soundness standards. The guidelines establish general standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, asset quality, earnings and compensation, fees and benefits. In general,
the guidelines require, among other things, appropriate systems and practices to identify and
manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as excessive when the
amounts paid are unreasonable or disproportionate to the services performed by an executive
officer, employee, director, or principal shareholder. In addition, the agencies adopted
regulations that authorize, but do not require, an agency to order an institution that has been
given notice by an agency that it is not satisfying any of such safety and soundness standards to
submit a compliance plan. If an institution fails to submit or implement such a plan, the agency
must issue an order directing action to correct the deficiency and may require other actions of the
types to which an undercapitalized institution is subject under the prompt corrective action
provisions described above. If an institution fails to comply with such an order, the agency may
seek to enforce such order in judicial proceedings and to impose civil money penalties. Community Reinvestment Act The Community Reinvestment Act requires federal bank regulatory agencies to encourage
financial institutions to meet the credit needs of low- and moderate-income borrowers in their
local communities. An institutions size and business strategy determines the type of examination
that it will receive. Large, retail-oriented institutions will be examined using a
performance-based lending, investment and service test. Small institutions will be examined using a
streamlined approach. All institutions may opt to be evaluated under a strategic plan formulated
with community input and pre-approved by the bank regulatory agency. Community Reinvestment Act regulations provide for certain disclosure obligations. Each
institution must post a notice advising the public of its right to comment to the institution and
its regulator on the institutions Community Reinvestment Act performance and to review the
institutions Community Reinvestment Act public file. Each lending institution must maintain for
public inspection a public file that includes a listing of branch locations and services, a summary
of lending activity, a map of its communities and any written comments from the public on its
performance in meeting community credit needs. The Community Reinvestment Act requires public
disclosure of a financial institutions written Community Reinvestment Act evaluations. This
promotes enforcement of Community Reinvestment Act requirements by providing the public with the
status of a particular institutions community reinvestment record. The recently enacted Gramm-Leach-Bliley Act makes various changes to the CRA. Among other
changes, CRA agreements with private parties must be disclosed and annual CRA reports must be made
to a banks primary federal regulator. A bank holding company will not be permitted to become a
financial holding company and no new activities authorized under this Act may be commenced by a
holding company if any of its bank subsidiaries received less than a satisfactory CRA rating in
its latest CRA examination. 14




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USA PATRIOT Act On October 26, 2001 the President signed the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001. Under
the USA PATRIOT Act, financial institutions are subject to prohibitions against specified financial
transactions and account relationships as well as enhanced due diligence and know your customer
standards in their dealings with foreign financial institutions and foreign customers. For
example, the enhanced due diligence policies, procedures and controls generally require financial
institutions to take reasonable steps:  
    to conduct enhanced scrutiny of account relationships to guard against money laundering
and report any suspicious transaction; and
    to ascertain the identify 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. Under the USA PATRIOT Act, financial institutions must establish anti-money laundering
programs. The USA PATRIOT Act sets forth minimum standards for these programs, including:  
    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. Under the authority of the USA PATRIOT Act, the Secretary of the Treasury adopted rules on
September 26, 2002 increasing the cooperation and information sharing between financial
institutions, regulators and law enforcement authorities regarding individuals, entities and
organizations engaged in, or reasonably suspected based on credible evidence of engaging in,
terrorist acts or money laundering activities. Under the new rules, a financial institution is
required to:  
    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. Under the new rules, a financial institution may also share information regarding individuals,
entities, organizations and countries for purposes of identifying and, where appropriate, reporting
activities that it suspects may involve possible terrorist activity or money laundering. Such
information-sharing is protected under a safe harbor if the financial institution:  
    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; 15




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
    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. Any financial institution complying with these rules will not be deemed to have violated the
privacy requirements discussed above. Future Legislation New regulations and statutes are regularly proposed that contain wide-ranging proposals for
altering the structures, regulations and competitive relationships of the nations financial
institutions. We cannot predict whether or in what form any proposed regulation or statute will be
adopted or the extent to which our business may be affected by any new regulation or statute. 
 ITEM 2. DESCRIPTION OF PROPERTY The Bank owns its offices located at 11140 State Bridge Road, Alpharetta, Fulton County,
Georgia. This location presently houses the administrative functions of the bank and holding
company. In 2003, the Company purchased an administrative building adjacent to its main office building
from a director of the Company, at a cost of $2.6 million. We believe the purchase price was on
substantially the same terms (or more favorable terms for us) as those prevailing at the time for
comparable transactions with unrelated providers. In August, 2004 the Company sold 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 will be recognized over the
life of the lease. A full-service branch (financial center) was opened in July, 2003 in Roswell (Fulton County),
Georgia. The branch was constructed at a cost of $2.0 million, including the acquisition price of
the land in the amount of $883,000 and construction costs of $819,000. The construction was
provided by a company owned by a director. We believe that the construction was provided on
substantially the same terms (or more favorable terms for us) as those prevailing at the time for
comparable transactions with unrelated providers. Another financial center was opened in June, 2004 in Smyrna (Cobb County), Georgia at a total
cost of $2.6 million, including the acquisition price of the land in the amount of $1.2 million and
construction costs of $1.4 million. The construction was provided by the same company that built
the Roswell financial center. As with the purchase of the office building and the construction of
the branch described above, we believe that the construction was provided on substantially the same
terms (or more favorable terms for us) as those prevailing at the time for comparable transactions
with unrelated providers. The Bank had obtained regulatory approval for the construction of a branch in Forsyth County,
which was expected to open in 2005. After reviewing the final site plans for the proposed
location, the Board of Directors decided in October, 2004 to withdraw from pursuing the project.
The site had not been purchased by the Bank, and no staff had been hired prior to withdrawal.
However, approximately $30,000 of earnest money and legal fees were forfeited by the bank and were
charged to earnings in the fourth quarter of 2004. In October, 2004 the Bank entered into a one-year operating lease for office space in
Lawrenceville (Gwinnett County), Georgia for the purpose of opening a loan production office (LPO).
The LPO opened in November, 2004. A permanent full-service financial center is expected to open
nearby in 2005. 16




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ITEM 3. LEGAL PROCEEDINGS We are subject to claims and litigation in the ordinary course of business. We believe that
any pending claims and litigation will not have a material adverse effect on our consolidated
position. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Companys shareholders, through the solicitation
of proxies or otherwise, during the fourth quarter of 2004. 
 PART II 
 ITEM 5. MARKET FOR THE COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
PURCHASES OF EQUITY SECURITIES Market information During the fourth quarter of 2003, Morgan Keegan & Company, Inc. became a market maker for our
common stock. Since then our common stock has been quoted in the pink sheets quotation system
under the symbol ITYC. Prior to the fourth quarter of 2003, there had not been an established
trading market for our common stock, which was traded inactively in private transactions.
Therefore, no reliable information is available as to trades of the common stock or as to the
prices at which common stock was traded prior to the fourth quarter of 2003. During the period beginning in March, 2004 and ending August, 2004, we issued 2,269,402 shares
of common stock at a price of $9.00 per share through a public stock offering. The number of
shares issued and the offering price have been adjusted to reflect the January, 2005 3-for-2 stock
split discussed below. In January, 2005 we effected a 3-for-2 stock split of our common stock in the form of a common
stock dividend payable on January 24, 2005 to shareholders of record as of the close of business on
January 10, 2005. Management has reviewed the limited information available as to the ranges at which our common
stock has been sold. The following table sets forth two fiscal years. Because of the thin trading
and lack of an established trading market prior to fourth quarter, 2003, the following data
regarding the common stock is provided for information purposes only and should not be viewed as
indicative of the actual or market value of the common stock. This information has been adjusted
to reflect a 3-for-2 stock split on January 24, 2005. The number of shares traded in 2004 does not
include the 2,269,402 shares issued by us at a price of $9.00 per share during the public stock
offering. Market quotations from which the pricing information was taken reflect inter-dealer
prices, without retail mark-up, mark-down, or commissions and therefore may not represent actual
transactions. Number of shares traded
    
    
    High selling price
    
    
    Low selling price2004:First Quarter
    
    
    13,875
    
    
    $
    10.67
    
    
    $
    8.67Second Quarter
    
    
    89,127
    
    
    
    10.20
    
    
    
    8.67Third Quarter
    
    
    65,353
    
    
    
    13.17
    
    
    
    9.00Fourth Quarter
    
    
    195,411
    
    
    
    22.67
    
    
    
    12.332003:First Quarter
    
    
    113,400
    
    
    $
    4.89
    
    
    $
    4.89Second Quarter
    
    
    750
    
    
    
    4.89
    
    
    
    4.89Third Quarter
    
    
    58,246
    
    
    
    5.33
    
    
    
    4.89Fourth Quarter
    
    
    128,968
    
    
    
    9.33
    
    
    
    7.67
 At December 31, 2004 the Company had 6,385,638 shares of common stock outstanding held by
approximately 664 shareholders of record. We have not declared any cash dividends on our common
stock over the last two years. 17




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Equity compensation plan information The following table sets forth information relating to our 2003 Directors Stock Option Plan
and our 2003 Stock Option Plan, which are our only equity compensation plans, as of December 31,
2004. Both plans were approved by our shareholders at our 2003 annual shareholder meeting. In
August, 2004 we adopted an amendment to our 2003 Stock Option Plan that increased the number of
shares available for issuance under the plan by 150,000 shares (adjusted for the January, 2005
3-for-2 stock split). This amendment will be submitted to our shareholders for approval at the
2005 annual shareholders meeting. Because this increase has not yet been approved by our
shareholders, we have listed these shares within the row for equity compensation plans not approved
by security holders in the table below. The figures presented in the following table do not
include additional options to purchase shares of our common stock that will accrue to Steven M.
Skow, our President and Chief Executive Officer, by virtue of Mr. Skows option to purchase five
percent of our total outstanding common stock on the date of exercise at an exercise price of $4.89
per share. Number of commonshares to be issued
    
    
    
    
    
    
    Number of commonupon the exercise
    
    
    Weighted-average
    
    
    shares remainingof outstanding
    
    
    exercise price of
    
    
    available foroptions
    
    
    outstanding options
    
    
    future issuanceEquity compensation plans
approved by security
holders
    
    
    904,282
    
    
    $
    5.59
    
    
    
    63,218Equity compensation plans not
approved by security
holders
    
    
    
    
    
    
    N/A
    
    
    
    150,000Total
    
    
    904,282
    
    
    $
    5.59
    
    
    
    213,218
 
 ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following is a discussion of our financial condition at December 31, 2004 and 2003 and the
results of operations for the years then ended. The purpose of this discussion is to focus on
information about our financial condition and results of operations that is not otherwise apparent
from our audited consolidated financial statements. Reference should be made to those statements
and the selected financial data presented elsewhere in this report for an understanding of the
following discussion and analysis. Forward-Looking Statements We may from time to time make written or oral forward-looking statements, including statements
contained in our filings with the Securities and Exchange Commission and reports to shareholders.
Statements made in the Annual Report, other than those concerning historical information, should be
considered forward-looking and subject to various risks and uncertainties. Such forward-looking
statements are made based upon managements belief as well as assumptions made by, and information
currently available to, management pursuant to safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Our actual results may differ materially from the results
anticipated in forward-looking statements due to a variety of factors, including governmental
monetary and fiscal policies, deposit levels, loan demand, loan collateral values, securities
portfolio values, interest rate risk management, the effects of competition in the banking business
from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit
unions, securities brokerage firms, insurance companies, money market funds and other financial
institutions operating in our market area and elsewhere, including institutions operating through
the Internet, changes in governmental regulation relating to the banking industry, including
regulations relating to branching and acquisitions, failure of assumptions underlying the
establishment of reserves for loan losses, including the value of collateral underlying delinquent
loans, and other factors. We caution that such factors are not exclusive. We do not undertake to
update any forward-looking statement that may be made from time to time by, or on behalf of, us. 18




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Critical Accounting Policies Our accounting and reporting policies are in accordance with accounting principles generally
accepted in the United States of America as defined by Public Company Accounting Oversight Board
and conform to general practices within the banking industry. Our significant accounting policies
are described in the notes to the consolidated financial statements. Certain accounting policies
require management to make significant estimates and assumptions, which have a material impact on
the carrying value of certain assets and liabilities, and we consider these to be critical
accounting policies. The estimates and assumptions used are based on historical experience and
other factors that management believes to be reasonable under the circumstances. Actual results
could differ significantly from these estimates and assumptions, which could have a material impact
on the carrying value of assets and liabilities at the balance sheet dates and results of
operations for the reporting periods. We believe the following critical accounting policy requires the most significant estimates
and assumptions that are particularly susceptible to a significant change in the preparation of our
financial statements. Allowance for Loan Losses A provision for loan losses is based on managements opinion of an amount that is adequate to
absorb losses inherent in the existing loan portfolio. The allowance for loan losses is
established through a provision for losses based on managements evaluation of current economic
conditions, volume and composition of the loan portfolio, the fair market value or the estimated
net realizable value of underlying collateral, historical charge off experience, the level of
nonperforming and past due loans, and other indicators derived from reviewing the loan portfolio.
The evaluation includes a review of all loans on which full collection may not be reasonably
assumed. Should the factors that are considered in determining the allowance for loan losses
change over time, or should managements estimates prove incorrect, a different amount may be
reported for the allowance and the associated provision for loan losses. For example, if economic
conditions in our market area experience an unexpected and adverse change, we may need to increase
our allowance for loan losses by taking a charge against earnings in the form of an additional
provision for loan loss. Overview The year ended December 31, 2004 was highlighted by reporting net income of $3,012,382.
Assets grew to $446.2 million, which was an increase of 59.5% over December 31, 2003. We opened
our third branch (financial center) in Smyrna (Cobb County), Georgia in June, and a loan production
office in Lawrenceville (Gwinnett County), Georgia in November. Our primary market areas of Fulton
County, Georgia and the surrounding counties of Cobb, Gwinnett, and Forsyth continue to grow, and
we believe that we are strategically positioned to take advantage of the growth. The areas growth
should provide a base for continued profitability. 19




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Financial Condition as of December 31, 2004 and 2003 Following is a summary of our balance sheets for the years indicated: December 31,2004
    
    
    2003(Dollars in Thousands)Cash and due from banks
    
    $
    1,563
    
    
    $
    1,807Federal funds sold
    
    
    
    
    
    
    2,439Securities
    
    
    47,928
    
    
    
    27,202Restricted equity securities
    
    
    1,233
    
    
    
    650Loans, net
    
    
    382,473
    
    
    
    235,346Premises and equipment
    
    
    8,608
    
    
    
    9,600Other assets
    
    
    4,370
    
    
    
    2,704$
    446,175
    
    
    $
    279,748Total deposits
    
    $
    373,272
    
    
    $
    231,778Federal funds purchased
    
    
    4,279
    
    
    
    10,000Other borrowings
    
    
    21,186
    
    
    
    16,000Other liabilities
    
    
    3,883
    
    
    
    2,078Shareholders equity
    
    
    43,555
    
    
    
    19,892$
    446,175
    
    
    $
    279,748
 As of December 31, 2004, we had total assets of $446.2 million, an increase of 59.5% over
December 31, 2003. Total interest-earning assets were $435.3 million as of December 31, 2004, or
97.5% of total assets as compared to $269.3 million or 96.3% of total assets as of December 31,
2003. Our primary interest-earning assets were loans, which made up 88.7% of total
interest-earning assets as of December 31, 2004 and 2003. Our loan to deposit and other borrowings
ratio was 97.8% as of December 31, 2004, as compared to 92.7% as of December 31, 2003. Deposits
grew $141.5 million in 2004, and federal funds purchased, net of federal funds sold, decreased $3.3
million. Premises and equipment decreased by $1.0 million. Our securities portfolio, consisting of U.S. Government Agency mortgage-backed securities and
equity securities, amounted to $47.9 million as of December 31, 2004. Net unrealized losses on
securities amounted to $315,400 as of December 31, 2004 as compared to a net unrealized gain of
$101,500 as of December 31, 2003. The change in the net unrealized gains is attributable primarily
to changes in interest rates affecting the values of the mortgage-backed securities. These changes
are recognized as an adjustment to shareholders equity and are included in other comprehensive
income, net of tax. Management has not specifically identified any securities for sale in future
periods that, if so designated, would require a charge to operations if the market value would not
be reasonably expected to recover prior to the time of sale. We have 96.9% of our loan portfolio collateralized by real estate, of which a substantial
portion is located in our primary market area of Fulton County, Georgia and surrounding counties.
Our real estate construction portfolio consists of loans primarily collateralized by nonresidential
properties, and comprises 55.5% of the loan portfolio. Real estate mortgage loans secured by one
to four family and multifamily residential properties comprise 4.9% of the loan portfolio, and
nonresidential real estate mortgage loans consisting primarily of small business commercial
properties total 36.5% of the loan portfolio. We generally require that loans collateralized by
real estate not exceed 80%-85% of the collateral value. The remaining 3.1% of the loan portfolio
consists of commercial, consumer, and other loans. The specific economic and credit risks associated with our loan portfolio, especially the real
estate portfolio, include, but are not limited to, a general downturn in the economy that could
affect unemployment rates in our market area, general real estate market deterioration, interest
rate fluctuations, deteriorated or non-existing collateral, title defects, inaccurate appraisals,
financial deterioration of borrowers, fraud and any violation of 20




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##### Table of Contents



banking protection laws. Construction lending can also present other specific risks to the lender
such as whether the builders can sell the home to a buyer and whether the buyer can obtain
permanent financing. Currently, real estate values and employment trends in our market area are
stable with no indications of a significant downturn in the general economy. We attempt to reduce these economic and credit risks not only by adhering to loan to value
guidelines, but also by investigating the creditworthiness of the borrower and monitoring the
borrowers financial position. Also, we establish and periodically review our lending policies and
procedures. State banking regulations limit exposure by prohibiting secured loan relationships that
exceed 25% of the Banks statutory capital and unsecured loan relationships that exceed 15% of the
Banks statutory capital. The Banks statutory capital as of December 31, 2004 was $43.5 million,
consisting of common stock in the amount of $5.0 million and paid-in surplus of $38.5 million. The $141.5 million growth in deposits during 2004 was due to an overall growth in the number
of deposit accounts. The growth was primarily in interest-bearing checking accounts ($51.9
million) and time deposits ($90.5 million). These accounts increased in number and amount due to
the new branch that opened in June, 2004, which has $49.7 million in total deposits at December 31,
2004. The two existing full-service branches had substantially the same increase in deposit
amounts during the year as the new branch. Premises and equipment decreased by $1.0 million. A new branch building was constructed in
the Vinings area of Smyrna, Georgia, at a cost of $1.4 million (excluding land costs of $1.2
million that were included in the December 31, 2003 premises and equipment total). Construction
was completed in June by a company owned by a director, with payments of $1.1 million made to the
directors company. We believe the transaction was made on substantially the same terms (or more
favorable terms for the Bank) as those prevailing at the time for a comparable transaction with
third party providers. In August, 2004 we sold an administrative building 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 will
be recognized over the life of the lease. The net effect of the addition of the new branch and the
sale of the administrative building were the primary reasons for the decrease in premises and
equipment of $1.0 million, as noted above. Stockholders equity has increased by $23.7 million due to net income of $3.0 million, net
proceeds from the sale of common stock in a public offering of $20.3 million, increases of
unrealized losses of securities available-for-sale, net of tax, of $262,000, and paid-in capital
from stock compensation expense of $602,000. Liquidity and Capital Resources The purpose of liquidity management is to ensure that there are sufficient cash flows to
satisfy demands for credit, deposit withdrawals and our other needs. Traditional sources of
liquidity include asset maturities and growth in core deposits. We achieve our desired liquidity
objectives from the management of assets and liabilities and through funds provided by operations.
Funds invested in short-term marketable instruments and the continuous maturing of other earning
assets are sources of liquidity from the asset perspective. The liability base provides sources of
liquidity through deposit growth, the maturity structure of liabilities and accessibility to market
sources of funds. Scheduled loan payments are a relatively stable source of funds, but loan payoffs and deposit
flows fluctuate significantly, being influenced by interest rates and general economic conditions
and competition. We attempt to price deposits consistent with local market conditions and to meet
asset/liability objectives. Our liquidity and capital resources are monitored on a periodic basis by management and state
and federal regulatory authorities. As determined under guidelines established by regulatory
authorities and internal policy, our liquidity was considered satisfactory. As of December 31, 2004, we had loan commitments outstanding of $84.6 million. Because these
commitments generally have fixed expiration dates and many will expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash requirements. If needed, we
have the ability on a 21




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##### Table of Contents



short-term basis to borrow funds and purchase federal funds from other financial institutions. As
of December 31, 2004, we had arrangements with two commercial banks for additional short-term
advances (federal funds) of up to $45.0 million in aggregate. In addition, the Bank can borrow
funds from the Federal Home Loan Bank of Atlanta, secured by real estate loans and/or investment
securities. As of December 31, 2004, our capital ratios were considered well-capitalized based on
regulatory capital requirements. Our shareholders equity increased due to the retention of all of
our net income in 2004 and net proceeds from our public stock offering of $20.3 million. In the future, the primary source of funds available to the holding company will be the
payment of dividends by the Bank. Banking regulations limit the amount of the dividends that may be
paid without prior approval of the Banks regulatory agency. Currently, the Bank could pay
$1,846,975 in dividends without regulatory approval. The minimum capital requirements to be considered well capitalized under prompt corrective
action provisions and the actual capital ratios for the Bank and consolidated Holding Company as of
December 31, 2004 are as follows: ActualRegulatoryMinimumConsolidated
    
    
    Bank
    
    
    RequirementLeverage capital ratios
    
    
    11.62
    %
    
    
    11.30
    %
    
    
    5.00
    %Risk-based capital ratios:Tier one capital
    
    
    11.70
    
    
    
    11.37
    
    
    
    6.00Total capital
    
    
    12.50
    
    
    
    12.18
    
    
    
    10.00
 These ratios may decline as asset growth continues, but are expected to continue exceeding the
regulatory minimum requirements. We have also obtained regulatory approval and are in the process of negotiating the land
purchase for a branch site in Gwinnett County, which would open in 2005. Our stated goal is to
open new branches at the rate of one or two per year at an approximate cost of $2.5 million per
branch. However, except as noted above, no firm plans have been established for these additional
branches. We do not expect these investments to have a material impact on our liquidity given our
total size, funding sources, and the anticipation of attracting deposits to the new branches that
will exceed the initial investment. Other than our proposed branch openings, we have no material
commitments for capital expenditures. We also buy and sell loan participations with other community and regional banks. Loan
participations are sold to increase liquidity as needed or when the loan amount is above our
regulatory lending limit. Sold loan participations made up 15.6% of our loan portfolio as of
December 31, 2004. Loan participations are purchased when the Bank has excess liquidity to invest.
Purchased loan participations comprised 2.9% of the loan portfolio as of December 31, 2004. During March, 2004 we began a public offering of common stock to provide us with additional
capital and liquidity for anticipated growth. The offering was completed in August, 2004 with
2,269,402 shares being sold at an offering price of $9.00/share (the number of shares and per share
amount has been adjusted to reflect a 3-for-2 stock split paid on January 24, 2005). Net proceeds
from the sale amounted to $20.3 million. Off-Balance Sheet Arrangements Our only material off-balance sheet arrangements consist of commitments to extend credit and
standby letters of credit issued in the ordinary course of business. For a complete description of
these obligations please 22




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##### Table of Contents



refer to footnote number 11 to our financial statements included herein. Effects of Inflation The impact of inflation on banks differs from its impact on non-financial institutions. Banks,
as financial intermediaries, have assets that are primarily monetary in nature and that tend to
fluctuate in concert with inflation. A bank can reduce the impact of inflation if it can manage its
rate sensitivity gap. This gap represents the difference between rate sensitive assets and rate
sensitive liabilities. We, through our asset-liability committee, attempt to structure the assets
and liabilities and manage the rate sensitivity gap, thereby seeking to minimize the potential
effects of inflation. For information on the management of our interest rate sensitive assets and
liabilities, see Asset/Liability Management. Results of Operations for the Years Ended December 31, 2004 And 2003 The following is a summary of our results of operations for the years indicated. Year Ended December 31,2004
    
    
    2003(Dollars in Thousands)Interest income
    
    $
    22,456
    
    
    $
    14,190Interest expense
    
    
    7,571
    
    
    
    4,964Net interest income
    
    
    14,885
    
    
    
    9,226Provision for loan losses
    
    
    2,627
    
    
    
    2,488Other income
    
    
    612
    
    
    
    189Other expenses
    
    
    8,082
    
    
    
    4,671Pretax income
    
    
    4,788
    
    
    
    2,256Income taxes
    
    
    1,776
    
    
    
    462Net income
    
    
    3,012
    
    
    
    1,794
 Net Interest Income Our results of operations are determined by our ability to manage interest income and expense
effectively, to minimize loan and investment losses, to generate non-interest income and to control
operating expenses. Because interest rates are determined by market forces and economic conditions
beyond our control, our ability to generate net interest income depends on our ability to obtain an
adequate net interest spread between the rate we pay on interest-bearing liabilities and the rate
we earn on interest-earning assets. Our net margin on average interest-earning assets was 4.39% in 2004 as compared to 4.37% in
2003. Average loans increased by $116.6 million, and the remaining average interest earning assets
increased by $11.9 million which combined accounted for a $128.5 million increase in total average
interest-earning assets in 2004. Average interest-bearing deposits increased by $94.3 million with
average interest-bearing demand/savings and time deposits accounting for $74.4 and $19.9 million of
this increase, respectively. Average other borrowings increased $18.1 million during 2004. The
rate earned on average interest-earning assets decreased to 6.62% in 2004 from 6.73% in 2003. The
rate paid on average interest-bearing liabilities decreased to 2.47% in 2004 from 2.55% in 2003.
The increase in net interest income and net margin on average interest-earning assets was primarily
due to the significant increase in volume of interest-earning assets in comparison to 2003. In
2004, the yields on interest-earning assets decreased by 11 basis points while the rate paid on
interest-bearing liabilities decreased by 8 basis points. We feel that our asset and liability
repricings are structured so that we will not have a material decline in our net interest margin if
interest rates rise in the future. We would expect our net interest margin to decrease if interest
rates fall. However, given the current low-rate environment and the recent increases in short-term
interest rates, we feel that a substantial decline in overall interest rates is unlikely. Provision for Loan Losses The provision for loan losses was $2.6 million in 2004 as compared to $2.5 million in 2003.
At December 23




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##### Table of Contents



31, 2003 The Bank had two outstanding loans to a borrower that filed for bankruptcy court
protection under Chapter 11 of the Bankruptcy Code during the fourth quarter of 2003. One of the
loans had a principal balance equal to $1.1 million and was secured by residential real estate.
The other loan had a principal balance of $2.3 million and was secured by leases and commercial
equipment. As a result of the bankruptcy filing, the $2.3 million loan was classified as a
non-accruing loan and a $1.2 million charge to the provision for loan losses was taken during
December, 2003 to increase the allowance for loan losses related to the $2.3 million loan to 50% of
the loan balance. In October, 2004, due to updated information received from the collection attorney and the
bankruptcy court, the Bank decided to charge off the loan while continuing recovery efforts. The
charge-off resulted in an additional $1.1 million charge to the provision for loan losses as of
September 30, 2004. The bank will continue to take all commercially reasonable steps to ascertain
a recovery for the full amount of the charge-off. The $1.1 million residential real estate loan to
the same borrower was foreclosed on in May, 2004. The collateral was sold in September, 2004,
resulting in a $160,000 gain. The remaining increase in the provision for loan losses was due primarily to the growth of the
loan portfolio and to inherent risk in the loan portfolio. Based upon our evaluation of the loan
portfolio, we believe the allowance for loan losses to be adequate to absorb possible losses on
existing loans that may become uncollectible. This evaluation considers past due and classified
loans, past experience, underlying collateral values and current economic conditions that may
affect the borrowers ability to repay. As of December 31, 2004, we had $779,400 non-accrual loans
as compared to $2,868,700 as of December 31, 2003. The allowance for loan losses as a percentage
of total loans as of December 31, 2004 and 2003 was 0.89% and 1.50%, respectively. Actual net loan
charge-offs were $2,767,200 during 2004, as compared to $20,137 during 2003. Net charge-offs as a
percentage of average loans outstanding were 0.92% during 2004 compared to 0.01% for 2003. The decline in the non-accrual loans and the allowance for loan losses percentage in 2004 vs.
2003 is primarily due to the $2.3 million commercial loan discussed above. It was included in the
non-accrual loan balance and had a $1.2 million reserve on December 31, 2003. The loans
subsequent charge-off in 2004 increased the amount and percentage of net charge-offs in 2004
compared to 2003. It is our opinion that the current allowance for loan losses of $3.4 million is adequate to
absorb known risks in the loan portfolio. No assurance can be given, however, that increased loan
volume, adverse economic conditions, or other circumstances will not result in increased losses in
our loan portfolio. Other Income Other income consists of service charges on deposit accounts and other miscellaneous services
and fees. Other income increased to $612,700 in 2004, from $189,600 in 2003. The increase in
other income is primarily from the gain on the sale of foreclosed assets of $190,000, the amortized
gain recognized on the sale-leaseback of an administrative building of $144,100, and an increase of
$67,400 in rental income from sub-leasing the administrative building. Other Expense Other expenses were $8.1 million in 2004, as compared to $4.7 million in 2003, an increase of
$3.4 million. Salaries and employee benefits increased $2.1 million. This increase is due to an
increase in the number of full time equivalent employees from 33 to 46, an increase in compensation
expense related to variable stock options of $512,000, and normal increases in salaries and
benefits. The increase in the number of employees is due to the opening of a full service branch
in Smyrna (Cobb County), Georgia, a loan production office in Lawrenceville (Gwinnett County),
Georgia, and additional administrative employees required due to our growth. Employee expenses are
expected to increase at approximately the same rate in the future as new branches are opened and
growth necessitates the addition of staff. Equipment and occupancy expenses increased by $514,000
as a result of additional depreciation and utility expenses related to the new branches. Future
occupancy and equipment expenses will increase as new branches are built. Other operating expenses
increased by $839,000 due partially to increased director fees of $257,000, an increase in loan
collection and processing costs of $158,000, and increased tithing of 24




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##### Table of Contents



$112,000. The increases in all other operating expenses were directly related to the overall
growth of the Company. Income Tax We have reported income tax expense for 2004 of $1,775,700 as compared to $462,400 for 2003.
The effective tax rate for 2004 and 2003 was 37.1% and 20.5%, respectively. Due to our short
operating history, the company had net operating loss carryforwards prior to 2003. Income tax
expense in 2003 was substantially reduced due to the recognition of $380,000 of deferred tax assets
previously accorded a valuation allowance. There were no loss carryforwards or valuation
allowances in 2004. Asset/Liability Management Our objective is to manage assets and liabilities to provide a satisfactory, consistent level
of profitability within the framework of established cash, loan, investment, borrowing and capital
policies. Certain officers are charged with the responsibility for monitoring policies and
procedures designed to ensure acceptable composition of the asset/liability mix. Our managements
overall philosophy is to support asset growth primarily through growth of core deposits of all
categories made by local individuals, partnerships and corporations. Our asset/liability mix is monitored on a regular basis with a report reflecting the interest
rate-sensitive assets and interest rate-sensitive liabilities being prepared and presented to the
board of directors on a quarterly basis. The objective of this policy is to monitor interest
rate-sensitive assets and liabilities so as to minimize the impact of substantial movements in
interest rates on earnings. An asset or liability is considered to be interest rate-sensitive if it
will reprice or mature within the time period analyzed, usually one year or less. The interest
rate-sensitivity gap is the difference between the interest-earning assets and interest-bearing
liabilities scheduled to mature or reprice within such time period. A gap is considered positive
when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive
liabilities. A gap is considered negative when the amount of interest rate-sensitive liabilities
exceeds the interest rate-sensitive assets. During a period of rising interest rates, a negative
gap would tend to affect net interest income adversely, while a positive gap would tend to result
in an increase in net interest income. Conversely, during a period of falling interest rates, a
negative gap would tend to result in an increase in net interest income, while a positive gap would
tend to affect net interest income adversely. If our assets and liabilities were equally flexible
and moved concurrently, the impact of any increase or decrease in interest rates on net interest
income would be minimal. A simple interest rate gap analysis by itself may not be an accurate indicator of how net
interest income will be affected by changes in interest rates. Accordingly, we also evaluate how
the repayment of particular assets and liabilities is impacted by changes in interest rates. Income
associated with interest-earning assets and costs associated with interest-bearing liabilities may
not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of
changes in interest rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have similar maturities or periods of repricing, they
may react in different degrees to changes in market interest rates. Interest rates on certain types
of assets and liabilities fluctuate in advance of changes in general market rates, while interest
rates on other types may lag behind changes in general market rates. In addition, certain assets,
such as adjustable rate mortgage loans, have features (generally referred to as interest rate caps
and floors) that limit changes in interest rates. Prepayment and early withdrawal levels also
could deviate significantly from those assumed in calculating the interest rate gap. The ability of
many borrowers to service their debts also may decrease during periods of rising interest rates. Changes in interest rates also affect our liquidity position. We currently price deposits in
response to market rates and it is managements intention to continue this policy. If deposits are
not priced in response to market rates, a loss of deposits could occur that would negatively affect
our liquidity position. As of December 31, 2004, our cumulative one year interest rate-sensitivity gap ratio was 1.05.
Our targeted ratio is 0.80 to 1.20 in this time horizon. This indicates that our interest-earning
assets will reprice during this period at a rate faster than our interest-bearing liabilities. The following table sets forth the distribution of the repricing of our interest-earning
assets and interest-bearing liabilities as of December 31, 2004, the interest rate-sensitivity gap,
the cumulative interest rate-sensitivity 25




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##### Table of Contents



gap, the interest rate-sensitivity gap ratio and the cumulative interest rate-sensitivity gap
ratio. The table also sets forth the time periods in which interest-earning assets and
interest-bearing liabilities will mature or may reprice in accordance with their contractual terms.
However, the table does not necessarily indicate the impact of general interest rate movements on
the net interest margin as the repricing of various categories of assets and liabilities is subject
to competitive pressures and the needs of our customers. In addition, various assets and
liabilities indicated as repricing within the same period may in fact reprice at different times
within this period and at different rates. 0  3
    
    
    3  12
    
    
    13  36
    
    
    Over 36Months
    
    
    Months
    
    
    Months
    
    
    Months
    
    
    Total(Dollars in thousands)Interest-earning assets:Interest-bearing deposits in banks
    
    $
    288
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    288Securities
    
    
    9,877
    
    
    
    21,696
    
    
    
    10,411
    
    
    
    7,176
    
    
    
    49,160Loans
    
    
    359,307
    
    
    
    12,752
    
    
    
    6,771
    
    
    
    7,076
    
    
    
    385,906Total interest-earning assets
    
    $
    369,472
    
    
    $
    34,448
    
    
    $
    17,182
    
    
    $
    14,252
    
    
    $
    435,354Interest-bearing liabilities:Interest-bearing demand deposits
    
    $
    164,147
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    164,147Savings and money markets
    
    
    5,360
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    5,360Time deposits
    
    
    27,286
    
    
    
    163,888
    
    
    
    3,188
    
    
    
    71
    
    
    
    194,433Federal funds purchased
    
    
    4,279
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    4,279Federal Home Loan Bank borrowings
    
    
    15,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    15,000Subordinated debentures
    
    
    6,186
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    6,186Total interest-bearing liabilities
    
    $
    222,258
    
    
    $
    163,888
    
    
    $
    3,188
    
    
    $
    71
    
    
    $
    389,405Interest rate sensitivity gap
    
    $
    147,214
    
    
    $
    (129,440
    )
    
    $
    13,994
    
    
    $
    14,181
    
    
    $
    45,949Cumulative interest rate sensitivity gap
    
    $
    147,214
    
    
    $
    17,774
    
    
    $
    31,768
    
    
    $
    45,949Interest rate sensitivity gap ratio
    
    
    1.66
    
    
    
    0.21
    
    
    
    5.39
    
    
    
    1.00Cumulative interest rate sensitivity gap ratio
    
    
    1.66
    
    
    
    1.05
    
    
    
    1.08
    
    
    
    1.12
 Selected Financial Information and Statistical Data The tables and schedules on the following pages set forth certain significant financial
information and statistical data with respect to: the distribution of our assets, liabilities and
shareholders equity; the interest rates we experience; our investment portfolio; our loan
portfolio, including types of loans, maturities and sensitivities of loans to changes in interest
rates and information on non-performing loans; summary of the loan loss experience and reserves for
loan losses; types of deposits and the return on equity and assets. Average balances, interest income, and interest expense The following table contains condensed average balance sheets (using daily average balances)
for the years indicated. In addition the amount of our interest income and interest expense for
each category of interest-earning assets and interest-bearing liabilities and the related average
interest rates, net interest spread and net yield on average interest earning assets are included. 26




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##### Table of Contents



Analysis of net interest income
for the years ended December 31, 2004 and 2003 2004
    
    2003Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance
    
    
    Expense
    
    
    Rate
    
    
    Balance
    
    
    Expense
    
    
    Rate(Dollars in thousands)Assets:Deposits in banks
    
    $
    301
    
    
    $
    4
    
    
    
    1.33
    %
    
    $
    757
    
    
    $
    10
    
    
    
    1.29
    %Taxable investment securities
    
    
    35,599
    
    
    
    1,593
    
    
    
    4.47
    
    
    
    21,167
    
    
    
    878
    
    
    
    4.15Federal funds sold
    
    
    2,460
    
    
    
    28
    
    
    
    1.14
    
    
    
    4,561
    
    
    
    49
    
    
    
    1.07Loans (1)
    
    
    301,040
    
    
    
    20,831
    
    
    
    6.92
    
    
    
    184,430
    
    
    
    13,253
    
    
    
    7.19Allowance for loan losses
    
    
    (3,639
    )
    
    
    
    
    
    
    
    
    
    
    (1,700
    )Cash and due from banks
    
    
    2,634
    
    
    
    
    
    
    
    
    
    
    
    2,876Other assets
    
    
    13,404
    
    
    
    
    
    
    
    
    
    
    
    8,971Total Assets
    
    $
    351,799
    
    
    
    
    
    
    
    
    
    
    $
    221,062Total interest-earning assets
    
    $
    339,400
    
    
    
    22,456
    
    
    
    6.62
    
    
    $
    210,915
    
    
    
    14,190
    
    
    
    6.73Liabilities:Noninterest-bearing demand
    
    $
    9,971
    
    
    
    
    
    
    
    
    
    
    $
    7,047Interest bearing demand and savings
    
    
    137,661
    
    
    
    3,432
    
    
    
    2.49
    
    
    
    63,312
    
    
    
    1,429
    
    
    
    2.26Time
    
    
    142,106
    
    
    
    3,512
    
    
    
    2.47
    
    
    
    122,177
    
    
    
    3,353
    
    
    
    2.74Total deposits
    
    
    289,738
    
    
    
    
    
    
    
    
    
    
    
    192,536Other borrowings
    
    
    27,100
    
    
    
    627
    
    
    
    2.31
    
    
    
    8,952
    
    
    
    183
    
    
    
    2.04Other liabilities
    
    
    2,099
    
    
    
    
    
    
    
    
    
    
    
    1,111Shareholders equity
    
    
    32,862
    
    
    
    
    
    
    
    
    
    
    
    18,463Total liabilities and
shareholders equity
    
    $
    351,799
    
    
    
    
    
    
    
    
    
    
    $
    221,062Total interest-bearing liabilities.
    
    $
    306,867
    
    
    
    7,571
    
    
    
    2.47
    
    
    $
    194,441
    
    
    
    4,965
    
    
    
    2.55Net interest income
    
    
    
    
    
    $
    14,885
    
    
    
    
    
    
    
    
    
    
    $
    9,225Net interest margin (2)
    
    
    
    
    
    
    
    
    
    
    4.39
    
    
    
    
    
    
    
    
    
    
    
    4.37Net interest spread (3)
    
    
    
    
    
    
    
    
    
    
    4.15
    
    
    
    
    
    
    
    
    
    
    
    4.18
   (1)
    
    Interest income from loans includes total fee income of approximately $2.8 million and $1.9
million for the years ended December 31, 2004 and 2003, respectively. The average balance of
non-accrual loans included in average loans was $2,138,000 in 2004 and $273,000 in 2003.(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 The following table describes the extent to which changes in interest rates and changes in
volume of interest-earning assets and interest-bearing liabilities have affected our interest
income and expense during the year indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to:  
    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. The changes in interest income and interest expense attributable to both volume and rate have been
allocated proportionately on a consistent basis to the change due to volume and the change due to
rate. 27




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Year Ended December 31,2004 vs. 2003Changes Due To:Rate
    
    
    Volume
    
    
    Total(Dollars in Thousands)Increase (decrease) in:Income from interest-earning assets:Interest and fees on loans
    
    $
    (517
    )
    
    $
    8,095
    
    
    $
    7,578Interest on taxable securities
    
    
    63
    
    
    
    652
    
    
    
    715Interest on federal funds sold
    
    
    3
    
    
    
    (24
    )
    
    
    (21
    )Interest on bank deposits
    
    
    
    
    
    
    (6
    )
    
    
    (6
    )Total interest income
    
    
    (451
    )
    
    
    8,717
    
    
    
    8,266Expense from interest-bearing liabilities:Interest on interest-bearing demand
and savings deposits
    
    
    132
    
    
    
    1,871
    
    
    
    2,003Interest on time deposits
    
    
    (363
    )
    
    
    522
    
    
    
    159Interest on other borrowings
    
    
    21
    
    
    
    423
    
    
    
    444Total interest expense
    
    
    (210
    )
    
    
    2,816
    
    
    
    2,606Net interest income
    
    $
    (241
    )
    
    $
    5,901
    
    
    $
    5,660
 Investment Portfolio Types of Investments The carrying amounts of securities at the dates indicated, which are all classified as
available-for-sale, are summarized as follows: December 31,2004
    
    
    2003(Dollars in Thousands)Mortgage-backed securities
    
    $
    47,238
    
    
    $
    26,513Equity securities
    
    
    1,923
    
    
    
    1,340$
    49,161
    
    
    $
    27,853
 The mortgage-backed securities consist of government agency mortgage pool securities with
stated maturities up to thirty years. However, the portfolio balance reduces monthly as the
underlying mortgages are paid down. Most will have an effective life that is much shorter than the
stated maturity of the security. Although the exact maturity date is uncertain, the portfolio is
predicted to have an effective maturity of less than five years. The equity securities consist of $1,232,600 in Federal Home Loan Bank of Atlanta stock and a
$690,000 common stock investment in Integrity Bank of Florida. Banks with borrowings from Federal
Home Loan Banks are required to buy stock in proportion to the amount of their outstanding advances
and total assets. There is no market for the stock, which is normally bought or sold to the
Federal Home Loan Bank at a set price of $100 per share. The stock has historically paid a
quarterly dividend, although the issuer is not required to pay dividends. 28




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##### Table of Contents



Maturities The amounts of securities, including the weighted average yield in each category as of
December 31, 2004, are shown in the following table according to contractual maturity
classifications one through five years, after five through ten years and after ten years. After one
    
    
    After fivethrough five years
    
    
    through ten yearsAmount
    
    
    Yield(1)
    
    
    Amount
    
    
    Yield(1)(Dollars in Thousands)Mortgage-backed
securities
    
    $
    4,072
    
    
    
    4.20
    %
    
    
    
    
    
    
    
 After ten years
    
    
    TotalAmount
    
    
    Yield(1)
    
    
    Amount
    
    
    Yield(1)Mortgage-backed securities
    
    $
    43,166
    
    
    
    4.52
    %
    
    $
    47,238
    
    
    
    4.49
    %
   (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 The amount of loans outstanding at the indicated dates is shown in the following table
according to the type of loan. December 31,2004
    
    
    2003(Dollars in Thousands)Commercial
    
    $
    11,181
    
    
    $
    16,071Real estate-construction
    
    
    214,104
    
    
    
    123,882Real estate-mortgage
    
    
    160,101
    
    
    
    98,401Consumer installment and other
    
    
    614
    
    
    
    723386,000
    
    
    
    239,077Less:Allowance for loan losses
    
    
    (3,433
    )
    
    
    (3,573
    )Deferred loan fees
    
    
    (94
    )
    
    
    (158
    )Net loans
    
    $
    382,473
    
    
    $
    235,346
 29




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##### Table of Contents



Maturities and Sensitivities of Loans to Changes in Interest Rates Total loans as of December 31, 2004 are shown in the following table according to contractual
maturity classifications one year or less, after one year through five years and after five years. December 31, 2004(Dollars in Thousands)CommercialOne year or less
    
    $
    8,622After one through five years
    
    
    2,228After five years
    
    
    33111,181ConstructionOne year or less
    
    
    129,544After one through five years
    
    
    81,726After five years
    
    
    2,834214,104Real Estate MortgageOne year or less
    
    
    63,448After one through five years
    
    
    85,486After five years
    
    
    11,167160,101Consumer & OtherOne year or less
    
    
    491After one through five years
    
    
    123After five years
    
    
    614$
    386,000
 The following table summarizes loans as of December 31, 2004 with the due dates after one year
that have predetermined and floating or adjustable interest rates. December 31,2004(Dollars inThousands)Predetermined interest rates
    
    $
    12,984Floating or adjustable interest rates
    
    
    170,911$
    183,895
 30




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##### Table of Contents



Risk Elements Information with respect to non-accrual, past due and restructured loans as of December 31,
2004 and 2003 is as follows: December 31,2004
    
    
    2003(Dollars in Thousands)Non-accrual loans
    
    $
    779
    
    
    $
    2,869Loans 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
    
    
    307
    
    
    
    480Interest income that would have been
recorded on non-accrual and restructured
loans under original terms
    
    
    19
    
    
    
    41Interest income that was recorded on
non-accrual and restructured loans
    
    
    0
    
    
    
    0
 Non-accrual loans have decreased from $2,869,000 as of December 31, 2003 to $779,000 as of
December 31, 2004. The majority of the decrease, $2.3 million, is attributable to one loan
discussed above in the section titled Provision for Loan Losses. It is our policy to discontinue the accrual of interest income when, in the opinion of
management, collection of interest becomes doubtful. A non-accrual status is applied when there is
a significant deterioration in the financial condition of the borrower and full repayment of
principal and interest is not expected, and the principal or interest is more than 90 days past
due, unless the loan is both well-secured and in the process of collection. Loans now current about which there are serious doubts as to the ability of the borrower to
comply with loan repayment terms decreased from $480,000 in 2003 to $307,000 as of December 31,
2004. These loans were classified for regulatory purposes as loss, doubtful, or substandard, but
are currently in compliance with their payment terms. They do not represent or result from trends
or uncertainties that management reasonably expects will materially impact future operating
results, liquidity or capital resources. 31




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##### Table of Contents



Summary of Loan Loss Experience The following table summarizes average loan balances for the year determined using the daily
average balances during the year; changes in the allowance for loan losses arising from loans
charged off and recoveries on loans previously charged off; additions to the allowance which have
been charged to operating expense; and the ratio of net charge-offs during the year to average
loans. Year Ended December 31,2004
    
    
    2003(Dollars in Thousands)Average amount of loans outstanding
    
    $
    301,040
    
    
    $
    184,430Balance of allowance for loan losses
at beginning of year
    
    $
    3,573
    
    
    $
    1,105Loans charged off:Consumer
    
    
    
    
    
    
    (20
    )Real estate mortgage
    
    
    (550
    )
    
    
    Commercial
    
    
    (2,292
    )
    
    
    (2,842
    )
    
    
    (20
    )Loans recovered:Real estate mortgage
    
    
    75
    
    
    
    75
    
    
    
    Net charge-offs
    
    
    (2,767
    )
    
    
    (20
    )Additions to allowance charged to operating
expense during year
    
    
    2,627
    
    
    
    2,488Balance of allowance for loan losses
at end of year
    
    $
    3,433
    
    
    $
    3,573Ratio of net loans charged off during the
year to average loans outstanding
    
    
    0.92
    %
    
    
    0.01
    %
 Allowance for Loan Losses The allowance for loan losses is maintained at a level that is deemed appropriate by
management to adequately cover all known and inherent risks in the loan portfolio. Our evaluation
of the loan portfolio includes a periodic review of loan loss experience, current economic
conditions that may affect the borrowers ability to pay and the underlying collateral value of the
loans. The allowance for loan losses represents managements assessment of the risk associated with
extending credit and its evaluation of the quality of the loan portfolio. Management analyzes the
loan portfolio to determine the adequacy of the allowance for loan losses and the appropriate
provision required to maintain a level considered adequate to absorb anticipated loan losses. In
assessing the adequacy of the allowance, management reviews the size, quality and risk of loans in
the portfolio. Management also considers such factors as our loan loss experience, 32




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##### Table of Contents



the amount of past due and nonperforming loans, specific known risk, the status and amount of
nonperforming assets, underlying collateral values securing the loans, current and anticipated
economic conditions and other factors which affect the allowance for potential credit losses. An
analysis of the credit quality of the loan portfolio and the adequacy of the allowance for loan
losses is prepared by the loan committee on a quarterly basis. Our allowance for loan losses is also subject to regulatory examinations and determinations as
to adequacy, which may take into account such factors as the methodology used to calculate the
allowance for loan losses and the size of the allowance for loan losses in comparison to a group of
peer banks identified by the regulators. During their routine examinations of banks, regulatory
agencies may require a bank to make additional provisions to its allowance for loan losses when, in
the opinion of the regulators, credit evaluations and allowance for loan loss methodology differ
materially from those of management. All of our loans are assigned individual loan grades when underwritten. The Bank, with the
approval of the FDIC and the State of Georgia Department of Banking and Finance, has established
minimum general reserves based on the asset quality grade of the loan. General reserve factors
applied to each rating grade are based upon managements experience and common industry and
regulatory guidelines. While it is our policy to charge off in the current period loans for which a loss is
considered probable, there are additional risks of future losses which cannot be quantified
precisely or attributed to particular loans or classes of loans. Because these risks include the
state of the economy, managements judgment as to the adequacy of the allowance is necessarily
approximate and imprecise. As of December 31, 2004 and 2003, we made no allocations of our allowance for loan losses to
specific categories of loans. Based on our best estimate, the allocation of the allowance for loan
losses to types of loans, as of the indicated dates, is as follows: December 31, 2004
    
    
    December 31, 2003Percent of loans in
    
    
    
    
    
    
    Percent of loans ineach category
    
    
    
    
    
    
    each categoryAmount
    
    
    to total loans
    
    
    Amount
    
    
    to total loans(Dollars in Thousands)Commercial
    
    $
    243
    
    
    
    2.90
    %
    
    $
    1,368
    
    
    
    6.73
    %Real estate-construction
    
    
    1,828
    
    
    
    55.46
    
    
    
    1,087
    
    
    
    51.85Real estate-mortgage
    
    
    1,357
    
    
    
    41.48
    
    
    
    1,112
    
    
    
    41.12Consumer installment
loans and other
    
    
    5
    
    
    
    0.16
    
    
    
    6
    
    
    
    0.30Total
    
    
    3,433
    
    
    
    100.00
    
    
    
    3,573
    
    
    
    100.00
 Deposits Average amount of deposits (determined using daily average balances) and average rates paid
thereon, classified as to non-interest-bearing demand deposits, interest-bearing demand deposits,
savings deposits and time deposits is presented below. 33




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##### Table of Contents



Year Ended December 31,2004
    
    
    2003Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in Thousands)Non-interest-bearing demand deposits
    
    $
    9,971
    
    
    
    
    %
    
    $
    7,047
    
    
    
    
    %Interest-bearing demand deposits
    
    
    137,384
    
    
    
    2.50
    
    
    
    63,137
    
    
    
    2.26Savings deposits
    
    
    277
    
    
    
    0.47
    
    
    
    175
    
    
    
    0.55Time deposits
    
    
    142,106
    
    
    
    2.47
    
    
    
    122,177
    
    
    
    2.74289,738
    
    
    
    
    
    
    
    192,536
 The amounts of time certificates of deposit issued in amounts of $100,000 or more as of December
31, 2004 are shown below by category, which is based on time remaining until maturity of three
months or less, over three through six months, over six through twelve months and over twelve
months. December 31, 2004(Dollars in Thousands)Three months or less
    
    $
    4,272Over three through six months
    
    
    23,847Over six through twelve months
    
    
    25,520Over twelve months
    
    
    1,140Total
    
    
    54,779
 The Bank had approximately $53.6 million in jumbo CDs maturing in one year or less at
December 31, 2004. We believe the large percentage (38%) of jumbo CDs in relation to total CDs
is attributable to our affluent customer base. It is our experience that a large portion of these
deposits are retained by the Bank as they mature because our deposit interest rates are comparable
to other rates in our market. The Bank has no deposits obtained through brokers. Return on Assets and Shareholders Equity The following rate of return information for the years indicated is presented below. Year Ended December 31,2004
    
    
    2003Return on assets (1)
    
    
    0.86
    %
    
    
    0.81
    %Return on equity (2)
    
    
    9.15
    
    
    
    9.72Dividend payout ratio (3)
    
    
    0
    
    
    
    0Equity to assets ratio (4)
    
    
    9.34
    
    
    
    8.35
   (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 
 ITEM 7. FINANCIAL STATEMENTS The financial statements of the Company are incorporated herein by reference to Exhibit 13.1
of this Annual Report on Form 10-KSB for the year ended December 31, 2004. 34




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##### Table of Contents



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE We have not had any change in accountants or disagreements with accountants on accounting and
financial disclosure during the two most recent fiscal years. 
 ITEM 8A. CONTROLS AND PROCEDURES Our principal executive and principal financial officers believe that our disclosure controls
and procedures, as defined in Securities Exchange Act Rules 13a-15(e) or 15d-15(e), are effective.
This conclusion was based on an evaluation of these controls and procedures as of the end of the
fourth quarter of 2004. There has been no change in our internal control over financial reporting
during the fourth quarter of 2004 that has materially affected, or that is reasonably likely to
materially affect, our internal controls over financial reporting. 
 ITEM 8B. OTHER INFORMATION None. 
 PART III 
 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT The following table and text gives certain information about the current members of the boards
of directors of Integrity Bancshares, Inc. and Integrity Bank and the senior and executive officers
of both institutions, including their ages as of December 31, 2004, the positions they hold, and
their principal employment for the past five years. Except for Alan K. Arnold, Joseph J. Ernest
and Robert S. Wholey, each of our directors has served as a director since our incorporation in
1999. Mr. Wholey became a director in 2001, and Messrs. Arnold and Ernest became directors in
2003. Name
    
    Age
    
    Positions heldAlan K. Arnold
    
    
    49
    
    
    Director of both institutionsDouglas G. Ballard II
    
    
    35
    
    
    Executive Vice President and Regional
Branch President of Integrity BankJames E. Bridges
    
    
    57
    
    
    Director of both institutionsClinton M. Day
    
    
    45
    
    
    Director of both institutionsJoseph J. Ernest
    
    
    59
    
    
    Director of both institutionsRita B. Gray
    
    
    54
    
    
    Senior Vice President-Operations of
Integrity Bank; Secretary of Integrity BankDon C. Hartsfield
    
    
    68
    
    
    Director of both institutionsJack S. Murphy
    
    
    63
    
    
    Director of both institutionsRichard H. Peden, Sr.
    
    
    62
    
    
    Director of both institutionsCharles J. Puckett
    
    
    72
    
    
    Director of both institutionsGerald O. Reynolds
    
    
    49
    
    
    Director of both institutionsJeff L. Sanders
    
    
    41
    
    
    Senior Vice President & C.F.O. of both
institutions; Secretary of Integrity
Bancshares, Inc.Robert F. Skeen, III
    
    
    35
    
    
    Executive Vice President and Senior Lender
of Integrity BankSteven M. Skow
    
    
    57
    
    
    Director of both institutions; President
and CEO of both institutionsRobert S. Wholey
    
    
    55
    
    
    Director of Integrity Bancshares, Inc.
 Alan K. Arnold Mr. Arnold has served as President and CEO of Wade Ford Automotive since
1983. He has recently sold his three Ford dealerships, and currently is a real estate investor.
His term as director will expire in 2006. 35




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##### Table of Contents



Douglas G. Ballard II Mr. Ballard has 11 years of banking experience. He joined the bank in
October, 2000 as Senior Vice President and is currently the Executive Vice President and Regional
Branch President. He was previously employed at BB&T in Alpharetta as Senior Vice
President/Commercial Lending from November, 1997. He is a 2004 graduate of Louisiana State
Universitys Graduate School of Banking. James E. Bridges Mr. Bridges has since 1975 served as the President of JEBCO Ventures, Inc.,
a real estate developing firm. His term as director will expire in 2006. Clinton M. Day Mr. Day has for over 15 years served as the President of Del South
Restaurants, Inc., an investment properties firm. He also holds interests in several real estate
investment companies and is a Vice President of DCR, Inc. His term as director will expire in
2006. Joseph J. Ernest Mr. Ernest has served as CEO of Earnest Communications, Inc., a
telecommunications firm, since 1997. His term as director will expire in 2006. Rita B. Gray Ms. Gray has 35 years of banking experience, all in North Georgia. She has
served as Chief Financial Officer for four banks. Prior to joining the Bank in May 2001 she served
as Senior Vice President and Chief Financial Officer of Southern Heritage Bank in Oakwood, Georgia,
a position she held since September 2000. From 1988 through 2000 Ms. Gray served as SVP/CFO of
North Georgia National Bank in Calhoun. Don C. Hartsfield Mr. Hartsfield currently serves as the President of DCH, Inc. (since
1994), D.H. Lands, Inc. (since 1992), Georgia 400 Office Park, Inc. (since 1997), The Commerce Co.
(since 1994), Overlook Associates, Inc. (since 1986), and Top-Spin, Inc. (since 1999), all of which
are involved in various real estate development projects. His term as director will expire in
2007. Jack S. Murphy Mr. Murphy is President and CEO of Lanier Athletic Center, a position he has
held since 1997. He has also been a Georgia State Representative since 2002. His term as director
will expire in 2007. Richard H. Peden, Sr. Mr. Peden has since 1968 been the owner and President of U.S. General
Construction, a construction company. His term as director will expire in 2007. Charles J. Puckett Mr. Puckett has been retired since he sold Peoples Dodge, a car
dealership, in 1998. He had owned the dealership since 1988. He also serves as a Director for
United Community Bank of Carrollton, Georgia. His term as director will expire in 2005. Gerald O. Reynolds Mr. Reynolds has since 1990 served as the Chairman and Chief Executive
Officer of The Ad Shop, Inc., an advertising agency. His term as director will expire in 2005. Jeff L. Sanders Mr. Sanders joined the Bank in August, 2003. He is a Certified Public
Accountant and has 13 years banking experience. He was previously the Senior Vice President-CFO of
the Bank of Hiawassee in Hiawassee, Georgia, a position he held from March, 1999. Prior to that,
he served as Controller at Community First Bank in Carrollton, Georgia, a publicly traded bank,
since 1992. Robert F. Skeen, III Mr. Skeen has 13 years of banking experience. He joined the Bank in
January 2002. Prior to that Mr. Skeen served for two years as Senior Vice President of Colonial
Bank in Atlanta. Before joining Colonial Bank, Mr. Skeen served as Vice President for GB&T
Bancshares, Inc. Mr. Skeen has held management level lending positions since 1991. He is a 1999
graduate of Louisiana State Universitys Graduate School of Banking. Steven M. Skow Mr. Skow has 35 years of banking experience, with the last 27 years as
President and Chief Executive Officer of high performing banks. Prior to joining the
organizational team for The Bank in June of 1999, Mr. Skow had served as an independent bank
consultant since October of 1997. Mr. Skow served as the President and Chief Executive Officer of
First National Bank & Trust Co. in Williston, North Dakota from January 1991 until October 1997.
His term as director will expire in 2005. 36




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##### Table of Contents



Robert S. Wholey Mr. Wholey currently serves as Vice Chairman of Central Financial
Corporation, a multi-bank holding company headquartered in Hutchinson, Kansas. He has held this
position since June 2000. From 1978 through June 2000 Mr. Wholey was with GRA, Thompson, White &
Company as Managing Director/CPA. His term as director will expire in 2005. Committees of the boards of directors Our board of directors has two established committees: the Executive/Nominating Committee and
the Audit/Compliance Committee. The Executive/Nominating Committee consists of Clinton Day
(Chairman), Richard Peden, Charles Puckett, and Steven Skow. The Audit/Compliance Committee
consists of Charles Puckett (Chairman), Gerald O. Reynolds, Alan Arnold, and Jack Murphy. The Board of Directors has determined that none of the members of the Audit Committee satisfy
all five criteria that are necessary for such individual to qualify as an audit committee financial
expert under SEC rules. However, the Board of Directors believes that each member of the Audit
Committee is financially literate and, through their various business experiences, is well
qualified to perform the functions that are required as a member of the Audit Committee.
Therefore, the Board of Directors did not feel that it was necessary to seek a new member who would
qualify as an audit committee financial expert. The Banks Board of Directors also has an Executive/Nominating Committee and an
Audit/Compliance Committee, which consist of the same members as those with the Companys
corresponding committees. The Banks Board of Directors also has a Loan Committee, an Asset/Liability Committee, and a
Branch Building Committee. The Loan Committee consists of Gerald Reynolds (Chairman), Clinton Day,
Don Hartsfield, Jack Murphy, Alan Arnold, Joe Ernest, and Steven Skow. The Asset/Liability
Committee consists of Steven Skow (Chairman), James Bridges, Jeff Sanders, Rita Gray and Robert
Skeen. The Branch Building Committee consists of Clinton Day, Steven Skow, James Bridges and
Richard Peden. Code of Ethics The Bank has adopted a code of ethics applicable to all of its officers and employees, which
was last revised in November, 2004. The revised code of ethics satisfies the criteria set forth in
Item 406(b) of the SECs Regulation S-B. We believe that it promotes ethical conduct and prevents
conflicts of interest. We will provide to any person without charge, upon request, a copy of such
code of ethics. Requests should be directed to: Corporate Secretary, Integrity Bancshares, Inc.,
11140 State Bridge Road, Alpharetta, GA, 30022. If we make an amendment to, or a waiver from, a
provision of our code of ethics that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons performing similar
functions and that relates to any element of the code of ethics definition enumerated in paragraph
(b) to Item 406 of the SECs Regulation S-B we will post such information on our Internet website,
which is www.myintegritybank.com. 
 ITEM 10. EXECUTIVE
COMPENSATION The following table provides information with respect to the annual compensation for services
in all capacities for 2004, 2003 and 2002 for our Chief Executive Officer, our Executive
Vice-Presidents, and our Senior Vice-Presidents who qualify as executive officers. No other
officer earned more than $100,000 in 2004. 37




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##### Table of Contents



Annual compensation (1)
    
    
    Long-term compensationSecuritiesOther
    
    
    UnderlyingAnnual
    
    
    options
    
    
    All otherName and principal position
    
    Year
    
    
    Salary (2)
    
    
    Bonus (3)
    
    
    Compensation (4)
    
    
    granted
    
    
    compensationSteven M. Skow
    
    
    2004
    
    
    $
    248,440
    
    
    $
    87,500
    
    
    $
    36,000
    
    
    
    113,470
    (5)
    
    
    President and Chief
    
    
    2003
    
    
    
    215,540
    
    
    
    
    
    
    
    8,000
    
    
    
    228,312
    (5)
    
    
    Executive Officer
    
    
    2002
    
    
    
    163,276
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Robert E. Skeen III
    
    
    2004
    
    
    
    225,240
    
    
    
    40,000
    
    
    
    
    
    
    
    9,000
    
    
    
    Exec. Vice-President
    
    
    2003
    
    
    
    179,767
    
    
    
    
    
    
    
    
    
    
    
    58,500
    
    
    
    & Senior Lender
    
    
    2002
    
    
    
    156,245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Douglas G. Ballard II
    
    
    2004
    
    
    
    239,850
    
    
    
    40,000
    
    
    
    
    
    
    
    18,000
    
    
    
    Exec. Vice-President
    
    
    2003
    
    
    
    156,020
    
    
    
    
    
    
    
    
    
    
    
    49,500
    
    
    
    & Regional Br. Pres.
    
    
    2002
    
    
    
    134,258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rita B. Gray
    
    
    2004
    
    
    
    118,484
    
    
    
    38,500
    
    
    
    8,500
    
    
    
    4,000
    
    
    
    Senior
Vice-President 
    
    
    2003
    
    
    
    113,911
    
    
    
    
    
    
    
    4,000
    
    
    
    54,000
    
    
    
    Operations
    
    
    2002
    
    
    
    100,453
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jeff L. Sanders
    
    
    2004
    
    
    
    117,939
    
    
    
    36,000
    
    
    
    8,500
    
    
    
    37,500
    
    
    
    Senior
Vice-President 
    
    
    2003
    
    
    
    44,967
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    C.F.O.
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   (1)
    
    In accordance with the rules of the Securities and Exchange Commission, the compensation set
forth in the table does not include medical, group life insurance or other benefits that are
available to all salaried employees and certain perquisites and other benefits, securities or
property that do not exceed the lesser of $50,000 or 10% of the officers salary and bonus
shown in the table.(2)
    
    Includes deferred compensation made at the individuals election pursuant to our 401(k) plan.(3)
    
    Bonuss were accrued in 2004 and paid in January, 2005.(4)
    
    Includes board fees for Mr. Skow, fees paid to Ms. Gray for her service as Secretary of the
Bank, and fees paid to Mr. Sanders for his service as Secretary of Integrity Bancshares, Inc.(5)
    
    On January 23, 2003 Mr. Skow was granted an option to purchase five percent (5%) of our total
outstanding common stock on the date of exercise. The number of securities underlying options
granted represents the increase in options that accrued to Mr. Skow during 2004 by virtue of
an increase in the number of outstanding shares during the year. No stock options were granted prior to 2003. The following table sets forth all individual
grants of stock options during 2004 to our Chief Executive Officer, our Executive Vice-Presidents,
and our Senior Vice-Presidents identified in the compensation table above. 38




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##### Table of Contents



Option grants in last fiscal year Number ofsecurities

    
    Percent of total

    
    
    
    
    
    Marketunderlying

    
    options granted

    
    Exercise
    
    
    price onoptions
    
    to employees in

    
    price per
    
    
    date of
    
    
    ExpirationName
    
    granted (1)

    
    fiscal year

    
    share
    
    
    grant
    
    
    DateSteven M. Skow (2)President and Chief
    
    
    113,470
    
    
    
    42.6
    %
    
    $
    4.89
    
    
    $
    9.00
    
    
    January 22, 2013Executive OfficerRobert E. Skeen III (3)Exec. Vice-President
    
    
    9,000
    
    
    
    3.4
    %
    
    
    9.00
    
    
    
    9.00
    
    
    August 17, 2014& Senior LenderDouglas G. Ballard II (3)Exec. Vice-President
    
    
    18,000
    
    
    
    6.7
    %
    
    
    9.00
    
    
    
    9.00
    
    
    August 17, 2014& Regional Br. Pres.Rita B. Gray (3)Senior Vice-President
    
    
    6,000
    
    
    
    2.2
    %
    
    
    9.00
    
    
    
    9.00
    
    
    August 17, 2014OperationsJeff L. Sanders (4)Senior Vice-President
    
    
    37,500
    
    
    
    14.1
    %
    
    
    9.00
    
    
    
    9.00
    
    
    August 17, 2014& C.F.O.
   (1)
    
    The options will become fully vested and exercisable in the event of a change in control
transaction, or in the event of death or disability. A change in control transaction is
generally defined to include: (i) the acquisition of another person of more than twenty-five
percent of the total combined voting power of the Companys outstanding common stock; (ii) a
change in the composition of a majority of the Board of Directors (changes that were approved
by the existing directors or their approved successors are not considered); (iii) a merger or
consolidation in which we are not the surviving entity; or (iv) the sale, transfer or
disposition of substantially all of our assets.(2)
    
    On January 23, 2003 Mr. Skow was granted an option to purchase five percent (5%) of our total
outstanding common stock on the date of exercise. The number of securities underlying options
granted represents the increase in options that accrued to Mr. Skow during 2004 by virtue of
an increase in the number of outstanding shares during the year.(3)
    
    Options listed are incentive options and were granted on August 18, 2004 at an exercise price
of not less than fair market value on the date of grant, as determined by the Board of
Directors. The options vest and become exercisable in three annual installments beginning with
date of grant.(4)
    
    Options were granted on August 18, 2004 at an exercise price of not less than fair market
value on the date of grant, as determined by the Board of Directors. The options vest and
become exercisable in three equal annual installments beginning with one-third vesting
immediately, one-third on the first anniversary of the date of grant, and the final one-third
on the second anniversary of the date of grant. Of the 37,500 options granted, 33,333 are
incentive stock options and 4,167 are non-qualifying options. None of the executive officers named above exercised any options during 2004. The following
table provides information regarding options exercisable and unexercisable stock options held as of
December 31, 2004 by our Chief Executive Officer, Executive Vice-Presidents, and Senior
Vice-Presidents identified in the compensation table above. 39




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##### Table of Contents



Aggregate/year-end option values Number of securitiesunderlyingunexercised options
    
    
    Value of unexercisedgranted at
    
    
    in-the-money options atDecember 31, 2004 (1)
    
    
    December 31, 2004 (1)Name
    
    exercisable/unexercisable
    
    
    exercisable/unexercisableSteven M. Skow (2)
    
    
    63,405/278,377
    
    
    $
    1,074,081/$4,715,706President and Chief
Executive OfficerRobert E. Skeen III (3)
    
    
    39,450/28,050
    
    
    $
    666,433/$440,026Exec. Vice-President
& Senior LenderDouglas G. Ballard II (3)
    
    
    35,100/32,400
    
    
    $
    585,963/$483,507Exec. Vice-President
& Regional Br. Mgr.Rita B. Gray (3)
    
    
    37,200/22,800
    
    
    $
    625,236/$366,504Senior
Vice-President 
OperationsJeff L. Sanders (4)
    
    
    12,500/25,000
    
    
    $
    160,375/$320,750Senior Vice-President
& C.F.O.
   (1)
    
    These values have been calculated by determining the difference between the estimated fair
market value of our common stock underlying the option as of December 31, 2004 ($21.83 per
share based on reported trading) and the exercise price per share payable upon exercise of
such options ($4.89 per share for 2003 grants and $9.00 per share for 2004 grants).(2)
    
    See footnote 2 to the table listing option grants in the last fiscal year for a description
of Mr. Skows option holdings.(3)
    
    See footnote 3 to the table listing option grants in the last fiscal year for a description
of these options.(4)
    
    See footnote 4 to the table listing option grants in the last fiscal year for a description
of Mr. Sanders options. Employment agreement with Steven M. Skow On January 23, 2003 we entered into an employment agreement with Steven M. Skow whereby Mr.
Skow was employed as our President and Chief Executive Officer. The agreement has an initial term
of five years and is automatically extended for an additional year on the initial termination date
and each anniversary thereafter unless either party gives the other 90 days prior written notice. Mr. Skow is entitled to receive annually an increase in salary as may be determined by our
board of directors. In addition to his salary, Mr. Skow is eligible for such incentives and
performance bonuses as may be authorized by the board of directors in its sole discretion. Mr.
Skow was also granted stock options to acquire 5% of our total outstanding common stock on the date
of exercise at an exercise price per share of $4.89. The original agreement provided for the
options to vest over a nine-year period and expire upon the earlier of (i) January 22, 2013 or (ii)
three months after the termination of Mr. Skows employment. The vesting period accelerates in the 40




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case of a change in control transaction. In January 2005, the board of directors approved the full
vesting of the options as of January 22, 2007. The board of directors also approved a plan
amendment which calls for the full vesting of options in the event of death or disability. If the Bank terminates Mr. Skows employment other than for cause or if Mr. Skow terminates
the agreement for good reason, then Mr. Skow will be entitled to severance pay equal to one
years total compensation plus one months pay for each year of employment for up to 12 years, so
that the maximum severance paid will be two years total compensation. For cause is defined to
include, among other things, negligence or misconduct that constitutes as a matter of law a breach
of Mr. Skows obligations or conduct that may be deemed by the board of directors to constitute
moral turpitude. Good reason is defined to include, among other things, an adverse change in
status or title or a reduction in base salary. If Mr. Skows employment is terminated after a change in control transaction (except for a
for cause termination), Mr. Skow will be entitled to receive his salary through the month of the
termination and severance pay equal to three times his then existing base salary. This payment is
in addition to other amounts owed to Mr. Skow pursuant to the agreement. The employment agreement contains restrictions on Mr. Skows ability to compete with the Bank
for a period of six months (one year if there termination is without cause) following the date of
termination. He is also restricted on the disclosure and use of the Banks confidential
information and trade secrets. In addition, he is restricted in his ability to solicit the Bank
employees or customers with whom he had material contact during the 12-month period immediately
preceding the termination of his employment. Employment agreements with R.E. (Rob) Skeen, Rita Gray and Doug Ballard On January 23, 2003 the Bank entered into employment agreements with the following employees:
R.E. (Rob) Skeen, Executive Vice President & Senior Lender; Rita Gray, Senior Vice President 
Operations; and Doug Ballard, Executive Vice President & Regional Branch President. The agreements
have initial terms of three years and are automatically extended for an additional year on the
initial termination date and each anniversary thereafter unless either party gives the other 30
days prior written notice. These officers are entitled to receive annually an increase in salary as may be determined by
the Banks Chief Executive Officer. In addition to their salaries, these employees are eligible
for such incentives and performance bonuses as may be authorized by the board of directors and the
Chief Executive Officer in their sole discretion. Mr. Skeen was granted stock options to acquire
58,500 shares of our common stock, Ms. Gray was granted stock options to acquire 54,000 shares of
our common stock, and Mr. Ballard was granted stock options to acquire 49,500 shares of our common
stock. These options have a per share exercise price of $4.89, vest over a two-year period (with
one-third vesting immediately), and expire upon the earlier of (i) January 22, 2013 or (ii) three
months after the termination of the employees employment with the Bank. The vesting period
accelerates in the case of a change in control transaction. In January, 2005 the board of
directors approved a plan amendment which calls for the full vesting of options in the event of
death or disability. If the Bank terminates the employment other than for cause or if an employee terminates the
agreement for good reason, then that employee will be entitled to severance pay equal to one
months pay for each year employed by the Bank with a maximum of two years. For cause and good
reason have similar definitions as those provided in the employment agreement for Mr. Skow. If the employment is terminated after a change in control transaction (except for a for
cause termination), the terminated employee will be entitled to receive his or her salary through
the month of the termination and severance pay equal to one times his or her then existing base
salary. This payment is in addition to other amounts owed to the employee pursuant to the
agreements. The employment agreements contain restrictions on the ability of the employees to compete with
the Bank for a period of six months (one year if there termination is without cause) following the
date of termination. The employees are also restricted on the disclosure and use of the Banks
confidential information and trade secrets. In 41




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##### Table of Contents



addition, the employees are restricted in their ability to solicit the Bank employees or the Bank
customers with whom they had material contact during the 12-month period immediately preceding the
termination of their employment. 2003 Directors stock option plan In February, 2003, our shareholders approved our 2003 Directors Stock Option Plan. The
Directors Plan was intended to advance the interests of Integrity Bancshares, Inc. and its
shareholders by providing to a voting member of our board of directors or to a former director who
has been designated by the board of directors as an emeritus, non-voting advisor member of such
board of directors a sense of proprietorship and personal involvement and to encourage directors
and emeritus directors to remain with and devote their best efforts to the Bank. The Directors Plan authorized and reserved for issuance 292,500 shares of common stock. As of
December 31, 2004 the Bank had granted options to purchase 247,500 shares of its common stock as
allowed under the Directors Plan for an exercise price of $4.89 per share, which was determined to
be the fair market value of our stock on the date of grant. Each option is evidenced by a 2003 Directors Stock Option Plan Stock Option Agreement between
Integrity Bancshares, Inc. and the optionee. Options that were granted under the Directors Plan
expire on a date which is 10 years from the date the options were granted. Options granted under the Directors Plan are exercisable in whole or in part, from time to
time, before their termination, by paying the full option price in cash or in shares of our common
stock previously held by the optionee or a combination thereof. If an optionee ceases to be a director or emeritus director, other than by reason of death or
disability, all options held by such optionee shall be exercisable in full prior to the earlier of:  
    the original expiration date of such options; or
    the date which is twelve months from the date that the optionee ceases to be a
director or an emeritus director; provided that our board of directors in its
discretion may extend this expiration date for an additional twelve months. Options will terminate on the date that is two years from the date that the optionee ceases to
be a director or an emeritus director by reason of death or disability. If an optionee ceases to
be a director or an emeritus director as a result of death or disability, all options held by such
optionee will be exercisable in full prior to the earlier of:  
    the original expiration date of such options; or
    the date which is two years from the date such optionee ceases to be a director
or emeritus director by reason of death or disability. In the event of death, such options will become exercisable by the executor or personal
representative of the optionees estate or by any person who acquired the right to exercise such
options by will or the laws of descent and distribution. No stock option granted under the Directors Plan is transferable other than by will or by the
laws of descent and distribution. The total number of shares on which options may be granted under the Directors Plan and option
rights (both as to the number of shares and the option price) will be appropriately adjusted for
any increase or decrease in the number of outstanding shares of our common stock resulting from:  
    a stock split; 42




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##### Table of Contents




    a payment of a stock dividend on our common stock;
    a subdivision or combination of shares of our common stock;
    a reclassification of our common stock; or
    a merger or consolidation. Upon our dissolution or liquidation, each option granted under the Directors Plan will
terminate. The grant of an option pursuant to the Directors Plan will not in any way affect our
right or power to make adjustments, reclassifications or changes of its capital or business
structure, or to merge or consolidate, or to dissolve or liquidate, or to sell or transfer all or
any part of our business or assets. 2003 Stock Option Plan In January 2003 our board of directors approved the 2003 Stock Option Plan (the Plan). The
Plan, which was subsequently approved by our shareholders, is intended to advance the interests of
Integrity Bancshares, Inc. and its shareholders by providing selected employees a sense of
proprietorship and personal involvement and to encourage employees to remain with and devote their
best efforts to Integrity Bancshares, Inc. and Integrity Bank. The Plan authorizes the issuance of 675,000 shares of our common stock and is administered by
the board of directors. The options may be incentive stock options or non-qualified options. The
price at which a stock option is exercisable cannot be less than the fair market value of our
common stock on the date of the grant as determined in good faith by our board of directors. In August, 2004 the board of directors approved an increased in the number of shares available
to the plan to 825,000. This increase is subject to shareholder approval at the 2005 annual
meeting. Options granted under the Plan are exercisable in whole or in part, from time to time, before
their termination, by paying the full option price in cash or in shares of our common stock
previously held by the optionee or a combination thereof. Any option that is granted under the Plan will expire not later than the date that is ten
years from the date the option is granted or such earlier date as will be set by the board of
directors when an option is granted. Incentive stock options will not be granted to any individual pursuant to the Plan if the
effect of such grant would be to permit such person to first exercise options, in any calendar
year, for the purchase of shares having a fair market value in excess of $100,000 (determined at
the time of the grant of the options). An optionee may exercise options for the purchase of shares
valued in excess of $100,000 determined at the time of the grant of the options in a calendar year,
but only if the right to exercise such options shall have first become available in prior calendar
years. No optionee owning more than 10% of the combined voting power of all classes of our capital
stock then outstanding may purchase our common stock pursuant to incentive stock options under the
Plan for less than one hundred ten percent (110%) of its fair market value on the date of grant nor
may any option granted to such a person be exercisable on a date later than five years from the
date of grant. The total number of shares on which options may be granted under the Plan and option rights
(both as to the number of shares and the option price) will be appropriately adjusted for any
increase or decrease in the number of outstanding shares of our common stock resulting from:  
    a stock split;
    a payment of a stock dividend on our common stock; 43




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##### Table of Contents




    a subdivision or combination of shares of our common stock;
    a reclassification of our common stock; or
    a merger or consolidation. Upon our dissolution or liquidation, each option granted under the Plan will terminate. The
grant of an option pursuant to the Plan will not in any way affect our right or power to make
adjustments, reclassifications, or changes of its capital or business structure, or to merge or
consolidate, or to dissolve or liquidate, or to sell or transfer all or any part of our business or
assets. Our board of directors has the right at any time to amend or terminate the Plan. The Plan
will terminate on the date that is ten years after the date on which the Plan was adopted, or
January 22, 2013. However, no amendments may be made to the Plan without the approval of our
shareholders (except for amendments resulting from changes in our capitalization) which:  
    increase the total number of shares for which options may be granted under the Plan;
    change the minimum purchase price for the options;
    affect any outstanding option or any unexercised right thereunder;
    extend the option period; or
    extend the termination date of the Plan. Compensation of directors From January, 2004 through May, 2004 our directors received $750 per month as a fee for their
service on the board of directors of Integrity Bancshares, Inc., and $1,750 per month as a fee for
their service on the Banks board of directors. Beginning in June, 2004 each director received
$1,000 per month as a fee for their service on the board of directors of Integrity Bancshares,
Inc., and $2,000 per month as a fee for their service on the Banks board of directors. 
 ITEM 11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the beneficial ownership of our common stock as of December 31,
2004, by each director, our Chief Executive Officer, Executive Vice Presidents, our Senior Vice
Presidents listed in the summary compensation table on page 35, and all of the named directors and
executive officers as a group. Except as disclosed below, we know of no person who beneficially
owns more than 5% of our common stock. Number of shares ofcommon stockbeneficially ownedName and address of beneficial owner
    
    (1)
    
    
    PercentageClinton M. Day, Chairman
    
    
    456,112
    (2)
    
    
    6.63
    %4725 Peachtree Corners Circle, Suite 300Norcross, GA 30092Steven M. Skow, Director/CEO
    
    
    137,482
    (3)
    
    
    2.00
    %11140 State Bridge RoadAlpharetta, GA 30022
 44




---



##### Table of Contents



Number of shares ofcommon stockbeneficially ownedName and address of beneficial owner
    

(1)
    
    
    
    PercentageAlan K. Arnold, Director
    
    
    101,409
    (4)
    
    
    1.48
    %9340 Colonnade TrailAlpharetta, GA 30022James E. Bridges, Director
    
    
    112,500
    (4)
    
    
    1.64
    %11130 State Bridge Rd., Suite D-201Alpharetta, GA 30022Joseph J. Ernest, Director
    
    
    107,034
    (4)
    
    
    1.56
    %5275 Triangle Pkwy., Suite 150Norcross, GA 30092Don C. Hartsfield, Director
    
    
    192,376
    (4)
    
    
    2.80
    %106 Colony Park DriveCumming, GA 30040Jack S. Murphy, Director
    
    
    190,875
    (4)
    
    
    2.78
    %655 Atlanta Rd., Suite 610Cumming, GA 30040Richard H. Peden, Sr., Director
    
    
    243,420
    (4)
    
    
    3.54
    %11245 Old Roswell Rd.Alpharetta, GA 30004Charles J. Puckett, Director
    
    
    406,575
    (4)
    
    
    5.92
    %P.O. Box 1550Carrollton, GA 30112Gerald O. Reynolds, Director
    
    
    108,843
    (4)
    
    
    1.58
    %95 Old Stratton ChaseAtlanta, GA 30328Robert S. Wholey, Director
    
    
    97,788
    (4)
    
    
    1.42
    %4801 Town Center DriveLeawood, KS 66211Robert E. Skeen III, EVP & Senior Lender
    
    
    63,450
    (5)
    
    
    0.92
    %555 Ambergate Ct.Roswell, GA 30076Douglas G. Ballard II, EVP & Regional Br. Pres.
    
    
    52,897
    (6)
    
    
    0.77
    %1505 Spring Garden WayCanton, GA 30115Rita B. Gray, SVP  Operations
    
    
    69,652
    (7)
    
    
    1.01
    %3652 Avensong Village CircleAlpharetta, GA 30004Jeff L.
Sanders, SVP and CFO
    
    
    17,751
    (8)
    
    
    0.26
    %3920 Barberry CourtCumming, GA 30041All current directors and executive
    
    
    2,358,164
    (9)
    
    
    34.31
    %officers as a group (14 persons)
 45




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##### Table of Contents



(1)
    
    The information shown above is based upon information furnished by the named persons and
based upon beneficial ownership concepts set forth in rules promulgated under the Exchange
Act. Under such rules, a person is deemed to be a beneficial owner of a security if that
person has or shares voting power, which includes the power to vote or to direct the voting
of such security, or investment power, which includes the power to dispose or to direct the
disposition of such security. A person is also deemed to be a beneficial owner of any
security of which that person has the right to acquire beneficial ownership within 60 days.
In accordance with SEC rules, percentages were calculated based on the amount of outstanding
shares plus, for each such person or group, any shares that person or group has the right to
acquire within 60 days through stock options or other rights.(2)
    
    Includes 10,170 shares held in trust for Mr. Days children and options to purchase 22,500
shares at $4.89/share.(3)
    
    Includes options to purchase 83,857 shares at $4.89/share.(4)
    
    Includes options to purchase 22,500 shares at $4.89/share.(5)
    
    Includes options to purchase 58,500 shares at $4.89/share and 450 shares at $9.00/share.(6)
    
    Includes options to purchase 49,500 shares at $4.89/share and 2,100 shares at $9.00/share.(7)
    
    Includes options to purchase 54,000 shares at $4.89/share and 1,200 shares at $9.00/share.(8)
    
    Includes options to purchase 12,500 shares at $9.00/share.(9)
    
    Includes options to purchase 247,500 shares under the Directors Stock Option Plan and 239,608
shares under the 2003 Stock Option Plan. 
 ITEM 12. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS Certain of our directors and executive officers, members of their families and companies or
firms with which they are associated, were customers of and had banking transactions with the Bank
in the ordinary course of business during 2004, and such transactions are expected to continue in
the future. All loans and commitments to loan included in these transactions were made on
substantially the same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and, in the opinion of management, did not
involve more than a nominal risk of collectability or present other unfavorable features. None of
the loans outstanding to our directors or officers, members of their families or companies or firms
with which they are associated were non-performing as of December 31, 2004. Total loans
outstanding to our directors and executive officers or affiliates of such persons (including
members of the immediate families of such persons or companies in which such persons had a 10% or
more beneficial interest) amounted to an aggregate of $8.8 million on December 31, 2004. In 2003, the Company purchased an administrative building adjacent to its main office building
from James E. Bridges, a director of the Company, at a cost of $2.6 million. We believe the
purchase price was on substantially the same terms (or more favorable terms for us) as those
prevailing at the time for comparable transactions with unrelated providers. In August, 2004 the
Company sold the administrative building and related improvements to a non-affiliated party for
$5.0 million cash in a sale-leaseback transaction. A full-service branch (financial center) was opened in July, 2003 in Roswell (Fulton County),
Georgia. The branch was constructed at a cost of $2.0 million, including the acquisition price of
the land in the amount of $883,000 and construction costs of $819,000. The construction was
provided by a company owned by Richard H. Peden, Sr., a director. We believe that the construction
was provided on substantially the same terms (or more favorable terms for us) as those prevailing
at the time for comparable transactions with unrelated providers. Another financial center was opened in June, 2004 in Smyrna (Cobb County), Georgia at a total
cost of 46




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$2.6 million, including the acquisition price of the land in the amount of $1.2 million and
construction costs of $1.4 million. The construction was provided by the same company that built
the Roswell financial center. As with the purchase of the office building and the construction of
the branch described above, we believe that the construction was provided on substantially the same
terms (or more favorable terms for us) as those prevailing at the time for comparable transactions
with unrelated providers. 
 ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K  (a)
    The following exhibits are filed as a part of or incorporated by reference in this report: ExhibitNumber
    
    Description3.1
    
    
    articles of incorporation, as amended (incorporated by reference to Exhibit
3.1 to Form SB-2 filed by the Registrant on January 25, 2000  File No.
333-95335)3.2
    
    
    bylaws (incorporated by reference to Exhibit 3.2 to Form SB-2 filed by the
Registrant on January 25, 2000  File Nos. 333-95335)10.1
    
    
    Employment agreement with Steven M. Skow (incorporated by reference to
Exhibit 10.1 to the Registrants Form 10-QSB for the period ended June 30,
2003 as filed with the SEC on August 29, 2003)*10.2
    
    
    Employment agreement with Rob Skeen (incorporated by reference to Exhibit
10.2 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
    
    
    Employment agreement with Doug Ballard (incorporated by reference to Exhibit
10.3 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
    
    
    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)*10.5
    
    
    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)*10.6
    
    
    Amendment No. 1 to 2003 Stock Option Plan*10.7
    
    
    Amendment No. 2 to 2003 Stock Option Plan*10.8
    
    
    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, 200321
    
    
    Subsidiaries of the Registrant23
    
    
    Consent of Mauldin & Jenkins, LLC31.1
    
    
    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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ExhibitNumber
    
    Description31.2
    
    
    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.  (b)
    The Company filed the following Form 8-Ks during the fourth quarter of 2004:October 22, 2004  Announcing financial results for the third quarter of 2004.
November 15, 2004  Announcing restated financial results for the third quarter of
2004.
December 13, 2004  Announcing 3-for-2 stock split payable on January 24, 2005. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees Mauldin & Jenkins, LLC billed the Company $51,800 for 2004 and $64,750 for 2003 for
professional services relating to the annual audit and 10-QSB reviews or services that are normally
provided by the accountant in connection with statutory and regulatory filings. The Audit
Committee of the Board of Directors of the Company has considered whether the providing of the
services covered under the captions Audit-Related Fees, Tax Fees and All Other Fees is
compatible with maintaining the independence of Mauldin & Jenkins, LLC. Audit-Related Fees Mauldin & Jenkins, LLC billed the Company $0 for 2004 and $0 for 2003 for audit-related fees. Tax Fees Mauldin & Jenkins, LLC billed the Company $5,300 for 2004 and $4,500 for 2003 for professional
services relating to tax compliance, tax advice and tax planning. All Other Fees Mauldin & Jenkins, LLC billed the Company $0 for 2004 and $1,800 for 2003 for Federal Home
Loan Bank mortgage collateral verification agreed upon procedures. Preapproval by Audit Committee Under the Audit Committees charter, the Audit Committee is required to give advanced approval
of any non-audit services to be performed by the Companys auditors, provided that such services
are not otherwise prohibited by law. 48




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SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTEGRITY BANCSHARES, INC.
                    (Registrant)By:
    /s/ Steven M. SkowSteven M. SkowPresident and Chief
Executive Officer
Date:  March 29, 2005 In accordance with the Exchange Act, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Steven M. Skow

Steven M. Skow, President,
Chief Executive Officer and Director
[Principal Executive Officer]
    
    Date:  March 29, 2005/s/ Jeff L. Sanders

Jeff L. Sanders, Senior Vice-
President & C.F.O
[Principal Financial Officer and
Principal Accounting Officer]
    
    Date:  March 29, 2005/s/ Clinton M. Day

Clinton M. Day, Director
    
    Date:  March 29, 2005/s/Alan K. Arnold

Alan K. Arnold, Director
    
    Date:  March 29, 2005/s/ Joseph J. Ernest

Joseph J. Ernest, Director
    
    Date:  March 29, 2005/s/ Don C. Hartsfield

Don C. Hartsfield, Director
    
    Date:  March 29, 2005/s/ Jack S. Murphy

Jack S. Murphy, Director
    
    Date:  March 29, 2005
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/s/ Richard H. Peden, Sr.

Richard H. Peden, Sr, Director
    
    Date:  March 29, 2005/s/ Charles J. Puckett

Charles J. Puckett, Director
    
    Date:  March 29, 2005/s/ Gerald O. Reynolds

Gerald O. Reynolds, Director
    
    Date:  March 29, 2005
 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS Integrity Bancshares, Inc. expects to send a proxy statement to its shareholders with respect
to the annual meeting of shareholders subsequent to the filing of this Form 10-KSB. It will
furnish copies of such material to the Commission when the proxy statement is sent to shareholders. 50