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U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2004

For the transition period from             to             

COMMISSION FILE NUMBER 0-26551

INTEGRITY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s Telephone number, including area code: (888) 894-2483

COMMON STOCK, $1.00 PAR VALUE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).    Yes  x    No  ¨

Number of shares of Common Stock outstanding as of November 23, 2004; 4,864,998.

This report contains 18 pages.

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Part I. Financial Information

Item 1 - Financial Statements

Integrity Financial Corporation

Consolidated Balance Sheets

The accompanying notes are an integral part of the financial statements.

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Integrity Financial Corporation

Consolidated Statements of Operations (Unaudited)

The accompanying notes are an integral part of the financial statements.

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Integrity Financial Corporation

Consolidated Statements of Cash Flows (Unaudited)

The accompanying notes are an integral part of the financial statements.

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Integrity Financial Corporation

Notes to Consolidated Financial Statements (Unaudited)

NOTE A - BASIS OF PRESENTATION

In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of September 30, 2004 and for the three and nine month periods ended September 30, 2004 and 2003, in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements include the accounts of Integrity Financial Corporation and its wholly-owned subsidiaries: Catawba Valley Bank, First Gaston Bank, Integrity Securities, Inc., and Community Mortgage Corporation, collectively referred to as the “Company”. All significant intercompany transactions and balances have been eliminated. Operating results for the nine month period ended September 30, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2004.

The organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the consolidated financial statements filed as part of the Company’s 2003 annual report on Form 10-K. This quarterly report should be read in conjunction with such annual report.

NOTE B - NET INCOME PER SHARE

Basic and diluted net income per common share is computed based on the weighted average number of shares outstanding during each period after retroactively adjusting for stock dividends. Diluted net income per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the net income of the Company. For the three and nine month periods ended September 30, 2004 there were 11,997 options that were antidilutive since the exercise price exceeded the average market price for the period. There were no antidilutive options outstanding during the three and nine month periods ended September 30, 2003.

Basic and diluted net income per common share has been computed based upon net income as presented in the accompanying consolidated statements of operations divided by the weighted average number of common shares outstanding or assumed to be outstanding as summarized below:

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Integrity Financial Corporation

Notes to Consolidated Financial Statements (Unaudited)

NOTE C - COMPREHENSIVE INCOME

For the three months ended September 30, 2004 and 2003, total comprehensive income, consisting of net income and unrealized gains and losses on available for sale securities, net of taxes, was $83,632 and $151,469 respectively.

For the nine months ended September 30, 2004 and 2003, total comprehensive income, consisting of net income and unrealized gains and losses on available for sale securities, net of taxes, was $807,246 and $3,071,451 respectively.

NOTE D - STOCK COMPENSATION PLANS

Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock options issued under the Company’s stock option plans have no intrinsic value at the grant date and, under APB Opinion No. 25, no compensation cost is recognized for them. The Company has elected to continue with the accounting methodology in APB Opinion No. 25. Presented below are the pro forma disclosures of net income and earnings per share and other disclosures as if the fair value based method of accounting had been applied.

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Integrity Financial Corporation

Notes to Consolidated Financial Statements (Unaudited)

NOTE E - GUARANTEES

The Company has issued guarantees under standby letters of credit, which require the Company to fund the guarantee in part or in entirety, in the event the customer fails to perform under an obligating agreement. These standby letters of credit typically have terms ranging from 4 to 156 months.

The maximum amount of the Company’s guarantees under these standby letters of credit are as follows (in thousands):

NOTE F - RECENT ACCOUNTING PRONOUNCEMENTS

On March 31, 2004, the Company adopted FIN 46R which resulted in the deconsolidation of the Company’s trust preferred subsidiaries, Catawba Valley Capital Trust I and Catawba Valley Capital Trust II. Upon deconsolidation, the junior subordinated debentures issued by the Company to the trusts were included in long-term debt (instead of the trust preferred securities) and the Company’s equity interests in the trusts were included in other assets. As a result, other assets and long-term debt increased by $310,000. Except for accounting treatment, the relationship between the Company and Catawba Valley Capital Trust I and Catawba Valley Capital Trust II has not changed. Catawba Valley Capital Trust I and Catawba Valley Capital Trust II continue to be wholly owned trust preferred subsidiaries of the Company, and the full and unconditional guarantee of the Company for the repayment of the trust preferred securities remains in effect.

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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q may contain certain forward-looking statements consisting of estimates with respect to the financial condition, results of operations and business of the Company that are subject to various factors which could cause actual results to differ materially from these estimates. These factors include, but are not limited to, general economic conditions, changes in interest rates, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies, or guidelines; changes in legislation or regulation; and other economic, competitive, governmental, regulatory, and technological factors affecting the Company’s operations, pricing, products and services.

Comparison of Financial Condition at September 30, 2004 and December 31, 2003

During the nine months ended September 30, 2004, total assets increased $41.6 million or 6.6% from $629.7 million to $671.3 million. This increase in the Company’s assets resulted primarily from an increase in our net loans outstanding of $31.9 million or 7.0% during the period. In addition, our liquid assets, consisting of cash, cash equivalents and investment securities, increased $6.5 million. This growth in the Company’s assets was funded by a $44.9 million or 9.0% increase in customer deposits during the period.

Cash and cash equivalents, consisting of cash and due from banks, interest-earning deposits in banks and federal funds sold, increased $4.4 million or 26.7% during the period. This increase resulted primarily from an increase in non-interest bearing deposits in banks of $5.2 million. The increase in non-interest deposits in banks is related to an increase in the Bank’s reserve requirements. Depository institutions are required to maintain reserves for the purpose of facilitating the implementation of monetary policy by the Federal Reserve System. Interest-earning deposits in banks decreased $2.1 million, while vault cash remained essentially unchanged.

Investment securities increased $2.1 million during the period. The Company sold $18.1 million in securities, realizing a net gain on sale of securities of $104,000, and received proceeds from pay downs and maturities totaling $17.8 million. These funds were applied toward the purchase of $39.1 million in new securities during the period.

Net loans receivable increased $31.9 million or 7.0% from $457.3 million to $489.2 during the period. The growth was largely due to a $30.0 million increase in volume from our commercial loan portfolio. Residential home equity loans increased $7.3 million. The allowance for loan losses was increased to $10.5 million at September 30, 2004, which represented 2.11% of the loan portfolio.

Federal Home Loan Bank stock increased $424,000 or 18.8% during the period, increasing from $2.3 million at December 31, 2003 to $2.7 million at September 30, 2004. FHLB stock ownership is a requirement for member banks that utilize the bank for borrowing funds. The percentage of stock owned by each member bank is based on the amount of outstanding borrowings.

Other assets increased $500,000 or 10.4% during the period. This increase was primarily due to an increase in prepaid assets of $239,000. This change is represented mostly by broker fees paid on deposits bought for funding purposes and an increase in prepaid maintenance agreements due to additional branches. Deferred tax assets also increased by $212,000 as a result of the change in our unrealized gains on securities.

Customer deposits continued to be our principal funding source during the first nine months of 2004 allowing us to fund the aforementioned growth in our assets. At September 30, 2004,

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deposits from our customers totaled $542.8 million, an increase of $44.9 million or 9.0% from $498.0 at December 31, 2003. Savings and demand deposit accounts increased by $33.1 million and time deposits increased by $11.8 million during the period. The Company is continuing to make a conscious effort to attract lower cost core deposits and reduce the dependency on higher cost time deposits.

The liquidity provided by the increased level of our customer deposits also enabled the Company to reduce our combined short-term borrowings and long-term debt during the period by $3.0 million, to $64.5 million at September 30, 2004. Federal funds purchased, a form of short-term borrowings, decreased by $11.5 million while Federal Home Loan Bank advances increased by $8.0 million for the period.

At September 30, 2004, total stockholder’s equity was $62.9 million, an increase of $58,000 December 31, 2003. Net income was $1.3 million for the period and the Company received $823,000 from the exercise of stock options. The Company purchased 67,600 shares of its stock pursuant to a stock repurchase program, while unrealized gains on our investment securities, net of tax, decreased $515,000.

Comparison of Results of Operations for the Three Months Ended September 30, 2004 and 2003

Net Income (loss). The net loss for the quarter ended September 30, 2004 was approximately $1.1 million, or ($.23) per diluted share, as compared with net income of approximately $1.2 million, or $.22 per diluted share, for the three months ended September 30, 2003, a decrease of $2.3 million. This decrease resulted principally from a decrease of $3.0 million in net interest income after the provision of loan losses, as an increase of $1.2 million in net interest income was offset by an increase of $4.2 million in the provision for loan losses.

Net Interest Income. Like most financial institutions, the primary component of earnings for our banks, Catawba Valley Bank and First Gaston Bank of North Carolina, is net interest income. Net interest income is the difference between interest income, principally from loan and investment securities portfolios, and interest expense, principally on customer deposits and borrowings. Changes in net interest income result from changes in volume, spread and margin. For this purpose, volume refers to the average dollar level of interest-earning assets and interest-bearing liabilities, spread refers to the difference between the average yield on interest-earnings assets and the average cost of interest-bearing liabilities and margin refers to net interest income divided by average interest-earnings assets. Margin is influenced by the level and relative mix of interest earning assets and interest-bearing liabilities, as well as by levels of noninterest-bearing liabilities and capital.

Net interest income for the quarter ended September 30, 2004 was $5.5 million as compared with $4.4 million during the quarter ended September 30, 2003, an increase of $1.2 million. This increase resulted from the increased levels of interest earning assets during the current period and the Company’s continued efforts to lower their cost of funds. The Federal Reserve lowered interest rates late in the second quarter of 2003 but began to increase interest rates during the second quarter of 2004. As a result, the Company’s net interest margin was able to regain some ground in the third quarter. The Company’s net interest margin increased from 3.29% for the quarter ended September 30, 2003 to 3.70% for the quarter ended September 30, 2004.

Provision for Loan Losses. Our allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. We increase our allowance for loan losses by provisions charged to operations and by recoveries of amounts previously charged off, and we reduce our allowance by loans charged off. We evaluate the adequacy of the allowance at least quarterly. In evaluating the adequacy of the allowance, we consider the growth, composition and

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industry diversification of the portfolio, historical loan loss experience, current delinquency levels, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions and other relevant factors derived from our history of operations.

We follow a loan review program designed to evaluate the credit risk in our loan portfolio. Through this loan review process, we maintain an internally classified watch list that helps management assess the overall quality of the loan portfolio and the adequacy of the allowance for loan losses. In establishing the appropriate classification for specific assets, management considers, among other factors, the estimated value of the underlying collateral, the borrower’s ability to repay, the borrower’s payment history and the current delinquent status. As a result of this process, certain loans are categorized as substandard, doubtful or loss and reserves are allocated based on management’s judgment and historical experience. Testing by our internal auditors and by other independent third parties contracted with to perform reviews of our loans helps to validate this process. In addition, regulatory agencies, as an integral part of their examination process, periodically review our allowance for loan losses and may require us to make adjustments based upon information available to them at the time of their examination.

The provision for loan losses was $4,426,000 and $262,000 for the quarters ended September 30, 2004 and 2003, respectively, an increase of $4.2 million. Our allowance for loan losses increased from $6.2 million at December 31, 2003 to $10.5 million at September 30, 2004, an increase of $4.3 million. The allowance expressed as a percentage of total loans increased from 1.33% at December 31, 2003 to 2.11% at September 30, 2004. This significant increase in the provision for loan losses resulted because during the quarter ended September 30, 2004, management identified several significant loan relationships for which additional evaluation was deemed necessary. Management undertook an extensive review of these loans, which included assistance from an independent third party, in order to assess the adequacy of the specific allowances provided for each of these loans. Management was not able to sufficiently complete this process prior to the due date of this quarterly report on Form 10-Q, therefore resulting in the late filing of this report. This additional evaluation has now been completed; resulting in the recording of an additional provision for loan losses during the quarter ended September 30, 2004 of $4.1 million. Management believes that this additional evaluation of the Company’s allowance for loan losses has resulted in an adequate level of the allowance as of September 30, 2004. Total non-performing loans increased from $4.5 million or .96% of gross loans at December 31, 2003 to $5.2 million or 1.05% of gross loans at September 30, 2004. Nonaccrual loans represent $3.5 million of the total nonperforming loans. Seventy five percent of these nonaccrual balances are secured by real estate and are in the process of being transferred to foreclosed real estate. Given the Company’s loan to value ratios on these loans, management expects losses, if any, to be minimal.

The following is a summary of the principal balances of loans on nonaccrual status and loans past due ninety days or more as of the dates indicated:

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Non-interest income. Non-interest income was $1.0 million for the quarter ended September 30, 2004, a decrease of $766,000 from September 30, 2003. Service charges on deposit accounts decreased from $734,000 during the 2003 period to $659,000, a decrease of $75,000 due to management’s decision to tighten overdraft policies. Income from factoring operations decreased 49.0% from $187,000 for the quarter ended September 30, 2003 to $91,000 for the comparable period in 2004. Income from our mortgage operations decreased $335,000 or 56.0%, from $598,000 during the 2003 period to $263,000 for the third quarter of 2004. This decrease in the income from our mortgage operations resulted from the decrease in the level of refinancing experienced in the current year period versus the prior year period. The Company also sold several investment securities resulting in realized losses of $13,000.

Other non-interest income decreased from $224,000 to $43,000 for the quarters ended September 30, 2003 and 2004, respectively. During 2003 the Company increased its investment in bank owned life insurance. Income generated from bank owned life insurance increased $147,000 during the 2004 quarter in comparison to the 2003 quarter. This increase was offset by a loss on the sale of OREO property of $79,000 and a reclassification of loan fees from other income to interest income of $200,000.

Non-interest expense. Non-interest expense decreased $90,000 compared to the period ended September 30, 2003. Compensation and employee benefits and occupancy and equipment, two of the major components of non-interest expense, when combined, increased by 2.9% or $81,000 from $2.8 million for the quarter ended September 30, 2003 to $2.9 million for the quarter ended September 30, 2004. The Company completed a conversion of its data processing system in the third quarter of 2003. Whereas in the past the Company’s data processing costs were comprised largely of payments to a third party provider, as result of the conversion to an in-house system, our data processing costs are now comprised mainly of compensation and equipment costs and are accordingly classified in those categories. This change resulted in the decrease in the data processing costs presented in the statement of operations of $356,000.

Provision for Income taxes. The Company’s effective tax rate (income taxes as a percentage of income before income taxes) was 34.5% for the quarter ended September 30, 2003 while during the quarter ended September 30, 2004, the Company recorded an income tax benefit of $823,000. This income tax benefit during the 2004 period resulted principally from the aforementioned increase in the provision for loan losses during the period.

Comparison of Results of Operations for the Nine Months Ended September 30, 2004 and 2003

Net Income. Net income for the nine months ended September 30, 2004 was $1.3 million or $.28 per diluted share, as compared with net income of $3.7 million or $.74 per diluted share for the nine months ended September 30, 2003, a decrease of $2.4 million, or $.46 per share.

Net Interest Income. Net interest income for the nine months ended September 30, 2004 was $14.9 million as compared with $13.1 million during the quarter ended September 30, 2003, an increase of $1.8 million. The Company’s net interest margin increased from 3.30% for the nine months ended September 30, 2003 to 3.32% for the nine months ended September 30, 2004.

Provision for Loan Losses. The provision for loan losses was $5.1 million and $772,000 for the nine months ended September 30, 2004 and 2003, respectively, resulting in an increase of $4.3 million. This increase in the level of the provision for loan losses resulted from the additional provision of $4.1 million recorded by the Company during the third quarter. See the discussion of the results of operations for the three months ended September 30, 2004 and 2003 for additional discussion of the reasons for this increase in the provision for loan losses. Net loan charge-offs increased to $754,332 or .16% of average loans outstanding for the nine months ended September 30, 2004, compared to $298,588 or .07% of average loans outstanding for the same period in 2003.

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Non-interest income. Non-interest income was $4.1 million for the nine months ended September 30, 2004, a decrease of $1.3 million or 21.1% from the comparable period in 2003. The primary reason for this decrease was a reduction in mortgage operations of $1.2 million. Income from mortgage operations was $810,000 for the nine months ended September 30, 2004, compared to $2.0 million for the same period of 2003. This decrease in our mortgage operations income resulted from the decrease in the level of refinancing from the prior year to the current year. Service charges on deposit accounts also decreased $205,000, from $2.1 million for the nine months ending September 30, 2003 to $1.9 million for the same period in 2004 due to management’s decision to tighten the Company’s overdraft policies.

These decreases were offset by increases in gains on sales of investment securities of $104,000 and income from a full service brokerage operation of $45,000, which the Company opened in third quarter of 2003. Income from factoring operations decreased 15.0% from $407,000 for the nine months ended September 30, 2003 to $346,000 for the comparable period in 2004. Other non-interest income also increased 55.9% for the period. The primary factor related to this increase was the aforementioned bank owned life insurance purchase in 2003.

Non-interest expense. Non-interest expense increased $418,000 from $11.9 million for the nine months ended September 30, 2003 to $12.3 million for the same period ended September 30, 2004. Compensation and employee benefits and occupancy and equipment, two of the major components of non-interest expense, when combined, increased 12.0% or $952,000 from $8.0 million for the nine months ended September 30, 2003 to $8.9 million for the quarter ended September 30, 2004.

There are several factors contributing to the increase. The Company opened three new full service branches in 2003, one late in the second quarter and two more during the fourth quarter. The Company also opened a full service brokerage office, as previously discussed during the third quarter, while also acquiring and moving into a new headquarters building during the third quarter. The Company also completed a conversion of its data processing system in the third quarter of 2003. Whereas in the past the Company’s data processing costs were comprised largely of payments to a third party provider, as result of the conversion to an in-house system, our data processing costs are now comprised mainly of compensation and equipment costs and are accordingly classified in those categories. The data processing conversion resulted in the decrease in the data processing costs presented in the statement of operations of $964,000.

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Provision for Income taxes. The Company’s effective tax rate (income taxes as a percentage of income before income taxes) was 16.2% for the nine-month period ended September 30, 2004 as compared to 34.9% for the period ended September 30, 2003. This decrease resulted because the previously discussed increase in our provision for loan losses caused the Company’s non-taxable income during the current nine-month period to comprise a much larger portion of income before income taxes.

Liquidity and Capital Resources

Maintaining adequate liquidity while managing interest rate risk is the primary goal of the Company’s asset and liability management strategy. Liquidity is the ability to fund the needs of the Company’s borrowers and depositors, pay operating expenses, and meet regulatory liquidity requirements. Maturing investments, loan and mortgage-backed security principal repayments, deposit growth, and borrowings are presently the main sources of the Company’s liquidity. The Company’s primary uses of liquidity are to fund loans and to make investments.

As of September 30, 2004, liquid assets, consisting of cash and cash equivalents and investment securities were approximately $120.0 million, which represents 17.7% of total assets and 19.7% of total deposits and borrowings. Supplementing this liquidity, the Company, through its bank subsidiaries, had $61.3 million of credit available from the Federal Home Loan Bank and available lines of credit from correspondent banks totaling $23.0 million. At September 30, 2004, outstanding commitments to extend credit were $4.2 million and undisbursed line of credit balances totaled $111.4 million. Management believes that the combined aggregate liquidity position of the Company is sufficient to meet the funding requirements of loan demand and deposit maturities and withdrawals in the near term. Certificates of deposit represented 55.6% of the Company’s total deposits at September 30, 2004. The Company’s growth strategy will include efforts focused at increasing the relative volume of transaction deposit accounts. Certificates of deposit of $100,000 or more represented 25.9% of the Company’s total deposits at September 30, 2004. These deposits are generally considered rate sensitive, but management believes many of them are relationship-oriented. While the Company will need to pay competitive rates to retain these deposits at maturity, there are other subjective factors that will determine the Company’s continued retention of those deposits.

Banks and bank holding companies, as regulated institutions, must meet required levels of capital. The FDIC, the primary regulator of Catawba Valley Bank and First Gaston Bank, and the Federal Reserve, the primary regulator of Integrity Financial Corporation, have adopted minimum capital regulations or guidelines that categorize components and the level of risk associated with various types of assets. Financial institutions are expected to maintain a level of capital commensurate with the risk profile assigned to its assets in accordance with these guidelines.

At September 30, 2004, both Integrity Financial Corporation and each of its bank subsidiaries maintained capital levels exceeding the minimum levels for “well capitalized” bank holding companies and banks.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The Company’s primary market risk is interest rate risk. Interest rate risk is the result of differing maturities or repricing intervals of interest earning assets and interest bearing liabilities and the fact that rates on these financial instruments do not change uniformly. These conditions may impact the earnings generated by the Company’s interest earning assets or the cost of its interest bearing liabilities, thus directly impacting the Company’s overall earnings. The Company’s management actively monitors and manages interest rate risk. One way this is accomplished is through the development of and adherence to the Company’s asset/liability policy. This policy sets forth management’s strategy for matching the risk characteristics of the Company’s interest earning assets and liabilities so as to mitigate the effect of changes in the rate environment.

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The Company’s market risk profile has not changed significantly since December 31, 2003. See Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, as filed with the Securities and Exchange Commission on March 15, 2004, for additional analysis of the Company’s market risk.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to provide that information required to be disclosed by the Company in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within time periods specified in the rules and forms of the SEC. These disclosures and procedures are designed to provide that appropriate information is accumulated and communicated to the Company’s management, including its chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding disclosure.

Subsequent to release of the Company’s results of operations for the nine months ended September 30, 2004 by means of a press release and Current Report on Form 8-K filed with the SEC on November 2, 2004, the president and chief executive officer of one of the Company’s subsidiary banks, who also served as president and chief executive officer of the Company, was removed from that position. On November 19, 2004, he resigned all positions with the Company including serving as president and chief executive officer and a member of the Board of Directors of the Company and a member of the Board of Directors of the Company’s subsidiary bank for which he had previously served as president and chief executive officer. Subsequent to his removal as president and chief executive officer of one of the Company’s subsidiary banks, a review was conducted of the former president and chief executive officer’s lending relationships with certain borrowers. That review was under the supervision of the Chairman of the Company’s Audit Committee (who also serves as the Chairman of the Bank’s Audit Committee), and was assisted by the Bank’s internal auditor with the participation of the Company’s independent auditing firm. Subsequent to November 19, 2004, the Company’s new interim chief executive officer and the chief financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures. The disclosure controls and procedures are designed to provide a reasonable level of assurance of achieving the Company’s desired disclosure control objectives. Management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company has begun extensive efforts to support management’s evaluation of the Company’s internal control over financial reporting. Although this process is not complete, potential deficiencies with the Company’s internal controls are being identified and evaluated for significance and remediation as necessary. As part of this effort, the Company has determined that its controls over the identification of delinquent loans needed enhancement. Accordingly, the Company has developed extensive procedures to identify on a monthly basis any loan that has been modified as to principal terms or had its due date extended or otherwise changed from the original terms and conditions. This reporting procedure will also show the number of times a loan has been modified since inception. The Company will embark on an education and continuing re-education program for all loan officers and employees related to the risk rating system and will initiate more frequent internal loan reviews.

During the fiscal quarter ended September 30, 2004, there have been no changes, other than those noted above, in the Company’s internal control over financial reporting that have materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Based upon the foregoing evaluation, the Company’s interim president and chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are, in fact, effective at a reasonable assurance level as of the end of the period covered by this report.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

e. Item 703 Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Issuer Purchases of Equity Securities

The stock was purchased under the Company’s repurchase plan, in which the Board of Directors authorized a total of 50,000 shares to be repurchased on January 21, 2004. An additional 25,000 shares were authorized to be repurchased on July 21, 2004.

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

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Item 5. Other Information

None

Item 6. Exhibits

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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