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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2004

OR

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

Securities registered pursuant to Section 12(b) of the Act

NONE

Securities registered pursuant to Section 12(g) of the Act:

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 preceding 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K x

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $70,597,543.

Number of shares of Common Stock outstanding as of March 30, 2005: 4,692,406

Documents Incorporated by Reference.

None.

Part I

Item 1 – BUSINESS

Integrity Financial Corporation (the “Registrant” or the “Company”) is a North Carolina corporation headquartered in Hickory, North Carolina. It was organized on June 30, 1998 and is registered with the Board of Governors of the Federal Reserve System as the bank holding company for two North Carolina chartered commercial banks: Catawba Valley Bank headquartered in Hickory, North Carolina and First Gaston Bank of North Carolina headquartered in Gastonia, North Carolina. On December 31, 2002, pursuant to an Agreement and Plan of Merger the Registrant acquired Community Bancshares, Inc, the holding company for Northwestern National Bank located in Wilkesboro, North Carolina. Northwestern National Bank was merged into the Registrant’s wholly-owned subsidiary Catawba Valley Bank, and its former branches are doing business under the name “Northwestern Bank a Division of Catawba Valley Bank.” This transaction was accounted for under the purchase method of accounting. The Registrant also has four other wholly-owned subsidiaries, Integrity Securities, Inc., Catawba Valley Capital Trust I, Catawba Valley Capital Trust II and Community Mortgage, Inc. Catawba Valley Bank opened for business on November 1, 1995 and First Gaston Bank opened for business on July 11, 1995. Catawba Valley Bank and First Gaston Bank are collectively referred to herein as the “Banks”. Deposits in the Banks are insured by the Bank Insurance Fund of the Federal Deposit Insurance Corporation (FDIC).

On March 16, 1999, the Registrant formed Valley Financial Services, Inc. Its principal business activities are the sale, as agent, of various insurance products and the provision of nontraditional banking services. In the third quarter of 2003, Valley Financial Services opened a full service securities brokerage office and changed its name to “Integrity Securities, Inc.”

The Registrant formed Catawba Valley Capital Trust I and Catawba Valley Capital Trust II in December 2002. These trusts were formed to facilitate the issuance of trust preferred securities. The trusts are statutory business trusts formed under the laws of the State of Delaware. All common securities of each of the trusts are owned by the Registrant.

Community Mortgage, Inc. is also a wholly-owned subsidiary of the Registrant. Community Mortgage was a wholly-owned subsidiary of Community Bancshares, Inc. which the Registrant acquired on December 31, 2002. This subsidiary is inactive at this time.

Catawba Valley Bank engages in general banking business in the City of Hickory and portions of eight North Carolina counties: Alexander, Ashe, Burke, Caldwell, Catawba, Iredell, Watauga, and Wilkes. Its operations are primarily retail-oriented and aimed at individuals and small- to medium-sized businesses located in its market area. The Bank provides most traditional commercial and consumer banking services, including personal and commercial checking and savings accounts, money market accounts, certificates of deposit, individual retirement accounts and related business and individual banking services. The Bank’s lending activities include making commercial loans to individuals and small- to medium-sized businesses located primarily in its market area for various business purposes and various consumer loans to individuals, including installment loans, equity lines of credit, overdraft checking credit and credit cards. Also, the Bank makes residential mortgage loans to its customers, which the Bank then sells to another mortgage lender. The Bank issues ATM cards which allow its customers to access their deposit accounts at the automated teller machines of other banks that are linked to the STAR system and to execute point of sale transactions at various merchants. The Bank provides Internet and electronic banking services for its customers. The Bank does not provide trust services or leasing services, except through a correspondent bank.

Catawba Valley Bank operates twelve full service offices. The Bank’s main office is located at 1039 Second Street, NE, in Hickory, which is in Catawba County. The Bank has three other locations in Catawba County, three locations in Wilkes County, two locations in Iredell County and one location each in Alexander, Ashe and Watauga counties. The Bank also operates a mortgage loan office in Hickory.

First Gaston Bank engages in the general banking business in the City of Gastonia and the surrounding areas of Gaston County. The Bank operates for the primary purpose of serving the banking needs of the customers in its market area. The Bank offers a wide range of banking services, including personal and commercial checking and savings accounts, money market accounts, certificates of deposit, Individual Retirement Accounts and other related business and individual banking services. The Bank’s lending activities consist of commercial, installment, personal and home equity loans to individuals and small-to-medium size businesses located primarily within its market area.

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The Bank also originates mortgage loans and then sells them to another mortgage lender. The Bank issues ATM cards for its customers’ use and also provides Internet and electronic banking services for its customers.

First Gaston Bank operates five full services offices. The Bank’s main office is located at 804 South New Hope Road in Gastonia. The Bank has one location each in the towns of Belmont, Dallas, Mt. Holly and Stanley.

Commercial banking in North Carolina as a whole is extremely competitive with state laws permitting statewide branching. The Banks compete directly for deposits in their market area with other commercial banks, credit unions, brokerage firms and all other organizations and institutions engaged in money market transactions. In their lending activities, the Banks compete with all other financial institutions, as well as consumer finance companies, mortgage companies and other lenders engaged in the business of extending credit. In Catawba Valley Bank’s Catawba County market there are eleven commercial banks operating with multiple offices. Catawba Valley Bank’s predominant competitors are BB&T, People’s Bank and Wachovia. These three institutions control approximately 66% of the market’s deposits. In Catawba Valley Bank’s mountain counties its main competitors are Wachovia, First Citizens Bank and Yadkin Valley Bank. First Gaston Bank’s market area contains twelve commercial banks operating multiple offices. First Gaston Bank’s primary competitors are BB&T, Citizens South Bank and Wachovia. These three banks control approximately 60% of the market’s deposits.

Interest rates, both on loans and deposits, and prices of services are significant competitive factors among financial institutions. Office locations, office hours, customer service, community reputation and continuity of personnel are also important competitive factors. The Banks’ predominant competitors have greater resources, broader geographic markets and higher lending limits. They can offer more products, and can better afford and make more effective use of media advertising, support services and electronic technology than the Banks. The Banks depend on their reputation as community banks in their local market, direct customer contact, their ability to make credit and other business decisions locally, and personalized service to counter these competitive disadvantages.

As of December 31, 2004, the Registrant employed a total of 208 people, with 192 full time equivalent employees. The Registrant is not a party to a collective bargaining agreement, and considers its relations with employees to be good.

The Registrant offers equal employment opportunity to all employees and applicants without consideration of race, color, religion, sex, age, national origin, handicap, disability or status as a military veteran. This is done not only because of federal, state, and local requirements, but also because it is the way the Registrant prefers to assure that no qualified person is overlooked in attaining his or her fullest potential.

The Registrant’s Affirmative Action Policy extends to recruiting, selection, training opportunities, transfers, promotions, salary administration, layoffs, terminations, social programs, and business and community relations.

SUPERVISION AND REGULATION

Regulation of Registrant

Federal Regulation. Registrant is subject to examination, regulation and periodic reporting under the Bank Holding Company Act of 1956, as amended, (the “BHC Act”), as administered by the Federal Reserve Board. The Federal Reserve Board has adopted capital adequacy guidelines for bank holding companies on a consolidated basis.

Registrant is required to obtain the prior approval of the Federal Reserve Board to acquire all, or substantially all, of the assets of any bank or bank holding company. Prior Federal Reserve Board approval is required for Registrant to acquire direct or indirect ownership or control of any voting securities of any bank or bank holding company if, after giving effect to such acquisition, it would, directly or indirectly, own or control more than five percent of any class of voting shares of such bank or bank holding company.

The merger or consolidation of Registrant with another bank holding company, or the acquisition by Registrant of the stock or assets of another bank, or the assumption of liability by Registrant to pay any deposits in another bank, will require the prior written approval of the primary federal bank regulatory agency of the acquiring or surviving bank under the federal Bank Merger Act. The decision is based upon a consideration of statutory factors similar to those outlined above with respect to the BHC Act. In addition, in certain such cases an application to, and the prior approval of, the Federal Reserve Board under the BHC Act and/or the North Carolina Banking Commission may be required.

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Registrant is required to give the Federal Reserve Board prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of Registrant’ consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. Such notice and approval is not required for a bank holding company that would be treated as “well capitalized” under applicable regulations of the Federal Reserve Board, that has received a composite “1” or “2” rating at its most recent bank holding company inspection by the Federal Reserve Board, and that is not the subject of any unresolved supervisory issues.

The status of Registrant as a registered bank holding company under the BHC Act does not exempt it from certain federal and state laws and regulations applicable to corporations generally, including, without limitation, certain provisions of the federal securities laws.

In addition, a bank holding company is prohibited generally from engaging in, or acquiring five percent or more of any class of voting securities of any company engaged in, non-banking activities. One of the principal exceptions to this prohibition is for activities found by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking as to be a proper incident thereto are:

In evaluating a written notice of such an acquisition, the Federal Reserve Board will consider various factors, including among others the financial and managerial resources of the notifying bank holding company and the relative public benefits and adverse effects which may be expected to result from the performance of the activity by an affiliate of such company. The Federal Reserve Board may apply different standards to activities proposed to be commenced de novo and activities commenced by acquisition, in whole or in part, of a going concern. The required notice period may be extended by the Federal Reserve Board under certain circumstances, including a notice for acquisition of a company engaged in activities not previously approved by regulation of the Federal Reserve Board. If such a proposed acquisition is not disapproved or subjected to conditions by the Federal Reserve Board within the applicable notice period, it is deemed approved by the Federal Reserve Board.

Capital Requirements. The Federal Reserve Board uses capital adequacy guidelines in its examination and regulation of bank holding companies. If capital falls below minimum guidelines, a bank holding company may, among other things, be denied approval to acquire or establish additional banks or non-bank businesses.

The Federal Reserve Board’s capital guidelines establish the following minimum regulatory capital requirements for bank holding companies:

The leverage capital requirement consists of a minimum ratio of total capital to total assets of 6%, with an expressed expectation that banking organizations generally should operate above such minimum level. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital (which consists principally of shareholders’ equity). The Tier 1 leverage requirement

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consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated companies, with minimum requirements of 4% to 5% for all others.

The risk-based and leverage standards presently used by the Federal Reserve Board are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual banking organizations. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 capital less all intangible assets), well above the minimum levels.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) requires the federal bank regulatory agencies biennially to review risk-based capital standards to ensure that they adequately address interest rate risk, concentration of credit risk and risks from non-traditional activities and, since adoption of the Riegle Community Development and Regulatory Improvement Act of 1994 (the “Riegle Act”), to do so taking into account the size and activities of depository institutions and the avoidance of undue reporting burdens. In 1995, the agencies adopted regulations requiring as part of the assessment of an institution’s capital adequacy the consideration of (a) identified concentrations of credit risks, (b) the exposure of the institution to a decline in the value of its capital due to changes in interest rates and (c) the application of revised conversion factors and netting rules on the institution’s potential future exposure from derivative transactions.

In addition, the agencies in September 1996 adopted amendments to their respective risk-based capital standards to require banks and bank holding companies having significant exposure to market risk arising from, among other things, trading of debt instruments, (1) to measure that risk using an internal value-at-risk model conforming to the parameters established in the agencies’ standards and (2) to maintain a commensurate amount of additional capital to reflect such risk. The new rules were adopted effective January 1, 1997, with compliance mandatory from and after January 1, 1998.

Under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”), depository institutions are liable to the FDIC for losses suffered or anticipated by the FDIC in connection with the default of a commonly controlled depository institution or any assistance provided by the FDIC to such an institution in danger of default. This law is applicable to all separate depository institution subsidiaries.

Subsidiary banks of a bank holding company are subject to certain quantitative and qualitative restrictions imposed by the Federal Reserve Act on any extension of credit to, or purchase of assets from, or letter of credit on behalf of, the bank holding company or its subsidiaries, and on the investment in or acceptance of stocks or securities of such holding company or its subsidiaries as collateral for loans. In addition, provisions of the Federal Reserve Act and Federal Reserve Board regulations limit the amounts of, and establish required procedures and credit standards with respect to, loans and other extensions of credit to officers, directors and principal shareholders of the Registrant, any subsidiary of the Registrant and related interests of such persons. Moreover, subsidiaries of bank holding companies are prohibited from engaging in certain tie-in arrangements (with the holding company or any of its subsidiaries) in connection with any extension of credit, lease or sale of property or furnishing of services.

Any loans by a bank holding company to a subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of the subsidiary bank. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to a priority of payment. This priority would also apply to guarantees of capital plans under FDICIA.

Branching

Under the Riegle Act, the Federal Reserve Board may approve bank holding company acquisitions of banks in other states, subject to certain aging and deposit concentration limits. As of June 1, 1997, banks in one state may merge with banks in another state, unless the other state has chosen not to implement this section of the Riegle Act. These mergers are also subject to similar aging and deposit concentration limits.

North Carolina “opted-in” to the provisions of the Riegle Act. Since July 1, 1995, an out-of-state bank that did not already maintain a branch in North Carolina was permitted to establish and maintain a de novo branch in North Carolina, or acquire a branch in North Carolina, if the laws of the home state of the out-of-state bank permit North Carolina banks to engage in the same activities in that state under substantially the same terms as permitted by North Carolina. Also, North Carolina banks may merge with out-of-state banks, and an out-of-state bank resulting from

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such an interstate merger transaction may maintain and operate the branches in North Carolina of a merged North Carolina bank, if the laws of the home state of the out-of-state bank involved in the interstate merger transaction permit interstate merger.

Regulation of the Banks

The Banks are extensively regulated under both federal and state law. Generally, these laws and regulations are intended to protect depositors and borrowers, not shareholders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable law or regulation may have a material effect on the business of the Registrant and the Banks.

State Law. The Banks are subject to extensive supervision and regulation by the North Carolina Commissioner of Banks (the “Commissioner”). The Commissioner oversees state laws that set specific requirements for bank capital and regulates deposits in, and loans and investments by, banks, including the amounts, types, and in some cases, rates. The Commissioner supervises and performs periodic examinations of North Carolina-chartered banks to assure compliance with state banking statutes and regulations, and the Banks are required to make regular reports to the Commissioner describing in detail the resources, assets, liabilities and financial condition of the Banks. Among other things, the Commissioner regulates mergers and acquisitions of state-chartered banks, the payment of dividends, loans to officers and directors, record keeping, types and amounts of loans and investments, and the establishment of branches.

Deposit Insurance. As member institutions of the FDIC, the Banks’ deposits are insured up to a maximum of $100,000 per depositor through the Bank Insurance Fund, administered by the FDIC. Each member institution is required to pay semi-annual deposit insurance premium assessments to the FDIC. The BIF assessment rates have a range of 0 cents to 27 cents for every $100 in assessable deposits. Banks with no premium are subject to an annual statutory minimum assessment.

Capital Requirements. The federal banking regulators have adopted certain risk-based capital guidelines to assist in the assessment of the capital adequacy of a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit, and recourse arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 100% for assets with relatively high credit risk, such as business loans.

A banking organization’s risk-based capital ratios are obtained by dividing its qualifying capital by its total risk adjusted assets. The regulators measure risk-adjusted assets, which include off balance sheet items, against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. “Tier 1,” or core capital, includes common equity, qualifying noncumulative perpetual preferred stock and minority interests in equity accounts of consolidated subsidiaries, less goodwill and other intangibles, subject to certain exceptions. “Tier 2,” or supplementary capital, includes among other things, limited-life preferred stock, hybrid capital instruments, mandatory convertible securities, qualifying subordinated debt, and the allowance for loan and lease losses, subject to certain limitations and less required deductions. The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies. Banks and bank holding companies subject to the risk-based capital guidelines are required to maintain a ratio of Tier 1 capital to risk-weighted assets of at least 4% and a ratio of total capital to risk-weighted assets of at least 8%. The appropriate regulatory authority may set higher capital requirements when particular circumstances warrant. As of December 31, 2004, the Registrant was classified as “well-capitalized” with Tier 1 and Total Risk—Based Capital of 9.52% and 10.78% respectively.

The federal banking agencies have adopted regulations specifying that they will include, in their evaluations of a bank’s capital adequacy, an assessment of the bank’s interest rate risk (“IRR”) exposure. The standards for measuring the adequacy and effectiveness of a banking organization’s IRR management include a measurement of board of director and senior management oversight, and a determination of whether a banking organization’s procedures for comprehensive risk management are appropriate for the circumstances of the specific banking organization.

Failure to meet applicable capital guidelines could subject a banking organization to a variety of enforcement actions, including limitations on its ability to pay dividends, the issuance by the applicable regulatory authority of a capital directive to increase capital and, in the case of depository institutions, the termination of deposit insurance by

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the FDIC, as well as the measures described under FDICIA described below, as applicable to undercapitalized institutions. In addition, future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy. Such a change could affect the ability of the Company to grow and could restrict the amount of profits, if any, available for the payment of dividends to the shareholders.

FDICIA. In December 1991, Congress enacted FDICIA, which substantially revised the bank regulatory and funding provisions of the Federal Deposit Insurance Act and made significant revisions to several other federal banking statutes. FDICIA provides for, among other things:

FDICIA also provides for increased funding of the FDIC insurance funds and the implementation of risk-based premiums.

A central feature of FDICIA is the requirement that the federal banking agencies take “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements. Pursuant to FDICIA, the federal bank regulatory authorities have adopted regulations setting forth a five-tiered system for measuring the capital adequacy of the depository institutions that they supervise. Under these regulations, a depository institution is classified in one of the following capital categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” An institution may be deemed by the regulators to be in a capitalization category that is lower than is indicated by its actual capital position if, among other things, it receives an unsatisfactory examination rating with respect to asset quality, management, earnings or liquidity.

FDICIA provides the federal banking agencies with significantly expanded powers to take enforcement action against institutions which fail to comply with capital or other standards. Such action may include the termination of deposit insurance by the FDIC or the appointment of a receiver or conservator for the institution. FDICIA also limits the circumstances under which the FDIC is permitted to provide financial assistance to an insured institution before appointment of a conservator or receiver.

The Company cannot predict what legislation might be enacted or what regulations might be adopted, or if enacted or adopted, the effect thereof on the Banks’ operations.

Community Reinvestment Act. The Banks are subject to the provisions of the Community Reinvestment Act of 1977, as amended (CRA). Under the terms of the CRA, the appropriate federal bank regulatory agency is required, in connection with the examination of either of the Banks, to assess such Bank’s record in meeting the credit needs of the community served by that bank, including low and moderate-income neighborhoods. The regulatory agency’s assessments of the Banks’ records are made available to the public. Such an assessment is required of any bank which has applied for any application for a domestic deposit-taking branch, relocation of a main office, branch or ATM, merger or consolidation with or acquisition of assets or assumption of liabilities of a federally insured depository institution.

Under CRA regulations, banks with assets of less than $250 million that are independent or affiliated with a holding company with total banking assets of less than $1 billion, are subject to streamlined small bank performance standards and much less stringent data collection and reporting requirements than larger banks. The agencies emphasize that small banks are not exempt from CRA requirements. The streamlined performance method for small banks focuses on the bank’s loan-to-deposit ratio, adjusted for seasonal variations and as appropriate, other lending-related activities, such as loan originations for sale to secondary markets or community development lending or

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qualified investments; the percentage of loans and, as appropriate, other lending-related activities located in the Bank’s assessment areas; the Bank’s record of lending to and, as appropriate, other lending-related activities for borrowers of different income levels and businesses and farms of different sizes; the geographic distribution of the Bank’s loans given its assessment areas, capacity to lend, local economic conditions, and lending opportunities; and the Bank’s record of taking action, if warranted, in response to written complaints about its performance in meeting the credit needs of its assessment areas.

Regulatory agencies will assign a composite rating of “outstanding,” “satisfactory,” “needs to improve,” or “substantial noncompliance” to the institution using the foregoing ground rules. A bank’s performance need not fit each aspect of a particular rating profile in order for the bank to receive that rating; exceptionally strong performance with respect to some aspects may compensate for weak performance in others, and the bank’s overall performance must be consistent with safe and sound banking practices and generally with the appropriate rating profile. To earn an outstanding rating, the bank first must exceed some or all of the standards mentioned above. The agencies may assign a “needs to improve” or “substantial noncompliance” rating depending on the degree to which the bank has failed to meet the standards mentioned above.

The regulation further states that the agencies will take into consideration these CRA ratings when considering any application and that a bank’s record of performance may be the basis for denying or conditioning the approval of an application.

Change of Control

State and federal law restricts the amount of voting stock of a bank holding company or a bank that a person may acquire without the prior approval of banking regulators. The overall effect of such laws is to make it more difficult to acquire a bank holding company or bank by tender offer or similar means than it might be to acquire control of another type of corporation.

Pursuant to North Carolina law, no person may, directly or indirectly, purchase or acquire voting stock of any bank holding company or bank which would result in the change of control of that entity unless the North Carolina Commissioner of Banks first shall have approved such proposed acquisition. A person will be deemed to have acquired “control” of the bank holding company or the bank if he, she or it, directly or indirectly, (i) owns, controls or has the power to vote 10% or more of the voting stock of the bank holding company or bank, or (ii) possesses the power to direct or cause the direction of its management and policy.

Federal law imposes additional restrictions on acquisitions of stock in bank holding companies and FDIC-insured banks. Under the federal Change in Bank Control Act and the regulations thereunder, a person or group acting in concert must give advance notice to the Federal Reserve Board or the FDIC before directly or indirectly acquiring the power to direct the management or policies of, or to vote 25% or more of any class of voting securities of, any bank holding company or federally-insured bank. Upon receipt of such notice, the federal regulator either may approve or disapprove the acquisition. The Change in Bank Control Act generally creates a rebuttable presumption of a change in control if a person or group acquires ownership or control of or the power to vote 10% or more of any class of a bank holding company or bank’s voting securities; the bank holding company has a class of securities that are subject to registration under the Securities Exchange Act of 1934; and, following such transaction, no other person owns a greater percentage of that class of securities.

Government Monetary Policy and Economic Controls

As a bank holding company whose primary asset is the ownership of the capital stock of two commercial banks, the Registrant is directly affected by the government monetary policy and the economy in general. The actions and policies of the Federal Reserve Board, which acts as the nation’s central bank, can directly affect money supply and, in general, affect banks’ lending activities by increasing or decreasing their costs and availability of funds. An important function of the Federal Reserve Board is to regulate the national supply of bank credit in order to combat recession and curb inflation pressures. Among the instruments of monetary policy used by the Federal Reserve Board to implement these objectives are open market operations in U.S. Government securities, changes in the discount rate and surcharges, if any, on member bank borrowings, and changes in reserve requirements against bank deposits. These methods are used in varying combinations to influence overall growth of bank loans, investments and deposits, and interest rates charged on loans or paid for deposits. The Banks are not members of the Federal Reserve Board System but are subject to reserve requirements imposed by the Federal Reserve Board on

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non-member banks. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.

Recent Legislative Developments

Sarbanes-Oxley Act of 2002. On July 30, 2002, the Sarbanes-Oxley Act of 2002 (“SOX”) was signed into law which mandated a variety of reforms intended to address corporate and accounting fraud. SOX contained provisions which amended the Securities Exchange Act of 1934 (the “Act”) and provisions which directed the SEC to promulgate certain rules. The resultant law and regulations under the Act, as of the time of this annual report, is set forth in the following paragraphs. SOX provides for the establishment of the Public Company Accounting Oversight Board (“PCAOB”), which enforces auditing, quality control and independence standards for firms that audit SEC-reporting companies and will be funded by fees from all SEC-reporting companies. SOX imposed higher standards for auditor independence and restricts the provision of consulting services by auditing firms to companies they audit. Any non-audit services being provided to an audit client will require preapproval by the Company’s audit committee members. In addition, certain audit partners must be rotated periodically. SOX requires chief executive officers and chief financial officers, or their equivalent, to certify to the accuracy of periodic reports filed with the SEC, subject to civil and criminal penalties if they knowingly or willfully violate this certification requirement. In addition, under SOX, counsel will be required to report evidence of a material violation of the securities laws or a breach of fiduciary duty by a company to its chief executive officer or its chief legal officer, and if such officer does not appropriately respond, to report such evidence to the audit committee or other similar committee of the board of directors or the board itself.

Longer prison terms will also be applied to corporate executives who violate federal securities laws, the period during which certain types of suits can be brought against a company or its officers has been extended, and bonuses issued to top executives prior to restatement of a company’s financial statements are now subject to disgorgement if such restatement was due to corporate misconduct. Executives are also prohibited from trading during retirement plan “blackout” periods. In addition, a provision directs that civil penalties levied by the SEC as a result of any judicial or administrative action under the Securities Act be deposited in a fund for the benefit of harmed investors. Directors and executive officers must also report most changes in their ownership of a company’s securities within two business days of the change, and as of the end of June 2004, all ownership reports must be electronically filed.

SOX also increases the oversight and authority of audit committees of publicly traded companies. Audit committee members must be independent and are barred from accepting consulting, advisory or other compensatory fees from the issuer. In addition, all SEC-reporting companies must disclose whether at least one member of the committee is an audit committee “financial expert” (as such term is defined by the SEC rules) and if not, why not. Audit committees of publicly traded companies will have authority to retain their own counsel and other advisors funded by the company. Audit committees must establish procedures for the receipt, retention and treatment of complaints regarding accounting and auditing matters and procedures for confidential, anonymous submission of employee concerns regarding questionable accounting or auditing matters. It is the responsibility of the audit committee to hire, oversee and work on disagreements with the Company’s independent auditor.

It is unlawful for any person that is not a registered public accounting firm (“RPAF”) to audit an SEC-reporting company. Under SOX, a RPAF is prohibited from performing statutorily mandated audit services for a company if such company’s chief executive officer, chief financial officer, controller, chief accounting officer or any person serving in equivalent positions has been employed by such firm and participated in the audit of such company during the one-year period preceding the audit initiation date. SOX also prohibits any officer or director of a company or any other person acting under their direction from taking any action to fraudulently influence, coerce, manipulate or mislead any independent public or certified accountant engaged in the audit of the Company’s financial statements for the purpose of rendering the financial statements materially misleading. The SEC has prescribed rules requiring inclusion of an internal control report and assessment by management of the Company’s internal controls in the annual report to shareholders. SOX requires the RPAF that issues the audit report to attest to and report on management’s assessment of the Company’s internal controls. In addition SOX requires that each financial report required to be prepared in accordance with (or reconciled to) generally accepted accounting principles and filed with the SEC reflect all material correcting adjustments that are identified by a RPAF in accordance with generally accepted accounting principles and the rules and regulations of the SEC.

Although the Registrant has incurred additional expense in complying with the provisions of the Act and the related rules, management does not expect that such compliance will have a material impact on the Company’s financial condition or results of operations.

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International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001. On October 26, 2001, the USA Patriot Act of 2001 was enacted. This act contains the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, which sets forth anti-money laundering measures affecting insured depository institutions, broker-dealers and other financial institutions. The Act requires U.S. financial institutions to adopt new policies and procedures to combat money laundering and grants the Secretary of the Treasury broad authority to establish regulations and to impose requirements and restrictions on the operations of financial institutions. The USA Patriot Act of 2001 has not had a material impact on our operations.

Effective March 11, 2000, the Gramm-Leach-Bliley Act of 1999, which was signed into law on November 12, 1999, allows a bank holding company to qualify as a “financial holding company” and, as a result, be permitted to engage in a broader range of activities that are “financial in nature” and in activities that are determined to be incidental or complementary to activities that are financial in nature. The Gramm-Leach-Bliley Act amends the BHC Act to include a list of activities that are financial in nature. This list includes activities such as underwriting, dealing in and making a market in securities, insurance underwriting and agency activities and merchant banking. The Federal Reserve Board is authorized to determine other activities that are financial in nature or incidental or complementary to such activities. The Gramm-Leach-Bliley Act also authorizes banks to engage through financial subsidiaries in certain of the activities permitted for financial holding companies.

Registrant cannot predict what legislation might be enacted or what regulations might be adopted, or if enacted or adopted, the effect thereof on Registrant’s operations.

Item 2 – Properties

The following table sets forth the location and other related information regarding the physical properties of the Registrant and its subsidiaries occupied as of December 31, 2004.

Integrity Financial Corporation

Catawba Valley Bank

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First Gaston Bank

Northwestern Bank A Division of Catawba Valley Bank

Integrity Securities

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Item 3 – Legal Proceedings

The Registrant is not involved in any material pending legal proceeding, other than ordinary routine litigation incidental to its normal banking operations.

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

Not applicable.

Part II

Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

As of December 31, 2004, there were approximately 2,253 shareholders of record and approximately 2,535 total beneficial holders of the Registrant’s common stock which is traded on the NASDAQ SmallCap market under the symbol “IFCB.” There are currently five market makers making a market in the Company’s common stock: Wachovia Securities, Scott & Stringfellow, Sterne, Agee & Leach, Ryan Beck & Company and Anderson & Strudwick. The table below lists the high and low sale prices.

The Registrant pays a regular semi-annual cash dividend of $0.08 on or about May 15^th and November 15^th of each year.

The Registrant paid a 10% stock dividend on October 15, 2003.

Neither the Registrant nor any “affiliated purchaser” as defined in Rule 10b-18(a)(3) effected any repurchases of shares or other units of any class of its equity securities registered pursuant to section 12 of the Securities Exchange Act of 1934 during the Registrant’s fourth fiscal quarter ended December 31, 2004.

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Securities authorized for issuance under equity compensation plans

Set forth below is certain information regarding the Registrant’s various stock option plans

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Item 6 – Selected Financial Data

INTEGRITY FINANCIAL CORPORATION

Selected Financial Information and Other Data

($ in thousands, except per share and nonfinancial data)

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Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTEGRITY FINANCIAL CORPORATION AND SUBSIDIARIES

MANAGEMENT’S DISCUSSION AND ANALYSIS

FINANCIAL CONDITION AT DECEMBER 31, 2004 AND 2003

Financial Condition

The Company’s total assets increased $34.8 million or 5.5% from $629.5 million at December 31, 2003 to $664.3 million at December 31, 2004. This increase resulted primarily from a $33.0 million or 7.2% increase in net loans from $457.3 million to $490.3 million. The allowance for loan losses increased $4.2 million or 68.8% and totaled $10.4 million at December 31, 2004. The Company’s deposits grew by $40.3 million or 8.1% from $498.0 million to $538.2 million. This growth was funded by deposits from our customers coupled with the Company’s ability to fund with lower rate brokered deposits. During 2004, core deposits, including demand, money market and NOW accounts, and savings accounts, improved over the prior year 2003. Total stockholders’ equity declined modestly during 2004 as the Company repurchased additional shares of its common stock and our accumulated other comprehensive income, as reflected in stockholders’ equity, declined due to rising interest rates and correspondingly lower prevailing market value for our investment securities available for sale. Our subsidiary banks continue to work hard to develop loan and deposit business in each of their respective markets to gain market share.

Loans

Loans, net of unearned discount, increased $37.2 million or 8.0% from $463.4 million at December 31, 2003 to $500.7 million at December 31, 2004. This increase resulted primarily from a $33.9 million or 22.8% increase in commercial loans from $149.0 million to $182.9 million. The construction and land development segment of our loan portfolio increased $9.2 million or 15.8% from $58.0 million to $67.2 million. Fiscal 2004 marks the third consecutive year of robust commercial and construction loan growth. Commercial real estate, however, declined $19.0 million or 19.7% from $96.1 million to $77.2 million as we instituted more rigorous lending standards and demand moderated. Residential real estate, including both single and multiple family mortgage loans, and loans to individuals all remained essentially flat. Home equity lines, however, increased $8.1 million or 20.9% from $38.8 million to $46.9 million.

Loan Portfolio Composition

($ in thousands)

Investment Securities

Investment securities are designated as either available for sale (that is, securities the Company may or may not elect to sell prior to maturity to meet liquidity, loan funding or reinvestment purposes) or as held to maturity. Available for sale securities are carried at their prevailing market value, unless otherwise impaired. Any change of their prevailing market value is reported on an after-tax basis in our stockholders’ equity account under the caption “accumulated other comprehensive income (loss)”. As the

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prevailing level of interest rates change, either advancing or declining, the change of our securities’ prevailing market value is reflected in this account. The change of our securities’ prevailing market value is also a function of the investment securities’ maturity, yield and cash flows. The Company obtains quotations of the prevailing market value of our investment securities from independent, third parties engaged in the securities business and other publicly available sources.

The Company’s investment securities available for sale declined $7.1 million or 7.6% from $94.0 million at December 31, 2003 to $86.9 million at December 31, 2004. During 2004 the prevailing level of interest rates rose. The corresponding investment securities accumulated other comprehensive income(loss) at December 31, 2004 declined $686 thousand and totaled $10 thousand at December 31, 2004.

Total investment securities declined $6.0 million or 6.2% from $96.9 million at December 31, 2003 to $90.9 million at December 31, 2004. Throughout the year, we invested in government agency bonds, municipal bonds and mortgage backed securities. Government agencies declined $9.9 million or 20.7% from $47.8 million to $37.9 million, as proceeds from sales, maturities and calls were re-employed primarily in loans and mortgage-backed securities. Accordingly, mortgage-backed securities increased $3.5 million or 10.8% from $32.9 million to $36.4 million as these securities offered the Company a greater yield for comparable risk and maturity. Concurrently, the principal amount of our investment securities held to maturity increased $1.1 million or 38.3% from $3.0 million at December 31, 2003 to $4.1 million at December 31, 2004.

The Company was taxable for Federal income tax purposes throughout 2004 and the tax benefits of owning municipal securities continued to make them an attractive investment so that no material changes were made.

Securities Portfolio Composition

($ in thousands)

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Securities Portfolio Composition

($ in thousands)

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The Banks are required to secure public deposits with the pledge of specific assets. The Banks are also required pursuant to repurchase agreements and their Federal Home Loan Bank advances to pledge specific assets as well. At December 31, 2003 and 2004, the Banks had pledged assets totaling $19.7 million and $19.3 million, respectively.

The Company’s investment in Bank Owned Life Insurance (“BOLI”) remained essentially unchanged and totaled $9.2 million and $9.6 million at December 31, 2003 and 2004, respectively.

Premises and equipment

Premises and equipment increased $1.4 million or 7.5% from $18.8 million at December 31, 2003 to $20.2 million at December 31, 2004. During 2004, the Company had construction in progress of $1.9 million representing upfitting of two older branches, the design for a new Dallas, NC branch and a branch facility that the Company is still in negotiation with the land owner to arrive at a lease agreement. Equipment, fixtures and buildings increased $1.5 million or 9.2% from $16.4 million to $18.0 million representing update of computer equipment and software, the purchase of a mortgage center in Hickory, NC and the purchase of an administration building located in Wilkesboro, NC. The Company had leased both of these properties in the prior year. During 2003, the Company completed construction of two full service branches, purchased a headquarters/ office facility, and purchased systems hardware and software upon the completion of its data processing systems conversion. Previously, the Company had outsourced its data processing to third party vendors. The systems conversion resulted in an increase of $1.8 million in equipment and fixtures during 2003. Accumulated depreciation and amortization increased $1.2 million or 31.3% reflecting the Company’s substantial recent investment in banking facilities and systems.

Cash and cash equivalent

Cash and cash equivalents consisting of cash and due from banks and interest-earning deposits in banks increased $3.0 million or 18.4% from $16.3 million at December 31, 2003 to $19.3 million December 31, 2004. Cash and due from banks increased $3.9 million or 57.4% from $6.7 million to $10.6 million. This increase resulted primarily from higher levels of cash and cash due from banks related to higher levels of non-interest bearing demand deposits. Interest-earning deposits in banks declined $853 thousand or 9.8% from $9.6 million to $8.7 million. The Company continued to use overnight funds as a vehicle to manage liquidity during 2004.

Foreclosed real estate

Foreclosed real estate represents loans that were secured by real estate or other property that failed to meet the terms of their loan agreements, resulting in our Banks completing foreclosure proceedings to perfect our ownership in the underlying collateral securing these properties. Foreclosed real estate increased $729 thousand or 57.3% from $1.3 million at December 31, 2003 to $2.0 million at December 31, 2004. During 2004, the Company experienced some turnover of its foreclosed properties. Even though the balance increased, the Company was able to dispose of a good portion of older properties. The remaining properties consist of a restaurant in Hickory, NC and 1-4 family homes which the Company should not have any problem turning over. The Company aggressively works to dispose of these properties in a timely and economic fashion, and may contemplate the sale of individual loans or portfolios of loans that do not meet its standards.

Deposits and Other Borrowings

Customer deposits continued to be our principal funding source in 2004 allowing us to fund the growth in our assets discussed above. Total deposits increased $40.3 million or 8.1% from $498.0 million at December 31, 2003 to $538.2 million at December 31, 2004. During 2004, all but one category of core deposits increased, including an increase in non-interest demand deposits of $7.0 million or 18.1%, money market and NOW accounts of $21.5 million or 13.7%, savings accounts of $594 thousand or 5.1%. Other time deposits decreased slightly from $153.1 million at December 31, 2003 to $150.1 million, or 1.9%, at December 31, 2004. Time deposits $100,000 and over decreased $14.1 million or 10.3%, and short term borrowings and long term debt, which primarily consists of FHLB advances, decreased $6.2 million or

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10.1% during 2004, as core deposits were substituted for these funding sources. There were $1.0 million of federal funds purchased outstanding at December 31, 2004. The Company had no federal funds outstanding at December 31, 2003.

Stockholders’ Equity

At December 31, 2004, total stockholders’ equity was $62.8 million, a $59 thousand decrease from total stockholders’ equity at December 31, 2003. The Company reported net income for the twelve months ended December 31, 2004 of $1.5 million, collected $1.1 million from the exercise of stock options, repurchased 67,600 shares of common stock for approximately $1.2 million and experienced a decline of $686 thousand in its accumulated other comprehensive income(loss) after-tax effect, as interest rates rose and the prevailing market value of our investment securities-available for sale declined in market value. The Company paid cash dividends during 2004 of $747 thousand or $0.16 per share.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

The Company’s earnings and cash flow are derived from the operations of its subsidiaries: Catawba Valley Bank and its Northwestern Bank Division, First Gaston Bank of North Carolina, Integrity Securities Inc., Community Mortgage, and Catawba Valley Trusts I and II.

Net Income

The Company reported net income for the twelve months ended December 31, 2004 of $1.5 million or $0.33 per basic share, as compared with net income for the twelve months ended December 31, 2003 of $4.7 million or $1.03 per basic share, a decline of $3.2 million or 67.9%. Net income declined primarily from a substantial increase of the provision for loan losses of $5.3 million or 482% from $1.1 million in 2003 to $6.5 million in 2004. Net interest income increased $3.0 million or 16.9% from $17.7 in 2003 to $20.6 in 2004, which mitigated declining non-interest revenue and higher expenses, including the provision for loan losses.

Net Interest Income

The primary component of earnings for our Banks is net interest income. Net interest income is the difference between interest income, primarily from loans and investment securities portfolios, and interest expense, primarily on customer deposits and borrowings. Changes in net interest income result from changes in volume, spread and margin. For purpose of Management’s Discussion and Analysis, 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-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income (on a full tax-equivalent basis) divided by average interest-earning assets. Margin is influenced by the level and relative mix of interest-earning assets and interest-bearing liabilities, as well as by levels of non-interest-bearing liabilities and capital.

Net interest income increased $3.0 million or 16.9% from $17.7 million in 2003 to $20.6 million in 2004. Net interest income increased as a result of higher levels of average interest-earning assets during 2004 of $51 million or 9.3%, higher yields on average interest-earning assets during 2004 of 12 basis points or 2.2%, combined with a decrease of 15 basis points or 6.3% in the average rates we paid for our interest-bearing liabilities.

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The following table reflects the Company’s average daily volume of interest and non-interest bearing assets, liabilities and capital, and their corresponding interest income and expense, and yields and costs, on a full tax equivalent basis:

Average Balance and Net Interest Income Analysis

($ in thousands)