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SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-K
 ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year
ended December 31, 2005  Commission File Number: 000-50950
 VALLEY BANCORP
 (Exact Name of Registrant as Specified in Its Charter)
 Nevada
(State or Other Jurisdiction of
Incorporation or Organization)
    
    88-0493760
(IRS Employer Identification Number)
 1300 S. Jones Blvd., Las Vegas, NV 89146
(Address of Principal Executive Offices, including Zip Code)
(702) 821-4100
(Registrants telephone number, including area code)
 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.73 Par Value
(Title of Class)
 o þ
 o þ
 þ o
 þ
  o o þ
 o þ
  2,827,881




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##### Table of Contents



VALLEY BANCORP  2005 Annual Report on Form 10-K
 Table of Contents
 PagePart I
    
    Item 1. Business
    
    
    3Item 1a. Risk Factors
    
    
    11Item 1b. Unresolved Staff Comments
    
    
    14Item 2. Properties
    
    
    15Item 3. Legal Proceedings
    
    
    15Item 4. Submission of Matters to a Vote of Security Holders
    
    
    15Part II
    
    Item 5. Market for Registrants Common Equity and Related Stockholder Matters
    
    
    16Item 6. Selected Financial Data
    
    
    17Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    19Item 7a. Qualitative and Quantitative Disclosures about Market Risk
    
    
    43Item 8. Financial Statements and Supplementary Data
    
    
    44Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    71Item 9a. Controls and Procedures
    
    
    71Item 9b. Other Information
    
    
    71Part III
    
    Item 10. Directors and Executive Officers of the Registrant
    
    
    72Item 11. Executive Compensation
    
    
    72Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    72Item 13. Certain Relationships and Related Transactions
    
    
    72Item 14. Principal Accounting Fees and Services
    
    
    72Part IV
    
    Item 15. Exhibits and Financial Statement Schedules
    
    
    73SIGNATURES
    
    
    
    
    75EXHIBIT 14.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
 2




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PART I
 
 Item 1. Business
 General
      http://www.valleybancorp.com/
 Lending Activities
 General.
 3




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Commercial Real Estate Loans.
  Construction/Land Development Loans.
   4




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Raw Land Loans.
 Commercial and Industrial Loans.
   Other.
  5




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Origination and Sources of Loans.
 Participations.
 Competition
  Supervision and Regulation
 General
  Compliance
  Federal Bank Holding Company Regulation
 General
 6




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Holding Company Bank Ownership
 Holding Company Control of Nonbanks
 Transactions with Affiliates
 Tying Arrangements
 Support of Subsidiary Banks
 State Law Restrictions
 Federal and State Regulation of Valley Bank
 General
 Control of Financial Institutions
 7




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Community Reinvestment
 Insider Credit Transactions
 Regulation of Management
 Safety and Soundness Standards
 Deposit Insurance
  Dividends
  Interstate Banking And Branching
  8




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Capital Adequacy
      Financial Services Modernization
 Gramm-Leach-Bliley Act of 1999
  9




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Corporate Governance and Accounting Legislation.
 Sarbanes-Oxley Act of 2002.
   USA Patriot Act of 2001
 Effects of Government Monetary Policy
  Employees
  10




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Item 1a. Risk Factors
 Our business exposes us to certain risks. The following is a discussion of what management
presently believes are the most significant risks and uncertainties that may affect our business,
financial condition and future results.
 Our primary market area is substantially dependent on gaming and tourism
revenue, and a downturn in gaming or tourism could hurt our business and our
prospects.
    
    
    Loan delinquencies may increase;
 
    
    Problem assets and foreclosures may increase;
 
    
    Demand for our products and services may decline; and
 
    
    Collateral for loans made by us may decline in value, reducing a
customers borrowing power, and reducing the value of assets and
collateral associated with our loans.
 We have a high concentration of loans secured by real estate and a downturn in
the real estate market, for any reason, could hurt our business and our
prospects.
  
    
    18% are secured by raw land;
 
    
    34% are commercial real estate loans;
 
    
    46% are construction and/or land development loans; and
 
    
    2% are other real estate loans.
  11




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We may not be able to successfully continue our historical growth, which could
adversely affect our future operations.
   We may have difficulty managing our growth, which may divert resources and
limit our ability to successfully expand our operations.
   12




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Our business would be harmed if we lost the services of any of our senior management team.
  Our growth could be hindered unless we are able to recruit additional, qualified employees.
  There is intense competition in our market area, and we cannot assure you that
we will be able to successfully compete.
  Fluctuating interest rates can adversely affect our profitability.
  13




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Our allowance for loan losses may not be adequate to cover actual losses.
   An expansion of permissible gaming activities in other states, particularly in
California, may lead to a decline in gaming revenue in Las Vegas, which could
hurt our business and our prospects.
  We are exposed to risk of environmental liabilities with respect to properties to which we take title.
  
 Item 1b. Unresolved Staff Comments
  14




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Item 2. Properties
       
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  15




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PART II
 
 Item 5. Market for Registrants Common Equity and Related Stockholder Matters
   Market Prices
 Period
    
    High
    
    Low
    
    CloseThird Quarter 2004
    
    $
    23.85
    
    
    $
    20.85
    
    
    $
    23.25Fourth Quarter 2004
    
    $
    45.00
    
    
    $
    23.00
    
    
    $
    42.69First Quarter 2005
    
    $
    43.50
    
    
    $
    29.05
    
    
    $
    30.24Second Quarter 2005
    
    $
    31.69
    
    
    $
    26.00
    
    
    $
    29.95Third Quarter 2005
    
    $
    36.00
    
    
    $
    29.46
    
    
    $
    35.01Fourth Quarter 2005
    
    $
    35.99
    
    
    $
    30.46
    
    
    $
    34.69
     Equity Compensation Plan Information
  16




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##### Table of Contents



Number of sharesremaining available forNumber of shares to be
    
    
    Weighted-average
    
    
    future issuance underissued upon exercise of
    
    
    exercise price of
    
    
    equity compensationoutstanding options,
    
    
    outstanding options,
    
    
    plans (excluding shareswarrants and rights
    
    
    warrants and rights
    
    
    reflected in column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
stockholders
    
    
    205,957
    
    
    $
    10.38
    
    
    
    109,715Equity compensation
plans not approved by
stockholders
    
    
    0
    
    
    $
    0
    
    
    
    0
 
 Item 6. Selected Financial Data
 Summary of Selected Consolidated Financial Data
 At or For the Years Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in thousands, except per share data)Financial Condition Data:Total assets
    
    $
    391,163
    
    
    $
    273,705
    
    
    $
    186,916
    
    
    $
    152,372
    
    
    $
    105,476Total earning assets
    
    
    375,682
    
    
    
    259,828
    
    
    
    178,104
    
    
    
    144,870
    
    
    
    99,986Loans, net
    
    
    299,264
    
    
    
    196,321
    
    
    
    133,795
    
    
    
    113,079
    
    
    
    92,172Securities (all available for sale)
    
    
    35,813
    
    
    
    36,413
    
    
    
    19,006
    
    
    
    3,029
    
    
    
    728Interest-bearing deposits at other financial institutions
    
    
    9,221
    
    
    
    9,244
    
    
    
    14,865
    
    
    
    8,110
    
    
    
    2,674Federal funds sold
    
    
    30,575
    
    
    
    17,850
    
    
    
    8,875
    
    
    
    19,430
    
    
    
    3,465Deposits
    
    
    332,436
    
    
    
    236,211
    
    
    
    169,798
    
    
    
    140,036
    
    
    
    93,949Total liabilities
    
    
    349,197
    
    
    
    237,451
    
    
    
    170,919
    
    
    
    141,136
    
    
    
    94,438Total stockholders equity
    
    
    41,967
    
    
    
    36,254
    
    
    
    15,997
    
    
    
    11,236
    
    
    
    11,038Statement of Operations Data:Interest income
    
    $
    22,922
    
    
    $
    13,458
    
    
    $
    10,006
    
    
    $
    8,602
    
    
    $
    7,968Interest expense
    
    
    6,609
    
    
    
    2,708
    
    
    
    2,992
    
    
    
    3,250
    
    
    
    3,907Net interest income
    
    
    16,313
    
    
    
    10,750
    
    
    
    7,014
    
    
    
    5,352
    
    
    
    4,061Provision for loan losses
    
    
    777
    
    
    
    632
    
    
    
    478
    
    
    
    1,596
    
    
    
    340Net interest income after provision for loan losses
    
    
    15,536
    
    
    
    10,118
    
    
    
    6,536
    
    
    
    3,756
    
    
    
    3,721Noninterest income
    
    
    262
    
    
    
    295
    
    
    
    296
    
    
    
    210
    
    
    
    218Noninterest expenses
    
    
    7,290
    
    
    
    5,543
    
    
    
    4,725
    
    
    
    3,772
    
    
    
    3,186Income before income tax expense
    
    
    8,508
    
    
    
    4,870
    
    
    
    2,107
    
    
    
    194
    
    
    
    753Income tax expense
    
    
    2,900
    
    
    
    1,659
    
    
    
    708
    
    
    
    72
    
    
    
    96Net income
    
    $
    5,608
    
    
    $
    3,211
    
    
    $
    1,399
    
    
    $
    122
    
    
    $
    657
 17




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At or For the Years Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in thousands, except per share data)Per Share Data:Earnings per share  Basic
    
    $
    2.00
    
    
    $
    1.59
    
    
    $
    0.84
    
    
    $
    0.09
    
    
    $
    0.46Earnings per share  Diluted
    
    
    1.90
    
    
    
    1.53
    
    
    
    0.81
    
    
    
    0.08
    
    
    
    0.45Book value per share
    
    $
    14.84
    
    
    $
    12.99
    
    
    $
    9.27
    
    
    $
    7.81
    
    
    $
    7.72Weighted average shares outstanding  Basic
    
    
    2,809,608
    
    
    
    2,017,094
    
    
    
    1,659,750
    
    
    
    1,432,871
    
    
    
    1,428,516Weighted average shares outstanding  Diluted
    
    
    2,956,188
    
    
    
    2,103,924
    
    
    
    1,716,744
    
    
    
    1,457,035
    
    
    
    1,461,400Common shares outstanding
    
    
    2,827,681
    
    
    
    2,790,748
    
    
    
    1,725,478
    
    
    
    1,438,130
    
    
    
    1,429,880Performance Ratios and Other Data:Return on average assets
    
    
    1.66
    %
    
    
    1.40
    %
    
    
    0.81
    %
    
    
    0.09
    %
    
    
    0.66
    %Return on average stockholders equity
    
    
    14.35
    %
    
    
    14.61
    %
    
    
    9.92
    %
    
    
    1.09
    %
    
    
    6.12
    %Equity to assets  average balances
    
    
    11.57
    %
    
    
    9.58
    %
    
    
    8.11
    %
    
    
    8.68
    %
    
    
    10.76
    %Interest rate spread (1)
    
    
    4.44
    %
    
    
    4.54
    %
    
    
    3.92
    %
    
    
    3.94
    %
    
    
    3.64
    %Net interest margin (2)
    
    
    5.04
    %
    
    
    4.93
    %
    
    
    4.24
    %
    
    
    4.35
    %
    
    
    4.31
    %Efficiency ratio (3)
    
    
    43.98
    %
    
    
    50.16
    %
    
    
    64.80
    %
    
    
    68.03
    %
    
    
    74.46
    %Average earning assets to interest-bearing liabilities
    
    
    129.25
    %
    
    
    131.45
    %
    
    
    118.36
    %
    
    
    115.70
    %
    
    
    116.15
    %Loan originations  gross
    
    $
    216,432
    
    
    $
    166,742
    
    
    $
    84,016
    
    
    $
    55,715
    
    
    $
    62,781Asset Quality Ratios:Non-performing loans to total loans (4)
    
    
    0.05
    %
    
    
    0.09
    %
    
    
    0.59
    %
    
    
    0.47
    %
    
    
    2.58
    %Non-performing assets total assets (5)
    
    
    0.04
    %
    
    
    0.06
    %
    
    
    0.55
    %
    
    
    0.35
    %
    
    
    2.86
    %Net charge-offs (recoveries) to average loans
    
    
    (0.05
    )%
    
    
    
    
    
    
    0.11
    %
    
    
    1.27
    %
    
    
    0.14
    %Allowance for loan losses to non-performing loans
    
    
    1831.52
    %
    
    
    1291.00
    %
    
    
    194.52
    %
    
    
    227.99
    %
    
    
    39.77
    %Allowance for loan losses to total loans at end of period
    
    
    1.00
    %
    
    
    1.07
    %
    
    
    1.08
    %
    
    
    1.07
    %
    
    
    1.02
    %Capital Ratios:Tier 1 leverage capital to average assets (6)
    
    
    11.02
    %
    
    
    14.17
    %
    
    
    8.59
    %
    
    
    7.66
    %
    
    
    10.24
    %Tier 1 capital to risk weighted assets (6)
    
    
    12.54
    %
    
    
    16.00
    %
    
    
    10.67
    %
    
    
    9.00
    %
    
    
    11.33
    %Total capital to risk weighted assets (6)
    
    
    13.45
    %
    
    
    16.97
    %
    
    
    11.72
    %
    
    
    9.99
    %
    
    
    12.31
    %
 
 (1)
    
    Interest rate spread represents the difference between the weighted average yield
on earning assets and the weighted average rate paid on interest-bearing liabilities.(2)
    
    Net interest margin represents net interest income as a percentage of average interest-earning assets.(3)
    
    Efficiency ratio represents noninterest expenses, excluding loan loss provision, as a percentage of the
aggregate of net interest income and noninterest income, excluding gains or (losses) on sales of securities.(4)
    
    Non-performing loans are defined as loans that are past due 90 days or more plus loans placed in
nonaccrual status.(5)
    
    Non-performing assets are defined as assets that are past due 90 days or more plus assets placed in
nonaccrual status plus other real estate owned.(6)
    
    Tier 1 leverage (or core) capital are computed as a percentage of average total assets.
Risk-based capital is computed as a percentage of risk-weighted assets. 18




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
  Critical Accounting Policies
  Allowance for Loan Loss Methodology
    19




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Inflation and Changing Prices
  Overview
  Key Indicators
 At or For The Years Ended December 31,2005
    
    
    2004
    
    
    2003(Dollars in thousands, except per share data)Net income
    
    $
    5,608
    
    
    $
    3,211
    
    
    $
    1,399Basic earnings per share
    
    $
    2.00
    
    
    $
    1.59
    
    
    $
    0.84Diluted earnings per share
    
    
    1.90
    
    
    
    1.53
    
    
    
    0.81Total Assets
    
    $
    391,163
    
    
    $
    273,705
    
    
    $
    186,916Total Loans (net)
    
    
    299,264
    
    
    
    196,321
    
    
    
    133,795Total Deposits
    
    
    332,436
    
    
    
    236,211
    
    
    
    169,798Net interest margin
    
    
    5.04
    %
    
    
    4.93
    %
    
    
    4.24
    %Return on assets
    
    
    1.66
    %
    
    
    1.40
    %
    
    
    0.81
    %Return on equity
    
    
    14.35
    %
    
    
    14.61
    %
    
    
    9.92
    %Efficiency ratio
    
    
    43.98
    %
    
    
    50.16
    %
    
    
    64.80
    %
  20




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Analysis of Statement of Income
 Net Interest Income
  Interest Income
   Interest Expense
   21




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Net Interest Margin
      Table 1
Consolidated Average Balances and Interest Rates
 Years Ended December 31,2005
    
    
    2004
    
    
    2003Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance (1)
    
    
    Expense
    
    
    Cost
    
    
    Balance (1)
    
    
    Expense
    
    
    Cost
    
    
    Balance (1)
    
    
    Expense
    
    
    Cost(Dollars in thousands)AssetsEarning assets:Loans (2) (3) (4)
    
    $
    254,423
    
    
    $
    20,496
    
    
    
    8.06
    %
    
    $
    172,967
    
    
    $
    12,563
    
    
    
    7.26
    %
    
    $
    125,794
    
    
    $
    9,349
    
    
    
    7.43
    %Federal funds sold (5)
    
    
    21,704
    
    
    
    716
    
    
    
    3.30
    %
    
    
    18,447
    
    
    
    257
    
    
    
    1.39
    %
    
    
    18,224
    
    
    
    200
    
    
    
    1.10
    %Interest bearing deposits (5)
    
    
    8,957
    
    
    
    290
    
    
    
    3.24
    %
    
    
    11,576
    
    
    
    244
    
    
    
    2.11
    %
    
    
    10,631
    
    
    
    228
    
    
    
    2.14
    %Investment securities (5)
    
    
    37,905
    
    
    
    1,405
    
    
    
    3.71
    %
    
    
    15,098
    
    
    
    394
    
    
    
    2.61
    %
    
    
    10,594
    
    
    
    229
    
    
    
    2.16
    %Federal Home Loan Bank Stock (5)
    
    
    542
    
    
    
    15
    
    
    
    2.77
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total earning assets and interest income
    
    
    323,531
    
    
    
    22,922
    
    
    
    7.08
    %
    
    
    218,088
    
    
    
    13,458
    
    
    
    6.17
    %
    
    
    165,243
    
    
    
    10,006
    
    
    
    6.06
    %Non-interest earning assets:
 22




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Years Ended December 31,2005
    
    
    2004
    
    
    2003Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance (1)
    
    
    Expense
    
    
    Cost
    
    
    Balance (1)
    
    
    Expense
    
    
    Cost
    
    
    Balance (1)
    
    
    Expense
    
    
    Cost(Dollars in thousands)Cash and due from banks
    
    
    8,434
    
    
    
    
    
    
    
    
    
    
    
    7,386
    
    
    
    
    
    
    
    
    
    
    
    4,402Premises and equipment
    
    
    6,500
    
    
    
    
    
    
    
    
    
    
    
    4,382
    
    
    
    
    
    
    
    
    
    
    
    4,557Other assets
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    1,702
    
    
    
    
    
    
    
    
    
    
    
    917Allowance for credit losses
    
    
    (2,564
    )
    
    
    
    
    
    
    
    
    
    
    (1,976
    )
    
    
    
    
    
    
    
    
    
    
    (1,353
    )Total assets
    
    $
    337,801
    
    
    
    
    
    
    
    
    
    
    $
    229,582
    
    
    
    
    
    
    
    
    
    
    $
    173,766Liabilities and Stockholders EquityInterest bearing liabilities:Interest bearing demand deposits
    
    $
    80,855
    
    
    $
    1,200
    
    
    
    1.48
    %
    
    $
    69,771
    
    
    $
    628
    
    
    
    0.90
    %
    
    $
    56,504
    
    
    $
    619
    
    
    
    1.10
    %Savings deposits
    
    
    12,027
    
    
    
    142
    
    
    
    1.18
    %
    
    
    11,629
    
    
    
    57
    
    
    
    0.49
    %
    
    
    8,478
    
    
    
    70
    
    
    
    0.83
    %Time deposits $100,000 or more
    
    
    65,247
    
    
    
    2,079
    
    
    
    3.19
    %
    
    
    32,502
    
    
    
    728
    
    
    
    2.24
    %
    
    
    29,617
    
    
    
    871
    
    
    
    2.94
    %Other time deposits
    
    
    83,757
    
    
    
    2,826
    
    
    
    3.37
    %
    
    
    51,439
    
    
    
    1,259
    
    
    
    2.45
    %
    
    
    44,491
    
    
    
    1,394
    
    
    
    3.13
    %Short-term borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    1
    
    
    
    1.32
    %
    
    
    
    
    
    
    
    
    
    
    Long-term borrowings
    
    
    8,420
    
    
    
    362
    
    
    
    4.30
    %
    
    
    487
    
    
    
    35
    
    
    
    7.19
    %
    
    
    524
    
    
    
    38
    
    
    
    7.25
    %Total interest bearing liabilities
    
    
    250,306
    
    
    
    6,609
    
    
    
    2.64
    %
    
    
    165,904
    
    
    
    2,708
    
    
    
    1.63
    %
    
    
    139,614
    
    
    
    2,992
    
    
    
    2.14
    %Noninterest-bearing liabilities:Demand deposits
    
    
    46,870
    
    
    
    
    
    
    
    
    
    
    
    40,877
    
    
    
    
    
    
    
    
    
    
    
    19,369Other liabilities
    
    
    1,549
    
    
    
    
    
    
    
    
    
    
    
    817
    
    
    
    
    
    
    
    
    
    
    
    687Stockholders equity
    
    
    39,076
    
    
    
    
    
    
    
    
    
    
    
    21,984
    
    
    
    
    
    
    
    
    
    
    
    14,096Total liabilities and stockholders equity
    
    $
    337,801
    
    
    
    
    
    
    
    
    
    
    $
    229,582
    
    
    
    
    
    
    
    
    
    
    $
    173,766Net Interest Spread (6)
    
    
    
    
    
    
    
    
    
    
    4.44
    %
    
    
    
    
    
    
    
    
    
    
    4.54
    %
    
    
    
    
    
    
    
    
    
    
    3.92
    %Net interest income/margin (7)
    
    
    
    
    
    $
    16,313
    
    
    
    5.04
    %
    
    
    
    
    
    $
    10,750
    
    
    
    4.93
    %
    
    
    
    
    
    $
    7,014
    
    
    
    4.24
    %
 
 (1)
    
    Average balances are obtained from the best available daily data.(2)
    
    Loans are gross of allowance for credit losses but after unearned fees.(3)
    
    Non-accruing loans are included in the average balances.(4)
    
    Fee income is included in interest income.(5)
    
    All investments are taxable.(6)
    
    Represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities(7)
    
    Net interest margin represents net interest income as a percentage of average interest-earning assets. Table 2
Analysis of Changes in Net Interest Income
 Increase/(Decrease) Due ToVolume
    
    
    Rate
    
    
    Rate/Volume
    
    
    Total Net Increase (Decrease)12/31/05
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/04Earning assets:Loans
    
    $
    5,916
    
    
    $
    3,506
    
    
    $
    1,371
    
    
    $
    (212
    )
    
    $
    646
    
    
    $
    (80
    )
    
    $
    7,933
    
    
    $
    3,214Federal funds sold
    
    
    45
    
    
    
    2
    
    
    
    352
    
    
    
    54
    
    
    
    62
    
    
    
    1
    
    
    
    459
    
    
    
    57Interest bearing deposits
    
    
    (55
    )
    
    
    20
    
    
    
    131
    
    
    
    (4
    )
    
    
    (30
    )
    
    
    0
    
    
    
    46
    
    
    
    16Investment and other securities
    
    
    609
    
    
    
    97
    
    
    
    164
    
    
    
    47
    
    
    
    253
    
    
    
    21
    
    
    
    1,026
    
    
    
    165
 23




---



##### Table of Contents



Increase/(Decrease) Due ToVolume
    
    
    Rate
    
    
    Rate/Volume
    
    
    Total Net Increase (Decrease)12/31/05
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/04
    
    
    12/31/05
    
    
    12/31/04Interest income
    
    
    6,515
    
    
    
    3,625
    
    
    
    2,018
    
    
    
    (115
    )
    
    
    931
    
    
    
    (58
    )
    
    
    9,464
    
    
    
    3,452Interest bearing liabilities:Interest bearing demand deposits
    
    
    100
    
    
    
    145
    
    
    
    407
    
    
    
    (110
    )
    
    
    65
    
    
    
    (26
    )
    
    
    572
    
    
    
    9Savings deposits
    
    
    2
    
    
    
    26
    
    
    
    80
    
    
    
    (28
    )
    
    
    3
    
    
    
    (11
    )
    
    
    85
    
    
    
    (13
    )Time deposits $100,000 or more
    
    
    733
    
    
    
    85
    
    
    
    308
    
    
    
    (208
    )
    
    
    310
    
    
    
    (20
    )
    
    
    1,351
    
    
    
    (143
    )Other time deposits
    
    
    791
    
    
    
    218
    
    
    
    477
    
    
    
    (305
    )
    
    
    299
    
    
    
    (48
    )
    
    
    1,567
    
    
    
    (135
    )Total interest bearing deposits
    
    
    1,626
    
    
    
    474
    
    
    
    1,272
    
    
    
    (651
    )
    
    
    677
    
    
    
    (105
    )
    
    
    3,575
    
    
    
    (282
    )Short-term borrowings
    
    
    (1
    )
    
    
    0
    
    
    
    (1
    )
    
    
    0
    
    
    
    1
    
    
    
    1
    
    
    
    (1
    )
    
    
    1Long-term borrowings
    
    
    570
    
    
    
    (3
    )
    
    
    (14
    )
    
    
    0
    
    
    
    (229
    )
    
    
    0
    
    
    
    327
    
    
    
    (3
    )Total interest expense
    
    
    2,195
    
    
    
    471
    
    
    
    1,257
    
    
    
    (651
    )
    
    
    449
    
    
    
    (104
    )
    
    
    3,901
    
    
    
    (284
    )Net interest income
    
    $
    4,320
    
    
    $
    3,154
    
    
    $
    761
    
    
    $
    536
    
    
    $
    482
    
    
    $
    46
    
    
    $
    5,563
    
    
    $
    3,736
 Provision for Loan losses
    Non-Interest Income
  24




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Table 3
Non-Interest Income
 Noninterest IncomeFor the Years Ended December 31,2005
    
    
    2004
    
    
    2003(Dollars in thousands)Banking and service charge fees
    
    $
    191
    
    
    $
    255
    
    
    $
    236Gain (loss) on sale of securities
    
    
    0
    
    
    
    (6
    )
    
    
    18Other income
    
    
    71
    
    
    
    46
    
    
    
    42Total noninterest income
    
    $
    262
    
    
    $
    295
    
    
    $
    296
 Non-Interest Expense
    Table 4
Non-Interest Expense
 For the Years Ended December 31,2005
    
    
    2004
    
    
    2003(Dollars in thousands)Salaries and employee benefits
    
    $
    3,887
    
    
    $
    3,130
    
    
    $
    2,521Occupancy and equipment
    
    
    766
    
    
    
    573
    
    
    
    589Data processing
    
    
    431
    
    
    
    347
    
    
    
    311Legal, professional and consulting
    
    
    321
    
    
    
    258
    
    
    
    300Office supplies & printing
    
    
    281
    
    
    
    154
    
    
    
    127Outside services
    
    
    248
    
    
    
    251
    
    
    
    227Advertising and public relations
    
    
    211
    
    
    
    138
    
    
    
    133Telephone
    
    
    205
    
    
    
    158
    
    
    
    123Director fees
    
    
    198
    
    
    
    114
    
    
    
    89Federal Reserve Bank & correspondent bank fees
    
    
    96
    
    
    
    112
    
    
    
    81Other
    
    
    646
    
    
    
    308
    
    
    
    224Total noninterest expense
    
    $
    7,290
    
    
    $
    5,543
    
    
    $
    4,725As a % of average earning assets
    
    
    2.25
    %
    
    
    2.54
    %
    
    
    2.86
    %Efficiency Ratio (1)
    
    
    43.98
    %
    
    
    50.16
    %
    
    
    64.80
    %
 25




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##### Table of Contents



(1)
    
    Efficiency ratio represents noninterest expenses, excluding loan loss provision, as a percentage of the
aggregate of net interest income and noninterest income, excluding gains or (losses) on sales of securities. th rd th st
 th rd
      Income Taxes
  Balance Sheet Analysis
 Investment Securities
  26




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27




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Table 5
Composition of the Securities Portfolio
 At December 31,2005
    
    
    2004
    
    
    2003Amortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value
    
    
    Cost
    
    
    Value(Dollars in thousands)US Government agency securities
    
    $
    28,957
    
    
    $
    28,452
    
    
    $
    29,941
    
    
    $
    29,863
    
    
    $
    18,979
    
    
    $
    19,006Mortgage backed securities
    
    
    6,224
    
    
    
    6,007
    
    
    
    4,673
    
    
    
    4,625
    
    
    
    
    
    
    
    Collateralized Mortgage Obligations
    
    
    1,390
    
    
    
    1,354
    
    
    
    1,931
    
    
    
    1,925
    
    
    
    
    
    
    
    Total
    
    $
    36,571
    
    
    $
    35,813
    
    
    $
    36,545
    
    
    $
    36,413
    
    
    $
    18,979
    
    
    $
    19,006
 Table 6
Securities Maturity Distribution and
Weighted-Average Yield to Maturity
 At December 31, 2005One Year
    
    
    Over One Year
    
    
    Over Five Yearsor Less
    
    
    Through Five Years
    
    
    Through Ten Years
    
    
    Over Ten YearsAmount
    
    
    Yield (1)
    
    
    Amount
    
    
    Yield (1)
    
    
    Amount
    
    
    Yield (1)
    
    
    Amount
    
    
    Yield (1)(Dollars in thousands)US Government agency securities
    
    $
    8,898
    
    
    
    2.34
    %
    
    $
    19,554
    
    
    
    4.05
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mortgage backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,068
    
    
    
    3.91
    %
    
    
    2,939
    
    
    
    4.41
    %Collateralized Mortgage
Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    622
    
    
    
    4.26
    %
    
    
    732
    
    
    
    4.34
    %Total
    
    $
    8,898
    
    
    
    2.34
    %
    
    $
    19,554
    
    
    
    4.05
    %
    
    $
    3,690
    
    
    
    3.97
    %
    
    $
    3,671
    
    
    
    4.40
    %
 
 (1)
    
    Weighted yield. Loans
    28




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Table 7
Distribution of Loan Portfolio
 At December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    2003
    
    
    Percent
    
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Construction and land development loans
    
    $
    124,217
    
    
    
    40.95
    %
    
    $
    43,460
    
    
    
    21.83
    %
    
    $
    21,324
    
    
    
    15.70
    %
    
    $
    17,862
    
    
    
    15.55
    %
    
    $
    10,452
    
    
    
    11.16
    %Raw land loans
    
    
    47,939
    
    
    
    15.80
    %
    
    
    27,468
    
    
    
    13.80
    %
    
    
    18,446
    
    
    
    13.57
    %
    
    
    12,542
    
    
    
    10.93
    %
    
    
    3,943
    
    
    
    4.21
    %Commercial real estate loans
    
    
    90,944
    
    
    
    29.98
    %
    
    
    90,455
    
    
    
    45.45
    %
    
    
    65,793
    
    
    
    48.42
    %
    
    
    50,066
    
    
    
    43.62
    %
    
    
    45,073
    
    
    
    48.13
    %Commercial and industrial loans
    
    
    33,605
    
    
    
    11.08
    %
    
    
    31,726
    
    
    
    15.94
    %
    
    
    24,900
    
    
    
    18.32
    %
    
    
    26,310
    
    
    
    22.92
    %
    
    
    29,310
    
    
    
    31.30
    %Other loans
    
    
    6,641
    
    
    
    2.19
    %
    
    
    5,926
    
    
    
    2.98
    %
    
    
    5,420
    
    
    
    3.99
    %
    
    
    8,009
    
    
    
    6.98
    %
    
    
    4,871
    
    
    
    5.20
    %Total loans
    
    
    303,346
    
    
    
    100.00
    %
    
    
    199,035
    
    
    
    100.00
    %
    
    
    135,883
    
    
    
    100.00
    %
    
    
    114,789
    
    
    
    100.00
    %
    
    
    93,649
    
    
    
    100.00
    %Allowance for loan losses
    
    
    (3,022
    )
    
    
    
    
    
    
    (2,113
    )
    
    
    
    
    
    
    (1,563
    )
    
    
    
    
    
    
    (1,222
    )
    
    
    
    
    
    
    (947
    )Unearned net loan fees
    
    
    (1,060
    )
    
    
    
    
    
    
    (765
    )
    
    
    
    
    
    
    (525
    )
    
    
    
    
    
    
    (488
    )
    
    
    
    
    
    
    (530
    )Net loans
    
    $
    299,264
    
    
    
    
    
    
    $
    196,157
    
    
    
    
    
    
    $
    133,795
    
    
    
    
    
    
    $
    113,079
    
    
    
    
    
    
    $
    92,172
  Table 8
Maturities of Loan Portfolio
 At December 31, 2005One Year
    
    
    One to
    
    
    Afteror less
    
    
    Five Years
    
    
    Five Years
    
    
    Total(Dollars in thousands)Construction and land development loans
    
    $
    98,655
    
    
    $
    14,832
    
    
    $
    10,730
    
    
    $
    124,217Raw land loans
    
    
    43,469
    
    
    
    4,420
    
    
    
    50
    
    
    
    47,939Commercial real estate loans
    
    
    3,539
    
    
    
    15,783
    
    
    
    71,622
    
    
    
    90,944Commercial and industrial loans
    
    
    22,740
    
    
    
    10,028
    
    
    
    837
    
    
    
    33,605Other loans
    
    
    2,741
    
    
    
    3,900
    
    
    
    
    
    
    
    6,641Total loans
    
    $
    171,144
    
    
    $
    48,963
    
    
    $
    83,239
    
    
    $
    303,346
  29




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Table 9
Fixed Rates and Adjustable Rates of Loan Portfolio
Due After One Year
 At December 31, 2005Floating orFixed
    
    
    AdjustableRate
    
    
    Rate
    
    
    Total(Dollars in thousands)Construction and land development loans
    
    $
    3,028
    
    
    $
    22,534
    
    
    $
    25,562Raw land loans
    
    
    2,682
    
    
    
    1,788
    
    
    
    4,470Commercial real estate loans
    
    
    1,091
    
    
    
    86,314
    
    
    
    87,405Commercial and industrial loans
    
    
    6,408
    
    
    
    4,457
    
    
    
    10,865Other loans
    
    
    726
    
    
    
    3,174
    
    
    
    3,900Total
    
    $
    13,935
    
    
    $
    118,267
    
    
    $
    132,202
 Deposits
       30




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##### Table of Contents



Table 10
Average Rates and Average Balances of Deposits
 At Years Ended December 312005
    
    
    2004
    
    
    2003Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageAverage
    
    
    Rate
    
    
    Average
    
    
    Rate
    
    
    Average
    
    
    RateBalance
    
    
    Paid
    
    
    Balance
    
    
    Paid
    
    
    Balance
    
    
    Paid(Dollars in thousands)Noninterest-bearing demand
deposits
    
    $
    46,870
    
    
    
    0.00
    %
    
    $
    40,877
    
    
    
    0.00
    %
    
    $
    19,369
    
    
    
    0.00
    %Interest-bearing demand deposits
    
    
    80,855
    
    
    
    1.48
    %
    
    
    69,771
    
    
    
    0.90
    %
    
    
    56,504
    
    
    
    1.10
    %Savings deposits
    
    
    12,027
    
    
    
    1.18
    %
    
    
    11,629
    
    
    
    0.49
    %
    
    
    8,478
    
    
    
    0.83
    %Time deposits $100,000 or more
    
    
    65,247
    
    
    
    3.19
    %
    
    
    32,502
    
    
    
    2.24
    %
    
    
    29,617
    
    
    
    2.94
    %Other time deposits
    
    
    83,757
    
    
    
    3.37
    %
    
    
    51,439
    
    
    
    2.45
    %
    
    
    44,491
    
    
    
    3.13
    %Total interest-bearing deposits
    
    
    241,886
    
    
    
    2.58
    %
    
    
    165,341
    
    
    
    1.62
    %
    
    
    139,090
    
    
    
    2.12
    %Total deposits
    
    $
    288,756
    
    
    
    2.16
    %
    
    $
    206,218
    
    
    
    1.30
    %
    
    $
    158,459
    
    
    
    1.86
    %
  Table 11
Deposit Distribution
 At December 31,2005
    
    
    2004
    
    
    2003Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Deposits
    
    
    Amount
    
    
    Deposits
    
    
    Amount
    
    
    Deposits(Dollars in thousands)Transaction accounts:Savings accounts
    
    $
    13,081
    
    
    
    3.93
    %
    
    $
    13,411
    
    
    
    5.68
    %
    
    $
    9,557
    
    
    
    5.63
    %Money market deposit accounts
    
    
    77,159
    
    
    
    23.21
    %
    
    
    52,126
    
    
    
    22.07
    %
    
    
    50,194
    
    
    
    29.55
    %NOW accounts
    
    
    16,740
    
    
    
    5.04
    %
    
    
    18,102
    
    
    
    7.66
    %
    
    
    14,817
    
    
    
    8.73
    %Noninterest-bearing demand
accounts
    
    
    46,030
    
    
    
    13.85
    %
    
    
    42,664
    
    
    
    18.06
    %
    
    
    26,839
    
    
    
    15.81
    %Total transaction accounts
    
    
    153,010
    
    
    
    46.03
    %
    
    
    126,303
    
    
    
    53.47
    %
    
    
    101,407
    
    
    
    59.72
    %Time Deposits:90-day
    
    
    1,033
    
    
    
    0.30
    %
    
    
    721
    
    
    
    0.31
    %
    
    
    218
    
    
    
    0.13
    %180-day
    
    
    7,663
    
    
    
    2.31
    %
    
    
    3,114
    
    
    
    1.32
    %
    
    
    3,330
    
    
    
    1.96
    %One-year
    
    
    161,924
    
    
    
    48.71
    %
    
    
    81,170
    
    
    
    34.36
    %
    
    
    31,001
    
    
    
    18.26
    %
 31




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##### Table of Contents



At December 31,2005
    
    
    2004
    
    
    2003Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Deposits
    
    
    Amount
    
    
    Deposits
    
    
    Amount
    
    
    Deposits(Dollars in thousands)Over one year
    
    
    8,806
    
    
    
    2.65
    %
    
    
    24,903
    
    
    
    10.54
    %
    
    
    33,842
    
    
    
    19.93
    %Total time deposits
    
    
    179,426
    
    
    
    53.97
    %
    
    
    109,908
    
    
    
    46.53
    %
    
    
    68,391
    
    
    
    40.28
    %Total Deposits
    
    $
    332,436
    
    
    
    100.00
    %
    
    $
    236,211
    
    
    
    100.00
    %
    
    $
    169,798
    
    
    
    100.00
    %
  Table 12
Maturities Distribution of $100,000 or More Time Deposits
 Amount(In thousands)Time deposits maturing:Three months or less
    
    $
    31,072Over three through six months
    
    
    8,883Over six through twelve months
    
    
    46,006Over twelve months
    
    
    676Total
    
    $
    86,637
 Borrowings
     Asset Quality
  32




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##### Table of Contents



Loan Delinquencies
  Credit Risk
    Non-performing Loans
  33




---



##### Table of Contents



Table 13
Non-Performing Assets and Accruing Loans Past Due 90 Days or More
 Nonaccrual, Past Due and Restructured LoansAt December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in thousands)Nonaccrual
    
    $
    129
    
    
    $
    170
    
    
    $
    704
    
    
    $
    465
    
    
    $
    2,265Past due 90 days or more
    
    
    36
    
    
    
    
    
    
    
    100
    
    
    
    71
    
    
    
    116Restructured loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    165
    
    
    $
    170
    
    
    $
    804
    
    
    $
    536
    
    
    $
    2,381
  Table 14
Foregone Interest on Non-Accrual Loans
 Gross interest income andRecognized interest incomeFor the Year EndedDecember 31, 2005Gross
    
    
    Recognized(Dollars in thousands)Nonaccrual
    
    $
    17
    
    
    $
    1Restructured loans
    
    
    
    
    
    
    Total
    
    $
    17
    
    
    $
    1
 Classified Assets
  
    
    Watch List.Generally these are assets with some moderate, short-term
weakness or suspected change in financial condition that should be
corrected within six months. We will either upgrade the credit during
that period, or downgrade the credit to a more severe grade as
appropriate.
 
    
    Special Mention.These assets have potential weaknesses that deserve
the attention of management, but the issues are not strong enough to
consider a more severe grade. Usually, this is a long-term problem
that is likely to remain, with significant improvement or
deterioration not expected. These loans have an adequate source of
repayment or are protected by collateral.
 
    
    Substandard.These assets have one or more defined weaknesses, and are
characterized by the distinct possibility that the insured institution
will sustain some loss if the deficiencies are not corrected. These
assets are usually protected by collateral value, or tertiary support
from a guarantor. These assets are characterized by the distinct
possibility that we will sustain some loss if such weakness or
deficiency is not corrected.
 34




---



##### Table of Contents




    
    Doubtful.These assets have an extremely high possibility of loss,
which is not determinable as to the amount or timing. At the point
where a loss is identified, all or that portion deemed a loss is
immediately classified as Loss and charged off.
 
    
    Loss.These assets are considered uncollectable, and of such little
value that carrying the asset on the books is not warranted. This
classification does not mean that the asset has no eventual recovery
or salvage value, but rather that it is not practical or desirable to
defer writing off the asset, even though partial recovery may be
affected in the future.
   Watch List
    
    $
    3,900Special Mention
    
    
    501Substandard
    
    
    Doubtful
    
    
    Loss
    
    
    Total
    
    $
    4,401
 Allowance for Loan Losses
       35




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##### Table of Contents



Specific Allocations
  General Allowances
    Table 15
Allowance for Loan Losses
 At or For the Years Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in thousands)Balance at the beginning of period
    
    $
    2,113
    
    
    $
    1,457
    
    
    $
    1,222
    
    
    $
    947
    
    
    $
    722Charge-offs:Construction and land development loans
    
    
    
    
    
    
    (169
    )
    
    
    
    
    
    
    
    
    
    
    (96
    )Raw land loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 36




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##### Table of Contents



At or For the Years Ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in thousands)Commercial real estate loans
    
    
    
    
    
    
    (150
    )
    
    
    
    
    
    
    
    
    
    
    Commercial and industrial loans
    
    
    
    
    
    
    (133
    )
    
    
    (138
    )
    
    
    (1,318
    )
    
    
    (19
    )Other loans
    
    
    (11
    )
    
    
    (16
    )
    
    
    (12
    )
    
    
    (3
    )
    
    
    Total charge-offs
    
    
    (11
    )
    
    
    (468
    )
    
    
    (150
    )
    
    
    (1,321
    )
    
    
    (115
    )Recoveries:Construction and land development loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Raw land loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Commercial real estate loans
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Commercial and industrial loans
    
    
    150
    
    
    
    456
    
    
    
    13
    
    
    
    
    
    
    
    Other loans
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    Total recoveries
    
    
    150
    
    
    
    468
    
    
    
    13
    
    
    
    
    
    
    
    Net (charge-offs)/recoveries
    
    
    139
    
    
    
    
    
    
    
    (137
    )
    
    
    (1,321
    )
    
    
    (115
    )Provision for loan losses
    
    
    777
    
    
    
    632
    
    
    
    478
    
    
    
    1,596
    
    
    
    340Unfunded commitment reserve adjustments (1)
    
    
    (7
    )
    
    
    24
    
    
    
    (106
    )
    
    
    Balance at end of period
    
    $
    3,022
    
    
    $
    2,113
    
    
    $
    1,457
    
    
    $
    1,222
    
    
    $
    947Allowance for loan losses as a percent of total loans
    
    
    1.00
    %
    
    
    1.07
    %
    
    
    1.08
    %
    
    
    1.07
    %
    
    
    1.02
    %Ratio of net charge-offs/(recoveries) to average loans  annualized
    
    
    (0.05
    )%
    
    
    0.00
    %
    
    
    0.11
    %
    
    
    1.27
    %
    
    
    0.14
    %
 
 (1)
    
    To reflect the reclassification of unfunded commitments reserve reported in other liabilities.  Table 16
Allocation of Allowance for Loan Losses
 At December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofLoans in
    
    
    
    
    
    
    Loans in
    
    
    
    
    
    
    Loans in
    
    
    
    
    
    
    Loans in
    
    
    
    
    
    
    Loans inEach
    
    
    
    
    
    
    Each
    
    
    
    
    
    
    Each
    
    
    
    
    
    
    Each
    
    
    
    
    
    
    EachCategory to
    
    
    
    
    
    
    Category to
    
    
    
    
    
    
    Category to
    
    
    
    
    
    
    Category to
    
    
    
    
    
    
    Category toAmount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans(Dollars in thousands)Construction and land development loans
    
    $
    526
    
    
    
    40.95
    %
    
    $
    713
    
    
    
    21.83
    %
    
    $
    503
    
    
    
    15.70
    %
    
    $
    178
    
    
    
    15.55
    %
    
    $
    124
    
    
    
    11.16
    %Raw land loans
    
    
    180
    
    
    
    15.80
    %
    
    
    143
    
    
    
    13.80
    %
    
    
    46
    
    
    
    13.57
    %
    
    
    107
    
    
    
    10.93
    %
    
    
    34
    
    
    
    4.21
    %Commercial real estate loans
    
    
    636
    
    
    
    29.98
    %
    
    
    540
    
    
    
    45.45
    %
    
    
    548
    
    
    
    48.42
    %
    
    
    607
    
    
    
    43.62
    %
    
    
    495
    
    
    
    48.13
    %Commercial and industrial loans
    
    
    1,547
    
    
    
    11.08
    %
    
    
    741
    
    
    
    15.94
    %
    
    
    443
    
    
    
    18.32
    %
    
    
    264
    
    
    
    22.92
    %
    
    
    253
    
    
    
    31.30
    %Other loans
    
    
    133
    
    
    
    2.19
    %
    
    
    58
    
    
    
    2.98
    %
    
    
    23
    
    
    
    3.99
    %
    
    
    66
    
    
    
    6.98
    %
    
    
    41
    
    
    
    5.20
    %Total
    
    $
    3,022
    
    
    
    100.00
    %
    
    $
    2,195
    
    
    
    100.00
    %
    
    $
    1,563
    
    
    
    100.00
    %
    
    $
    1,222
    
    
    
    100.00
    %
    
    $
    947
    
    
    
    100.00
    %
 37




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##### Table of Contents



Market Risk
     Table 17
Gap Analysis
 More ThanWithin
    
    
    One YearTwelve
    
    
    to Five
    
    
    Over FiveMonths
    
    
    Years
    
    
    Years
    
    
    Total(Dollars in thousands)Rate-Sensitive Assets:Interest-bearing deposits at other financial institutions
    
    $
    9,221
    
    
    
    
    
    
    
    
    
    
    $
    9,221Fed funds sold
    
    
    30,575
    
    
    
    
    
    
    
    
    
    
    
    30,575Securities  all available for sale
    
    
    8,898
    
    
    
    23,086
    
    
    
    3,829
    
    
    
    35,813Fed Home Loan Bank Stock
    
    
    
    
    
    
    808
    
    
    
    
    
    
    
    808Construction and land development loans
    
    
    157,608
    
    
    
    14,548
    
    
    
    
    
    
    
    172,156Commercial real estate loans
    
    
    13,989
    
    
    
    75,955
    
    
    
    1,000
    
    
    
    90,944Commercial and industrial loans
    
    
    24,931
    
    
    
    8,051
    
    
    
    623
    
    
    
    33,605Other loans
    
    
    2,895
    
    
    
    3,746
    
    
    
    
    
    
    
    6,641Total Rate-Sensitive Assets
    
    
    248,117
    
    
    
    126,194
    
    
    
    5,452
    
    
    
    379,763Rate-Sensitive Liabilities:
 38




---



##### Table of Contents



More ThanWithin
    
    
    One YearTwelve
    
    
    to Five
    
    
    Over FiveMonths
    
    
    Years
    
    
    Years
    
    
    Total(Dollars in thousands)Interest-bearing demand deposits
    
    
    93,899
    
    
    
    
    
    
    
    
    
    
    
    93,899Savings deposits
    
    
    13,081
    
    
    
    
    
    
    
    
    
    
    
    13,081Time deposits
    
    
    177,888
    
    
    
    1,538
    
    
    
    
    
    
    
    179,426Note payable
    
    
    45
    
    
    
    15,212
    
    
    
    168
    
    
    
    15,425Total Rate-Sensitive Liabilities
    
    $
    284,913
    
    
    $
    16,750
    
    
    $
    168
    
    
    $
    301,831Excess (deficiency) of Rate-Sensitive Assets
over Rate-Sensitive Liabilities
    
    $
    (36,796
    )
    
    $
    109,444
    
    
    $
    5,284Cumulative Excess (deficiency) of Rate-Sensitive Assets
over Rate-Sensitive Liabilities
    
    $
    (36,796
    )
    
    $
    72,648
    
    
    $
    77,932Cumulative Excess (deficiency) of Rate-Sensitive Assets
over Rate-Sensitive Liabilities as a percentage of total assets
    
    
    (9.41
    )%
    
    
    18.57
    %
    
    
    19.92
    %
   Table 18
Market Risk Exposures to Interest Rate Changes
 Increase in
    
    Net Interest Change
    
    
    
    Decrease in
    
    
    Net Interest ChangeInterest Rates
    
    $


        %
    
    
    
    Interest Rates
    
    
    $
    
    
    %(Dollars in thousands)+1.00%
    
    $
    503
    

    
    3%
    
    
    
    
    -1.00%
    
    
    $
    (555
    )
    
    
    (3)%+2.00%
    
    $
    1,040
    
    
    
    6%
    
    
    
    
    -2.00%
    
    
    $
    (1,180
    )
    
    
    (6)%+3.00%
    
    $
    1,612
    
    
    
    9%
    
    
    
    
    -3.00%
    
    
    $
    (1,874
    )
    
    
    (10)%
   39




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##### Table of Contents



Liquidity and Capital Resources
 Liquidity
      40




---



##### Table of Contents



Capital Resources
        41




---



##### Table of Contents



Table 19
Valley Bancorps Equity Capital
 To be well capitalizedFor capital
    
    
    under prompt correctiveActual
    
    
    adequacy purposes
    
    
    action provisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)Tier 1
leverage capital to average assets (1)
    
    
    42,467
    
    
    
    11.02
    %
    
    
    15,417
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTier 1 capital to risk weighted assets (1)
    
    
    42,467
    
    
    
    12.54
    %
    
    
    13,550
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTotal capital to risk weighted assets (1)
    
    
    45,575
    
    
    
    13.45
    %
    
    
    27,101
    
    
    
    8.00
    %
    
    
    n/a
    
    
    
    n/a
 
 (1)
    
    Tier 1 leverage (or core) capital ratio is computed as a percentage of average total assets of $385.4 million.
Risk-based capital ratios are computed as a percentage of risk-weighted assets of $338.8 million. Table 20
Valley Banks Equity Capital
 To be well capitalizedFor capital
    
    
    under prompt correctiveActual
    
    
    adequacy purposes
    
    
    action provisions (2)Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in thousands)Tier
1 leverage capital to average assets (1)
    
    
    40,309
    
    
    
    10.52
    %
    
    
    15,327
    
    
    
    4.00
    %
    
    
    19,159
    
    
    
    5.00
    %Tier 1 capital to risk weighted assets (1)
    
    
    40,309
    
    
    
    11.91
    %
    
    
    13,535
    
    
    
    4.00
    %
    
    
    20,303
    
    
    
    6.00
    %Total capital to risk weighted assets (1)
    
    
    43,417
    
    
    
    12.83
    %
    
    
    27,070
    
    
    
    8.00
    %
    
    
    33,838
    
    
    
    10.00
    %
 
 (1)
    
    Tier 1 leverage (or core) capital ratio is computed as a percentage of average total assets of $383.2 million.
Risk-based capital ratios are computed as a percentage of risk-weighted assets of $338.4 million.(2)
    
    See Supervision and Regulation  Capital Adequacy  Prompt Corrective Action. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
  42




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Table 21
Off-Balance Sheet Arrangements
 Commitment Expiration Per PeriodUnfunded
    
    
    One Year
    
    
    One to
    
    
    AfterCommitments
    
    
    or less
    
    
    Five years
    
    
    Five Years(Dollars in thousands)Construction and land development loans
    
    $
    59,156
    
    
    $
    49,893
    
    
    $
    9,263
    
    
    
    Raw land loans
    
    
    1,558
    
    
    
    1,486
    
    
    
    72
    
    
    
    Commercial real estate loans
    
    
    411
    
    
    
    411
    
    
    
    
    
    
    
    Commercial and industrial loans
    
    
    16,710
    
    
    
    15,396
    
    
    
    1,314
    
    
    
    Other loans
    
    
    5,274
    
    
    
    5,074
    
    
    
    200
    
    
    
    Financial standby letters of credit
    
    
    3,135
    
    
    
    25
    
    
    
    3,110
    
    
    
    Total unused commitments
    
    $
    86,244
    
    
    $
    72,285
    
    
    $
    13,959
    
    
    
    
 Table 22
Contractual Obligations
 Payment due periodOne Year
    
    
    One to
    
    
    AfterTotal
    
    
    or less
    
    
    Five Years
    
    
    Five Years(Dollars in thousands)Operating lease
    
    $
    256
    
    
    $
    62
    
    
    $
    194
    
    
    
    Note payable (1)
    
    
    15,425
    
    
    
    45
    
    
    
    15,380
    
    
    
    Total contractual obligations
    
    $
    15,681
    
    
    $
    107
    
    
    $
    15,574
    
    
    
    
 
 (1)
    
    Excludes interest payments. See Note 8 of Notes to Consolidated Financial Statements. 
 Item 7a. Qualitative and Quantitative Disclosures about Market Risk
  43




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data
 Index to Consolidated Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    45Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    46Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003
    
    
    47Consolidated Statements of Stockholders Equity for the years ended December 31, 2005, 2004 and 2003
    
    
    48Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
    
    
    49Notes to Consolidated Financial Statements for the years ended December 31, 2005, 2004 and 2003
    
    
    50
 44




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    /s/ MCGLADREY & PULLEN, LLPMcGladrey & Pullen, LLP
 
 
 45




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##### Table of Contents



Valley Bancorp And Subsidiary
 
 Consolidated Balance Sheets
As of December 31, 2005 and 2004
 2005
    
    
    2004AssetsCash and due from banks
    
    $
    5,821,323
    
    
    $
    8,054,489Federal funds sold
    
    
    30,575,000
    
    
    
    17,850,000Cash and cash equivalents
    
    
    36,396,323
    
    
    
    25,904,489Interest-bearing deposits at other financial institutions
    
    
    9,221,217
    
    
    
    9,244,160Securities available for sale at fair value (Notes 2 and 8)
    
    
    35,813,461
    
    
    
    36,412,828Investment in Federal Home Loan Bank Stock, at cost
    
    
    808,100
    
    
    
    Loans, net of allowance for loan losses of $3,022,708 and $2,113,188, respectively (Notes 3, 7, 8 and 11)
    
    
    299,263,562
    
    
    
    196,156,715Loans held for sale
    
    
    
    
    
    
    163,829Premises and equipment, net (Notes 4 and 8)
    
    
    7,263,284
    
    
    
    4,382,860Accrued interest receivable
    
    
    1,557,815
    
    
    
    863,912Deferred taxes, net (Note 6)
    
    
    551,940
    
    
    
    189,391Other assets
    
    
    287,630
    
    
    
    387,180Total assets
    
    $
    391,163,332
    
    
    $
    273,705,364Liabilities and Stockholders EquityDeposits:Non-interest bearing demand
    
    $
    46,030,326
    
    
    $
    42,664,063Interest bearing:Demand
    
    
    93,898,937
    
    
    
    70,228,073Savings
    
    
    13,081,289
    
    
    
    13,411,583Time, $100,000 and over (Note 5)
    
    
    86,637,246
    
    
    
    44,241,115Other time (Note 5)
    
    
    92,788,699
    
    
    
    65,666,600Total deposits
    
    
    332,436,497
    
    
    
    236,211,434Accrued interest payable and other liabilities
    
    
    1,334,728
    
    
    
    772,976Long-term debt (Note 8)
    
    
    15,425,399
    
    
    
    466,845Total liabilities
    
    
    349,196,624
    
    
    
    237,451,255Commitments and contingencies (Note 7)Stockholders equity: (Notes 9, 10 and 12)Preferred stock, $1.00 par value, 500,000 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock, $0.73 par value; 10,000,000 shares authorized;
2,827,681 shares issued and outstanding as of December 31, 2005 and
2,790,748 shares issued and outstanding as of December 31, 2004
    
    
    2,064,207
    
    
    
    2,037,246Additional paid-in capital
    
    
    30,106,603
    
    
    
    29,616,955Retained earnings
    
    
    10,295,664
    
    
    
    4,687,220Accumulated other comprehensive loss
    
    
    (499,766
    )
    
    
    (87,312
    )Total stockholders equity
    
    
    41,966,708
    
    
    
    36,254,109Total liabilities and stockholders equity
    
    $
    391,163,332
    
    
    $
    273,705,364
  46




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##### Table of Contents



Valley Bancorp And Subsidiary
 
 Consolidated Statements Of Income
For the Years ended December 31, 2005, 2004 and 2003
 2005
    
    
    2004
    
    
    2003Interest income on:Loans, including fees
    
    $
    20,495,683
    
    
    $
    12,562,589
    
    
    $
    9,349,508Securities available for sale
    
    
    1,405,329
    
    
    
    393,812
    
    
    
    228,465Federal funds sold and interest-bearing deposits at other financial institutions
    
    
    1,005,413
    
    
    
    501,526
    
    
    
    428,440Dividends from investment in Federal Home Loan Bank Stock
    
    
    15,305
    
    
    
    
    
    
    
    Total interest income
    
    
    22,921,730
    
    
    
    13,457,927
    
    
    
    10,006,413Interest expense on:Deposits
    
    
    6,247,141
    
    
    
    2,671,813
    
    
    
    2,954,656Long-term debt and other borrowed funds (Note 8)
    
    
    361,749
    
    
    
    36,327
    
    
    
    37,442Total interest expense
    
    
    6,608,890
    
    
    
    2,708,140
    
    
    
    2,992,098Net interest income
    
    
    16,312,840
    
    
    
    10,749,787
    
    
    
    7,014,315Provision for loan losses(Note 3)
    
    
    777,000
    
    
    
    632,000
    
    
    
    478,168Net interest income after provision for loan losses
    
    
    15,535,840
    
    
    
    10,117,787
    
    
    
    6,536,147Other income:Service charges on deposit accounts
    
    
    191,376
    
    
    
    255,047
    
    
    
    236,091Net gain (loss) on sale of available for sale securities (Note 2)
    
    
    
    
    
    
    (6,155
    )
    
    
    18,339Other
    
    
    70,668
    
    
    
    46,341
    
    
    
    41,384Total other income
    
    
    262,044
    
    
    
    295,233
    
    
    
    295,814Other expense:Salaries and employee benefits (Note 13)
    
    
    3,886,956
    
    
    
    3,129,950
    
    
    
    2,520,915Data processing
    
    
    430,450
    
    
    
    346,634
    
    
    
    311,178Occupancy (Note 7)
    
    
    403,109
    
    
    
    331,436
    
    
    
    338,736Equipment rentals, depreciation and maintenance
    
    
    362,452
    
    
    
    241,398
    
    
    
    250,748Legal, professional and consulting
    
    
    320,950
    
    
    
    258,012
    
    
    
    299,660Office supplies & printing
    
    
    280,547
    
    
    
    154,113
    
    
    
    127,394Outside services
    
    
    248,318
    
    
    
    251,341
    
    
    
    226,979Advertising and public relations
    
    
    211,401
    
    
    
    137,874
    
    
    
    133,033Telephone
    
    
    204,620
    
    
    
    158,397
    
    
    
    123,186Director fees
    
    
    198,250
    
    
    
    113,925
    
    
    
    88,725Federal Reserve Bank & correspondent bank fees
    
    
    96,074
    
    
    
    112,209
    
    
    
    80,695Other
    
    
    646,267
    
    
    
    307,642
    
    
    
    224,229Total other expense
    
    
    7,289,394
    
    
    
    5,542,931
    
    
    
    4,725,478Income before income taxes
    
    
    8,508,490
    
    
    
    4,870,089
    
    
    
    2,106,483Income tax expense(Note 6)
    
    
    2,900,046
    
    
    
    1,659,194
    
    
    
    707,491Net income
    
    $
    5,608,444
    
    
    $
    3,210,895
    
    
    $
    1,398,992Earnings per share:Basic
    
    $
    2.00
    
    
    $
    1.59
    
    
    $
    0.84Diluted
    
    $
    1.90
    
    
    $
    1.53
    
    
    $
    0.81
  47




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##### Table of Contents



VALLEY BANCORP AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended December 31, 2005, 2004 and 2003
 AccumulatedAdditional
    
    
    
    
    
    OtherComprehensive
    
    Common Stock
    
    Paid-in
    
    Retained
    
    ComprehensiveDescription
    
    Income
    
    Shares
    
    Amount
    
    Capital
    
    Earnings
    
    Income
    
    TotalBalance,
December 31, 2002
    
    
    
    
    
    
    1,438,130
    
    
    $
    1,049,835
    
    
    $

    10,102,554
    
    
    $

    77,333
    
    
    $

    6,488
    
    
    $

    11,236,210Proceeds from issuance of 252,473 shares of
common stock at $12.50 per share, net of
offering costs of $107,573
    
    
    
    
    
    
    252,473
    
    
    
    184,305
    
    
    
    2,864,035
    
    
    
    
    
    
    
    
    
    
    
    3,048,340Comprehensive income:Net income
    
    $
    1,398,992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,398,992
    
    
    
    
    
    
    
    1,398,992Other comprehensive income:Unrealized gain on securities
net of tax of $12,020
    
    
    23,333Less reclassification adjustment for
gains included in net income,
net of tax of $6,236
    
    
    (12,103
    )Net unrealized gain
    
    
    11,230
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,230
    
    
    
    11,230$
    1,410,222Stock options exercised, including related tax
benefit of $23,715 (Note 12)
    
    
    
    
    
    
    34,875
    
    
    
    25,459
    
    
    
    277,256
    
    
    
    
    
    
    
    
    
    
    
    302,715Balance, December 31, 2003
    
    
    
    
    
    
    1,725,478
    
    
    
    1,259,599
    
    
    
    13,243,845
    
    
    
    1,476,325
    
    
    
    17,718
    
    
    
    15,997,487Proceeds from issuance of 1,063,750 shares of
common stock at $18.00 per share, net of
offering costs of $837,211
    
    
    
    
    
    
    1,063,750
    
    
    
    776,537
    
    
    
    16,359,027
    
    
    
    
    
    
    
    
    
    
    
    17,135,564Comprehensive income:Net income
    
    $
    3,210,895
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,210,895
    
    
    
    
    
    
    
    3,210,895Other comprehensive income:Unrealized loss on securities
net of tax of $56,199
    
    
    (109,092
    )Less reclassification adjustment for
losses included in net income,
net of tax of $2,093
    
    
    4,062Net unrealized loss
    
    
    (105,030
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (105,030
    )
    
    
    (105,030
    )$
    3,105,865Stock options exercised (Note 12)
    
    
    
    
    
    
    1,520
    
    
    
    1,110
    
    
    
    14,083
    
    
    
    
    
    
    
    
    
    
    
    15,193Balance, December 31, 2004
    
    
    
    
    
    
    2,790,748
    
    
    
    2,037,246
    
    
    
    29,616,955
    
    
    
    4,687,220
    
    
    
    (87,312
    )
    
    
    36,254,109Comprehensive income:Net income
    
    $
    5,608,444
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,608,444
    
    
    
    
    
    
    
    5,608,444Other comprehensive income:Unrealized loss on securities
net of tax of $212,476
    
    
    (412,454
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (412,454
    )
    
    
    (412,454
    )$
    5,195,990Stock options exercised, including related tax
benefit of $24,127 (Note 12)
    
    
    
    
    
    
    36,933
    
    
    
    26,961
    
    
    
    332,326
    
    
    
    
    
    
    
    
    
    
    
    359,287Tax benefit on disqualifying dispositions
of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157,322
    
    
    
    
    
    
    
    
    
    
    
    157,322Balance, December 31, 2005
    
    
    
    
    
    
    2,827,681
    
    
    $
    2,064,207
    
    
    $
    30,106,603
    
    
    $
    10,295,664
    
    
    $
    (499,766
    )
    
    $
    41,966,708
  48




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##### Table of Contents



Valley Bancorp And Subsidiary
 
 Consolidated Statements Of Cash Flows
For the Years ended December 31, 2005, 2004 and 2003
 2005
    
    
    2004
    
    
    2003Cash Flows from Operating Activities:Net income
    
    $
    5,608,444
    
    
    $
    3,210,895
    
    
    $
    1,398,992Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation of premises and equipment
    
    
    387,393
    
    
    
    285,017
    
    
    
    293,989Loss on sale of other real estate owned
    
    
    
    
    
    
    7,547
    
    
    
    (Gain) loss on sale of securities available for sale
    
    
    
    
    
    
    6,155
    
    
    
    (18,339
    )Deferred taxes
    
    
    (150,073
    )
    
    
    (111,734
    )
    
    
    (17,077
    )Tax benefit resulting from the exercise of nonqualified stock options
    
    
    24,127
    
    
    
    
    
    
    
    23,715Tax benefit resulting from the disqualifying dispositions of common stock
    
    
    157,322
    
    
    
    
    
    
    
    Net accretion/amortization of investment discount/premium
    
    
    (6,847
    )
    
    
    (2,309
    )
    
    
    21,960Provision for loan losses
    
    
    777,000
    
    
    
    632,000
    
    
    
    478,168Increase in accrued interest receivable
    
    
    (693,903
    )
    
    
    (299,363
    )
    
    
    (129,690
    )(Increase) decrease in other assets
    
    
    99,550
    
    
    
    (237,562
    )
    
    
    147,247Increase in accrued interest payable and other liabilities
    
    
    561,752
    
    
    
    76,040
    
    
    
    56,421Net cash provided by operating activities
    
    
    6,764,765
    
    
    
    3,566,686
    
    
    
    2,255,386Cash Flows from Investing Activities:Net increase in loans
    
    
    (103,720,018
    )
    
    
    (63,076,300
    )
    
    
    (21,421,974
    )Net (increase) decrease in interest bearing deposits at other financial institutions
    
    
    22,943
    
    
    
    5,621,246
    
    
    
    (6,755,406
    )Purchase of securities available for sale
    
    
    (3,034,631
    )
    
    
    (33,750,330
    )
    
    
    (24,010,789
    )Proceeds from the maturities of securities available for sale
    
    
    3,015,915
    
    
    
    2,192,967
    
    
    
    3,000,000Proceeds from the sale of securities available for sale
    
    
    
    
    
    
    13,987,742
    
    
    
    5,047,320Purchase of Federal Home Loan Bank Stock
    
    
    (808,100
    )
    
    
    
    
    
    
    Proceeds from the sale of other real estate
    
    
    
    
    
    
    220,626
    
    
    
    Purchase of premises and equipment
    
    
    (3,267,817
    )
    
    
    (210,980
    )
    
    
    (101,214
    )Net cash used in investing activities
    
    
    (107,791,708
    )
    
    
    (75,015,029
    )
    
    
    (44,242,063
    )Cash Flows from Financing Activities:Net increase in deposits
    
    
    96,225,063
    
    
    
    66,413,749
    
    
    
    29,762,031Principal payments on notes payable
    
    
    (41,446
    )
    
    
    (38,602
    )
    
    
    (35,953
    )Proceeds from FHLB borrowings
    
    
    15,000,000
    
    
    
    
    
    
    
    Proceeds from issuance of common stock
    
    
    
    
    
    
    17,135,564
    
    
    
    3,048,340Proceeds from stock options exercised
    
    
    335,160
    
    
    
    15,193
    
    
    
    279,000Net cash provided by financing activities
    
    
    111,518,777
    
    
    
    83,525,904
    
    
    
    33,053,418Increase (decrease) in cash and cash equivalents
    
    
    10,491,834
    
    
    
    12,077,561
    
    
    
    (8,933,259
    )Cash and cash equivalents, beginning of year
    
    
    25,904,489
    
    
    
    13,826,928
    
    
    
    22,760,187Cash and cash equivalents, end of year
    
    $
    36,396,323
    
    
    $
    25,904,489
    
    
    $
    13,826,928Supplemental Disclosure of Cash Flow InformationCash payments for interest
    
    $
    6,141,173
    
    
    $
    2,589,657
    
    
    $
    3,081,044Cash payments for taxes
    
    $
    2,920,000
    
    
    $
    1,750,000
    
    
    $
    645,000Supplemental Disclosure of Noncash ActivityOther real estate acquired in settlement of loans
    
    
    
    
    
    
    
    
    
    $
    228,173
  49




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
 Note 1. Nature of Business and Summary of Significant Accounting Policies
 Nature of business
    Use of estimates in the preparation of financial statements
  Principles of consolidation
  Cash and cash equivalents
    Securities available for sale
  50




---



##### Table of Contents



Federal Home Loan Bank Stock
  Loans
      51




---



##### Table of Contents



Interest and fees on loans
     Premises and equipment
  Other real estate owned
  Transfers of financial assets
  52




---



##### Table of Contents



Income taxes
  Stock option plans
 Accounting for Stock Issued to Employees, Accounting for
Stock-Based Compensation,
 Years Ended December 31,2005
    
    
    2004
    
    
    2003Net Income As Reported
    
    $
    5,608,444
    
    
    $
    3,210,895
    
    
    $
    1,398,992Deduct: Total Stock-Based Employee Compensation Expense
Determined Under Fair Value Based Method For All Awards,
Net Of Related Tax Effects
    
    
    (71,444
    )
    
    
    (62,895
    )
    
    
    (162,992
    )Proforma net income
    
    $
    5,537,000
    
    
    $
    3,148,000
    
    
    $
    1,236,000Basic earnings per share  As reported
    
    $
    2.00
    
    
    $
    1.59
    
    
    $
    0.84Basic earnings per share  Pro forma
    
    $
    1.97
    
    
    $
    1.56
    
    
    $
    0.74Diluted earnings per share  As reported
    
    $
    1.90
    
    
    $
    1.53
    
    
    $
    0.81Diluted earnings per share  Pro forma
    
    $
    1.87
    
    
    $
    1.50
    
    
    $
    0.72
  Options Granted in 2005
    
    Options Granted in 2003Incentive
    
    Nonqualified
    
    Incentive
    
    NonqualifiedStock Options
    
    Stock Options
    
    Stock Options
    
    Stock OptionsFair value per optional share
    
    $10.38
    
    
    
    $4.22
    
    $2.23Expected life (years)
    
    5
    
    
    
    10
    
    5Risk-free interest rate
    
    3.77%
    
    
    
    4.00%
    
    4.00%Volatility factor
    
    32%
    
    
    
    N/A
    
    N/ADividends rate
    
    None
    
    
    
    None
    
    None
 53




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##### Table of Contents



Earnings per common share
   Years Ended December 31,2005
    
    
    2004
    
    
    2003Net income applicable to common stock
    
    $
    5,608,444
    
    
    $
    3,210,895
    
    
    $
    1,398,992Average number of common shares outstanding
    
    
    2,809,608
    
    
    
    2,017,094
    
    
    
    1,659,750Effect of dilutive options
    
    
    146,580
    
    
    
    86,830
    
    
    
    56,994Average number of common shares outstanding used to calculate
diluted earnings per common share
    
    
    2,956,188
    
    
    
    2,103,924
    
    
    
    1,716,744Basic EPS
    
    $
    2.00
    
    
    $
    1.59
    
    
    $
    0.84Diluted EPS
    
    $
    1.90
    
    
    $
    1.53
    
    
    $
    0.81
 Comprehensive income
  Off-balance-sheet instruments
  Fair value of financial instruments
 Disclosures About Fair Value of
Financial Instruments,
   54




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##### Table of Contents



55




---



##### Table of Contents



Reclassifications
  Recent Accounting Pronouncements
    56




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##### Table of Contents



Note 2. Securities Available for Sale
  December 31, 2005Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueU.S. Government Agencies
    
    $
    28,957,018
    
    
    
    
    
    
    $
    (504,718
    )
    
    $
    28,452,300Mortgage-backed Securities
    
    
    6,223,543
    
    
    
    
    
    
    
    (216,135
    )
    
    
    6,007,408Collateralized Mortgage Obligations
    
    
    1,390,121
    
    
    
    
    
    
    
    (36,368
    )
    
    
    1,353,753Total
    
    $
    36,570,682
    
    
    
    
    
    
    $
    (757,221
    )
    
    $
    35,813,461
 December 31, 2004Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueU.S. Government Agencies
    
    $
    29,940,475
    
    
    $
    66,992
    
    
    $
    (144,757
    )
    
    $
    29,862,710Mortgage-backed Securities
    
    
    4,673,383
    
    
    
    
    
    
    
    (48,463
    )
    
    
    4,624,920Collateralized Mortgage Obligations
    
    
    1,931,261
    
    
    
    802
    
    
    
    (6,865
    )
    
    
    1,925,198Total
    
    $
    36,545,119
    
    
    $
    67,794
    
    
    $
    (200,085
    )
    
    $
    36,412,828
   December 31, 2005Less Than Twelve Months
    
    
    Over Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueU.S. Government Agencies
    
    $
    271,656
    
    
    $
    13,695,050
    
    
    $
    233,062
    
    
    $
    14,757,250Mortgage-backed Securities
    
    
    
    
    
    
    
    
    
    
    216,135
    
    
    
    6,007,408Collateralized Mortgage Obligations
    
    
    14,946
    
    
    
    731,575
    
    
    
    21,422
    
    
    
    622,178Total
    
    $
    286,602
    
    
    $
    14,426,625
    
    
    $
    470,619
    
    
    $
    21,386,836
 December 31, 2004Less Than Twelve Months
    
    
    Over Twelve MonthsGross
    
    
    
    
    
    
    GrossUnrealized
    
    
    Fair
    
    
    Unrealized
    
    
    FairLosses
    
    
    Value
    
    
    Losses
    
    
    ValueU.S. Government Agencies
    
    $
    119,931
    
    
    $
    13,875,410
    
    
    $
    24,826
    
    
    $
    1,963,500Mortgage-backed Securities
    
    
    48,463
    
    
    
    4,624,920
    
    
    
    
    
    
    
    Collateralized Mortgage Obligations
    
    
    6,865
    
    
    
    931,288
    
    
    
    
    
    
    
    Total
    
    $
    175,259
    
    
    $
    19,431,618
    
    
    $
    24,826
    
    
    $
    1,963,500
 57




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##### Table of Contents



At December 31, 2005Amortized
    
    
    FairCost
    
    
    ValueDue within one year
    
    $
    8,995,778
    
    
    $
    8,898,170Due after one year through five years
    
    
    19,961,240
    
    
    
    19,554,130Mortgage-backed Securities
    
    
    6,223,543
    
    
    
    6,007,408Collateralized Mortgage Obligations
    
    
    1,390,121
    
    
    
    1,353,753Total
    
    $
    36,570,682
    
    
    $
    35,813,461
  Note 3. Loans
  At December 31,2005
    
    
    2004Commercial, financial and industrial
    
    $
    33,605,477
    
    
    $
    31,726,393Real Estate:Commercial
    
    
    90,944,361
    
    
    
    90,454,931
 58




---



##### Table of Contents



At December 31,2005
    
    
    2004Construction, raw land and land development
    
    
    172,155,563
    
    
    
    70,928,073Residential
    
    
    4,662,172
    
    
    
    4,520,612Consumer
    
    
    1,978,744
    
    
    
    1,404,676303,346,317
    
    
    
    199,034,685Deduct:Unearned net loan fees
    
    
    (1,060,047
    )
    
    
    (764,782
    )Allowance for loan losses
    
    
    (3,022,708
    )
    
    
    (2,113,188
    )Net loans
    
    $
    299,263,562
    
    
    $
    196,156,715
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Balance, beginning
    
    $
    2,113,188
    
    
    $
    1,456,854
    
    
    $
    1,221,813Provision for loan losses
    
    
    777,000
    
    
    
    632,000
    
    
    
    478,168Amounts recovered (Note 7)
    
    
    150,196
    
    
    
    468,110
    
    
    
    12,654Less amounts charged off (Note 7)
    
    
    (10,960
    )
    
    
    (468,529
    )
    
    
    (149,523
    )Adjustment for liability related
to unfunded commitments
    
    
    (6,716
    )
    
    
    24,753
    
    
    
    (106,258
    )Balance, ending
    
    $
    3,022,708
    
    
    $
    2,113,188
    
    
    $
    1,456,854
  December 31,2005
    
    
    2004
    
    
    2003Impaired loans with a valuation allowance
    
    $
    
    
    
    $
    
    
    
    $
    2,162,215Impaired loans without a valuation allowance
    
    
    129,352
    
    
    
    169,589
    
    
    
    141,377Total impaired loans
    
    $
    129,352
    
    
    $
    169,589
    
    
    $
    2,303,592Related allowance for loan losses on impaired loans
    
    $
    
    
    
    $
    
    
    
    $
    500,000Nonaccrual loans
    
    
    129,352
    
    
    
    169,589
    
    
    
    703,593Loans past due 90 days or more and still accruing
    
    
    35,836
    
    
    
    
    
    
    
    100,000Average balance during the year on impaired loans
(based on quarter-end balances)
    
    
    152,360
    
    
    
    215,077
    
    
    
    2,303,720Interest income recognized on impaired loans
    
    
    
    
    
    
    
    
    
    
    97,665
 59




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##### Table of Contents



Note 4. Premises and Equipment
  At December 31,2005
    
    
    2004Land
    
    $
    1,835,635
    
    
    $
    1,410,635Building and improvements
    
    
    4,453,169
    
    
    
    2,495,471Equipment
    
    
    1,588,739
    
    
    
    1,126,782Furniture, fixtures and other
    
    
    994,226
    
    
    
    594,8668,871,769
    
    
    
    5,627,754Less accumulated depreciation
    
    
    (1,608,485
    )
    
    
    (1,244,894
    )Total premises and equipment
    
    $
    7,263,284
    
    
    $
    4,382,860
 Note 5. Deposits
  At December 31,2005Three months or less
    
    $
    62,362,140Over three months through one year
    
    
    115,526,346Over one year through three years
    
    
    1,523,459Over three years
    
    
    14,000$
    179,425,945
 Note 6. Income Tax Matters
  Years Ended December 31,2005
    
    
    2004
    
    
    2003Current
    
    $
    3,050,119
    
    
    $
    1,770,928
    
    
    $
    724,568Deferred taxes
    
    
    (150,073
    )
    
    
    (111,734
    )
    
    
    (17,077
    )$
    2,900,046
    
    
    $
    1,659,194
    
    
    $
    707,491
 60




---



##### Table of Contents



At December 31,2005
    
    
    2004Deferred tax assets:Allowance for loan losses
    
    $
    845,000
    
    
    $
    582,000Securities available for sale
    
    
    257,455
    
    
    
    44,979Other
    
    
    93,485
    
    
    
    59,412Total deferred tax assets
    
    
    1,195,940
    
    
    
    686,391Deferred tax liabilities:Premises and equipment
    
    
    248,000
    
    
    
    247,000Deferred loan costs
    
    
    396,000
    
    
    
    250,000Total deferred tax liabilities
    
    
    644,000
    
    
    
    497,000Net deferred tax asset
    
    $
    551,940
    
    
    $
    189,391
 Note 7. Commitments and Contingencies
 Contingencies
   Financial instruments with off-balance-sheet risk
   61




---



##### Table of Contents



At December 31,2005
    
    
    2004Commitments to extend credit, of which approximately
$4,972,000 and $6,237,000 are unsecured at December
31, 2005
and December 31, 2004, respectively
    
    $
    83,109,000
    
    
    $
    66,506,000Standby letters of credit, of which approximately
$25,000 and $275,000 are unsecured at December 31, 2005
and December 31, 2004, respectively
    
    
    3,135,000
    
    
    
    1,639,000$
    86,244,000
    
    
    $
    68,145,000
 Commitments to extend credit
  Standby letters of credit
  Lease commitments
   62




---



##### Table of Contents



Years Ending December 31:2006
    
    $
    61,5042007
    
    
    46,4362008
    
    
    47,8292009
    
    
    49,2642010
    
    
    50,742$
    255,775
 Financial instruments with concentrations of credit risk
 Concentration by geographic location
   Employment and severance agreements
  Note 8. Long-term Debt and Other Borrowed Funds
   63




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##### Table of Contents



Note 9. Stockholders Equity
  Note 10. Regulatory Capital Requirements
     64




---



##### Table of Contents



For Capital
    
    
    To be WellAdequacy
    
    
    Capitalized Under PromptActual
    
    
    Purposes
    
    
    Corrective Action ProvisionsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    RatioAs of December 31, 2005:CompanyTotal Capital (to Risk Weighted
Assets)
    
    $
    45,575,000
    
    
    
    13.45
    %
    
    $
    27,101,000
    
    
    
    8.00
    %
    
    
    n/a
    
    
    
    n/aTier I Capital (to Risk Weighted
Assets)
    
    
    42,467,000
    
    
    
    12.54
    %
    
    
    13,550,000
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTier I Capital (to Average Assets)
    
    
    42,467,000
    
    
    
    11.02
    %
    
    
    15,417,000
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aBankTotal Capital (to Risk Weighted
Assets)
    
    $
    43,417,000
    
    
    
    12.83
    %
    
    $
    27,070,000
    
    
    
    8.00
    %
    
    $
    33,838,000
    
    
    
    10.00
    %Tier I Capital (to Risk Weighted
Assets)
    
    
    40,309,000
    
    
    
    11.91
    %
    
    
    13,535,000
    
    
    
    4.00
    %
    
    
    20,303,000
    
    
    
    6.00
    %Tier I Capital (to Average Assets)
    
    
    40,309,000
    
    
    
    10.52
    %
    
    
    15,327,000
    
    
    
    4.00
    %
    
    
    19,159,000
    
    
    
    5.00
    %As of December 31, 2004:CompanyTotal Capital (to Risk Weighted
Assets)
    
    $
    38,536,000
    
    
    
    16.97
    %
    
    $
    18,171,000
    
    
    
    8.00
    %
    
    
    n/a
    
    
    
    n/aTier I Capital (to Risk Weighted
Assets)
    
    
    36,341,000
    
    
    
    16.00
    %
    
    
    9,086,000
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTier I Capital (to Average Assets)
    
    
    36,341,000
    
    
    
    14.17
    %
    
    
    10,256,000
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aBankTotal Capital (to Risk Weighted
Assets)
    
    $
    36,500,000
    
    
    
    16.10
    %
    
    $
    18,136,000
    
    
    
    8.00
    %
    
    $
    22,670,000
    
    
    
    10.00
    %Tier I Capital (to Risk Weighted
Assets)
    
    
    34,305,000
    
    
    
    15.13
    %
    
    
    9,068,000
    
    
    
    4.00
    %
    
    
    13,602,000
    
    
    
    6.00
    %Tier I Capital (to Average Assets)
    
    
    34,305,000
    
    
    
    13.47
    %
    
    
    10,187,000
    
    
    
    4.00
    %
    
    
    12,734,000
    
    
    
    5.00
    %
  Note 11. Transactions with Related Parties
  65




---



##### Table of Contents



2005
    
    
    2004Balance, beginning
    
    $
    2,264,443
    
    
    $
    3,277,657New loans
    
    
    171,119
    
    
    
    Repayments
    
    
    (334,275
    )
    
    
    (1,013,214
    )Balance, ending
    
    $
    2,101,287
    
    
    $
    2,264,443
  Note 12. Stock Option Plans
    2005
    
    
    2004
    
    
    2003Incentive
    
    
    Nonqualifying
    
    
    Incentive
    
    
    Nonqualifying
    
    
    Incentive
    
    
    NonqualifyingStock Options
    
    
    Stock Options
    
    
    Stock Options
    
    
    Stock Options
    
    
    Stock Options
    
    
    Stock OptionsOutstanding options, beginning of period
    
    
    205,100
    
    
    
    40,000
    
    
    
    210,000
    
    
    
    40,000
    
    
    
    165,000
    
    
    
    38,500Granted
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,000
    
    
    
    40,000Exercised
    
    
    (32,933
    )
    
    
    (4,000
    )
    
    
    (1,520
    )
    
    
    
    
    
    
    
    
    
    
    (34,875
    )Forfeited
    
    
    (7,210
    )
    
    
    
    
    
    
    (3,380
    )
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,625
    )Outstanding options, end of period
    
    
    169,957
    
    
    
    36,000
    
    
    
    205,100
    
    
    
    40,000
    
    
    
    210,000
    
    
    
    40,000Options exercisable, end of period
    
    
    137,406
    
    
    
    36,000
    
    
    
    155,178
    
    
    
    40,000
    
    
    
    139,797
    
    
    
    40,000Available to grant, end of period
    
    
    105,590
    
    
    
    4,125
    
    
    
    3,380
    
    
    
    4,125
    
    
    
    
    
    
    
    4,125Weighted-average exercise price:Outstanding options, end of period
    
    $
    9.93
    
    
    $
    12.50
    
    
    $
    9.33
    
    
    $
    12.50
    
    
    $
    9.38
    
    
    $
    12.50Options granted, during the period
    
    $
    29.83
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    13.00
    
    
    $
    12.50Options exercised, during the period
    
    $
    8.66
    
    
    $
    12.50
    
    
    $
    10.00
    
    
    
    
    
    
    
    
    
    
    $
    8.00Options forfeited, during the period
    
    $
    12.42
    
    
    
    
    
    
    $
    12.10
    
    
    
    
    
    
    
    
    
    
    
    Options expired, during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8.00Options exercisable, end of period
    
    $
    8.76
    
    
    $
    12.50
    
    
    $
    8.50
    
    
    $
    12.50
    
    
    $
    8.19
    
    
    $
    12.50Weighted-average expiration (in years)
    
    
    5.1
    
    
    
    2.7
    
    
    
    6.0
    
    
    
    3.7
    
    
    
    7.1
    
    
    
    4.7
 66




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##### Table of Contents



NumberExercise
    
    Number of
    
    Remaining Contract
    
    Exercisable atPrice
    
    Options
    
    Life
    
    December 31, 2005$8.00
    
    99,882
    
    4
    
    99,882$9.54
    
    30,675
    
    5
    
    23,924$13.00
    
    34,400
    
    8
    
    13,600$28.00
    
    2,500
    
    9
    
    $31.65
    
    2,500
    
    9
    
    
 Note 13. Employee Benefit Plan
   67




---



##### Table of Contents



Note 14. Fair Value of Financial Instruments
  2005
    
    2004Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assets:Cash and due from banks
    
    $
    5,821,323
    
    
    $
    5,821,000
    
    
    $
    8,054,489
    
    
    $
    8,054,000Federal funds sold
    
    
    30,575,000
    
    
    
    30,575,000
    
    
    
    17,850,000
    
    
    
    17,850,000Interest-bearing deposits at
other financial institutions
    
    
    9,221,217
    
    
    
    9,221,000
    
    
    
    9,244,160
    
    
    
    9,244,000Securities available for sale
    
    
    35,813,461
    
    
    
    35,813,000
    
    
    
    36,412,828
    
    
    
    36,413,000Federal Home Loan Bank Stock
    
    
    808,100
    
    
    
    808,000
    
    
    
    
    
    
    
    Loans, net
    
    
    299,263,562
    
    
    
    299,147,000
    
    
    
    196,156,715
    
    
    
    196,171,000Loans held for sale
    
    
    
    
    
    
    
    
    
    
    163,829
    
    
    
    164,000Accrued interest receivable
    
    
    1,557,815
    
    
    
    1,558,000
    
    
    
    863,912
    
    
    
    864,000Financial liabilities:Deposits
    
    
    332,436,497
    
    
    
    332,697,000
    
    
    
    236,211,434
    
    
    
    237,011,000Accrued interest payable
    
    
    793,199
    
    
    
    793,000
    
    
    
    325,482
    
    
    
    325,000Other borrowed funds
    
    
    15,425,399
    
    
    
    14,769,000
    
    
    
    466,845
    
    
    
    467,000
 Interest rate risk
  Fair value of commitments
  68




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##### Table of Contents



Note 15. Condensed Financial Statements of Parent Company
  Valley Bancorp Only
Balance Sheets
 December 31,2005
    
    
    2004AssetsCash and due from banks
    
    $
    203,468
    
    
    $
    224,786Investment in common stock of Valley Bank
    
    
    39,808,686
    
    
    
    34,218,559Interest-bearing deposits at other financial institutions
    
    
    1,485,000
    
    
    
    1,683,000Other assets
    
    
    471,554
    
    
    
    158,433Total assets
    
    $
    41,968,708
    
    
    $
    36,284,778Liabilities and Stockholders EquityAccrued expenses and other liabilities
    
    $
    2,000
    
    
    $
    30,669Stockholders equity
    
    
    41,966,708
    
    
    
    36,254,109Total liabilities and stockholders equity
    
    $
    41,968,708
    
    
    $
    36,284,778
 Valley Bancorp Only
Statements Of Income
 Years Ended December 31,2005
    
    
    2004
    
    
    2003Income
    
    $
    55,774
    
    
    $
    9,461
    
    
    $
    Operating expenses
    
    
    652,907
    
    
    
    119,356
    
    
    
    11,053Loss before income taxes and equity in
undistributed net income of Valley Bank
    
    
    (597,133
    )
    
    
    (109,895
    )
    
    
    (11,053
    )Income tax (benefit)
    
    
    (202,996
    )
    
    
    (37,349
    )
    
    
    (3,758
    )(394,137
    )
    
    
    (72,546
    )
    
    
    (7,295
    )Equity in undistributed net income of Valley Bank
    
    
    6,002,581
    
    
    
    3,283,441
    
    
    
    1,406,287Net income
    
    $
    5,608,444
    
    
    $
    3,210,895
    
    
    $
    1,398,992
 69




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##### Table of Contents



Valley Bancorp Only
Statements Of Cash Flows
 Years Ended December 31,2005
    
    
    2004
    
    
    2003Cash Flows from Operating Activities:Net income
    
    $
    5,608,444
    
    
    $
    3,210,895
    
    
    $
    1,398,992Adjustments to reconcile net income to net cash provided by (used in)
operating activities:Equity in undistributed net (income) of Valley Bank
    
    
    (6,002,581
    )
    
    
    (3,283,441
    )
    
    
    (1,406,287
    )Deferred taxes
    
    
    3,630
    
    
    
    4,139
    
    
    
    3,626Tax benefit resulting from the exercise of nonqualified stock options
    
    
    24,127
    
    
    
    
    
    
    
    Tax benefit resulting from disqualifying dispositions of common stock
    
    
    157,322
    
    
    
    
    
    
    
    (Increase) decrease in other assets
    
    
    (316,751
    )
    
    
    (113,770
    )
    
    
    49,825Increase (decrease) in accrued interest payable and other liabilities
    
    
    (28,669
    )
    
    
    27,450
    
    
    
    (239
    )Net cash provided by (used in) operating activities
    
    
    (554,478
    )
    
    
    (154,727
    )
    
    
    45,917Provided by Cash Flows from Investing Activities:Payments for investment in Valley Bank
    
    
    
    
    
    
    (15,500,000
    )
    
    
    (3,240,000
    )Net (increase) decrease in interest bearing deposits at other
financial institutions
    
    
    198,000
    
    
    
    (1,683,000
    )
    
    
    Cash dividends received on investment in Valley Bank
    
    
    
    
    
    
    250,000
    
    
    
    Net cash provided by (used in) investing activities
    
    
    198,000
    
    
    
    (16,933,000
    )
    
    
    (3,240,000
    )Cash Flows from Financing Activities:Proceeds from issuance of common stock
    
    
    
    
    
    
    17,135,564
    
    
    
    3,048,340Proceeds from stock options exercised
    
    
    335,160
    
    
    
    15,193
    
    
    
    279,000Net cash provided by financing activities
    
    
    335,160
    
    
    
    17,150,757
    
    
    
    3,327,340Increase (decrease) in cash and cash equivalents
    
    
    (21,318
    )
    
    
    63,030
    
    
    
    133,257Cash and cash equivalents, beginning of year
    
    
    224,786
    
    
    
    161,756
    
    
    
    28,499Cash and cash equivalents, end of year
    
    $
    203,468
    
    
    $
    224,786
    
    
    $
    161,756
 Note 16. Quarterly Data (Unaudited)
  2005
    
    2004Fourth
    
    Third
    
    Second
    
    First
    
    Fourth
    
    Third
    
    Second
    
    FirstQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterTotal interest income
    
    $
    6,979
    
    
    $
    6,199
    
    
    $
    5,282
    
    
    $
    4,462
    
    
    $
    3,922
    
    
    $
    3,474
    
    
    $
    3,239
    
    
    $
    2,823Total interest expense
    
    
    (2,246
    )
    
    
    (1,844
    )
    
    
    (1,430
    )
    
    
    (1,089
    )
    
    
    (726
    )
    
    
    (670
    )
    
    
    (669
    )
    
    
    (643
    )Net interest income
    
    
    4,733
    
    
    
    4,355
    
    
    
    3,852
    
    
    
    3,373
    
    
    
    3,196
    
    
    
    2,804
    
    
    
    2,570
    
    
    
    2,180Provision for loan losses
    
    
    (173
    )
    
    
    (324
    )
    
    
    (229
    )
    
    
    (51
    )
    
    
    (126
    )
    
    
    (120
    )
    
    
    (281
    )
    
    
    (105
    )Net interest income after
provision for loan losses
    
    
    4,560
    
    
    
    4,031
    
    
    
    3,623
    
    
    
    3,322
    
    
    
    3,070
    
    
    
    2,684
    
    
    
    2,289
    
    
    
    2,075Other income
    
    
    59
    
    
    
    66
    
    
    
    61
    
    
    
    76
    
    
    
    71
    
    
    
    62
    
    
    
    61
    
    
    
    101Other expense
    
    
    (2,102
    )
    
    
    (1,892
    )
    
    
    (1,554
    )
    
    
    (1,742
    )
    
    
    (1,597
    )
    
    
    (1,414
    )
    
    
    (1,301
    )
    
    
    (1,231
    )Net income before income taxes
    
    
    2,517
    
    
    
    2,205
    
    
    
    2,130
    
    
    
    1,656
    
    
    
    1,544
    
    
    
    1,332
    
    
    
    1,049
    
    
    
    945
 70




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##### Table of Contents



2005
    
    2004Fourth
    
    Third
    
    Second
    
    First
    
    Fourth
    
    Third
    
    Second
    
    FirstQuarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    Quarter
    
    QuarterIncome tax expense
    
    
    (858
    )
    
    
    (752
    )
    
    
    (726
    )
    
    
    (564
    )
    
    
    (525
    )
    
    
    (453
    )
    
    
    (358
    )
    
    
    (323
    )Net income
    
    $
    1,659
    
    
    $
    1,453
    
    
    $
    1,404
    
    
    $
    1,092
    
    
    $
    1,019
    
    
    $
    879
    
    
    $
    691
    
    
    $
    622Earnings per share:Basic
    
    $
    0.59
    
    
    $
    0.51
    
    
    $
    0.50
    
    
    $
    0.39
    
    
    $
    0.37
    
    
    $
    0.48
    
    
    $
    0.40
    
    
    $
    0.36Diluted
    
    $
    0.56
    
    
    $
    0.49
    
    
    $
    0.48
    
    
    $
    0.37
    
    
    $
    0.35
    
    
    $
    0.47
    
    
    $
    0.39
    
    
    $
    0.35
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9a. Controls and Procedures
  
 Item 9b. Other Information
  71




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##### Table of Contents



PART III
  
 Item 10. Directors and Executive Officers of the Registrant
  Audit Committee Financial Expert
  Code of Ethics
 , http://www.valleybancorp.com/
 
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  
 Item 13. Certain Relationships and Related Transactions
  
 Item 14. Principal Accounting Fees and Services
  72




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 List of Documents filed as a part of the report
   PageReport of Independent Registered Public Accounting Firm
    
    
    45Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    46Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003
    
    
    47Consolidated Statements of Stockholders Equity for the years ended December 31, 2005, 2004
and 2003
    
    
    48Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
    
    
    49Notes to Consolidated Financial Statements for the years ended December 31, 2005, 2004 and 2003
    
    
    50
    
 EXHIBIT INDEX
 Exhibit Number
    
    Description3.1
    
    Articles of Incorporation13.2
    
    Bylaws14.1
    
    Specimen Common Stock Certificate 210.1
    
    Amended and Restated Employee Incentive Stock Plan310.2
    
    Incentive Stock Option Agreement310.3
    
    Restricted Stock Agreement310.4
    
    1999 Nonqualified Stock Option Plan, as amended110.5
    
    Form of 1999 Nonqualified Stock Option Plan Option Agreement1
 73




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##### Table of Contents



Exhibit Number
    
    Description10.6
    
    Lease Agreement, Pahrump branch office, dated February 1, 2001110.7*
    
    Employment Agreement between Valley Bancorp and Barry L. Hulin110.8*
    
    Change in Control Severance Agreement between Valley Bancorp and Steve Gilbert110.9*
    
    Change in Control Severance Agreement between Valley Bancorp and Dick Holtzclaw110.10
    
    Form of Director Indemnification Agreement114.1
    
    Code of Ethics21.1
    
    The sole subsidiary of the registrant is Valley Bank, a Nevada state-chartered bank23.1
    
    Consent of Independent Registered Public Accounting Firm31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 200231.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 200232.1
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Indicated management contract or compensatory plan, contract or arrangement.1
    
    Incorporated by reference to Exhibits 10.3  10.4 of the Registration Statement on
Form S-1 (File No. 333-117312) filed by the Company on July 12, 2004, and amended August 26 and
September 10, 2004.2
    
    Incorporated by reference from the Registration Statement on Form 8-A (File No.
000-50950) filed by the Company on September 21, 2004.3
    
    Incorporated by referenceto Exhibits 99.1, 99.2 and 99.3 of Registration
Statement on Form S-8 (File No. 333-124571) filed by the Company on May 3, 2005. Exhibits
  Financial Statement Schedules
  74




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##### Table of Contents



SIGNATURES
 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
 Date: March 15, 2006
    VALLEY BANCORPBy:
    /s/  Barry L. HulinBarry L. Hulin,President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant in the capacities and on the date
indicated.
  /s/ Thomas J. Krob
    
    
    
    /s/ Barry L. HulinThomas J. Krob,
    
    
    
    Barry L. Hulin,Chairman of the Board
    
    
    
    President, Chief Executive Officer and Director(Principal Executive Officer)/s/ James A. McKellar, Sr.
    
    
    
    /s/ Dick L. RottmanJames A. McKellar, Sr., Director
    
    
    
    Dick L. Rottman, Director/s/ George A. Brizendine
    
    
    
    /s/ Don HamiltonGeorge A. Brizendine, Director
    
    
    
    Don Hamilton, Director/s/ Mary E. Hausch
    
    
    
    /s/ William E. SnyderMary E. Hausch, Director
    
    
    
    William E. Snyder, Director/s/ Dan Stewart
    
    
    
    /s/ Gary VauseDan Stewart, Director
    
    
    
    Gary Vause, Director/s/ Dick HoltzclawDick Holtzclaw,Executive Vice President,Chief Financial Officer and Treasurer(Principal Financial and Accounting Officer)
 75