##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Quarterly Period
Ended June 30, 2005 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the Transition period
from  to
 Commission
File Number: 000-50950
 VALLEY BANCORP
  Nevada
    
    88-0493760(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer I.D. Number)3500 W. Sahara Avenue, Las Vegas, NV
    
    89102(Address of Principal Executive Offices)
    
    (Zip Code)
  
   Yes þ
    
    No o
  Yes o
    
    No þ




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VALLEY BANCORP
  PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
 UnauditedConsolidated Balance Sheets at June 30, 2005 and December 31, 2004
    
    
    2Consolidated Statements of Income for the Three Months Ended June 30, 2005 and 2004
    
    
    3Consolidated Statements of Income for the Six Months Ended June 30, 2005 and 2004
    
    
    4Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4.
    
    Controls and Procedures
    
    
    25PART II
    
    OTHER INFORMATION
    
    
    26Item 1.
    
    Legal Proceedings
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3.
    
    Defaults Upon Senior Securities
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Item 5.
    
    Other Information
    
    
    26Item 6.
    
    Exhibits
    
    
    27Signatures
    
    
    
    
    28EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  1




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##### Table of Contents



Part I. Financial Information
 
 ITEM 1. FINANCIAL STATEMENTS
 Valley Bancorp And Subsidiary
 
 
 Consolidated Balance Sheets (Unaudited)
 June 30,
    
    December 31,2005
    
    2004AssetsCash and due from banks
    
    $
    5,739,179
    
    
    $
    8,054,489Federal funds sold
    
    
    27,770,000
    
    
    
    17,850,000Cash and cash equivalents
    
    
    33,509,179
    
    
    
    25,904,489Interest-bearing deposits at other financial institutions
    
    
    7,973,864
    
    
    
    9,244,160Securities available for sale at fair value
    
    
    38,391,893
    
    
    
    36,412,828Investment in Federal Home Loan Bank Stock, at cost
    
    
    792,900
    
    
    
    Loans, net of allowance for loan losses of $2,496,668 and $2,113,188, respectively
    
    
    245,656,948
    
    
    
    196,156,715Loans held for sale
    
    
    
    
    
    
    163,829Premises and equipment, net
    
    
    6,426,626
    
    
    
    4,382,860Accrued interest receivable
    
    
    1,093,774
    
    
    
    863,912Deferred taxes, net
    
    
    338,537
    
    
    
    189,391Other assets
    
    
    600,030
    
    
    
    387,180Total assets
    
    $
    334,783,751
    
    
    $
    273,705,364Liabilities and Stockholders EquityDeposits:Non-interest bearing demand
    
    $
    44,027,052
    
    
    $
    42,664,063Interest bearing:Demand
    
    
    78,737,603
    
    
    
    70,228,073Savings
    
    
    11,667,062
    
    
    
    13,411,583Time, $100,000 and over
    
    
    62,373,669
    
    
    
    44,241,115Other time
    
    
    82,054,920
    
    
    
    65,666,600Total deposits
    
    
    278,860,306
    
    
    
    236,211,434Accrued interest payable and other liabilities
    
    
    1,595,624
    
    
    
    772,976Long-term debt
    
    
    15,446,490
    
    
    
    466,845Total liabilities
    
    
    295,902,420
    
    
    
    237,451,255Commitments and contingencies (Note 5)Stockholders equity: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;
2,808,173 shares issued and outstanding as of June 30, 2005 and
2,790,748 shares issued and outstanding as of December 31, 2004
    
    
    2,049,966
    
    
    
    2,037,246Additional paid-in capital
    
    
    29,853,139
    
    
    
    29,616,955Retained earnings
    
    
    7,183,311
    
    
    
    4,687,220Accumulated other comprehensive income (loss)
    
    
    (205,085
    )
    
    
    (87,312
    )Total stockholders equity
    
    
    38,881,331
    
    
    
    36,254,109Total liabilities and stockholders equity
    
    $
    334,783,751
    
    
    $
    273,705,364
  2




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##### Table of Contents



Valley Bancorp And Subsidiary
 
 
 Consolidated Statements Of Income (Unaudited)
 Three Months Ended June 302005
    
    2004Interest income on:Loans, including fees
    
    $
    4,721,819
    
    
    $
    3,044,447Securities available for sale
    
    
    357,125
    
    
    
    73,982Federal funds sold and interest-bearing deposits at other
financial institutions
    
    
    202,519
    
    
    
    120,019Total interest income
    
    
    5,281,463
    
    
    
    3,238,448Interest expense on:Deposits
    
    
    1,404,461
    
    
    
    658,837Long-term debt and other borrowed funds
    
    
    25,081
    
    
    
    10,320Total interest expense
    
    
    1,429,542
    
    
    
    669,157Net interest income
    
    
    3,851,921
    
    
    
    2,569,291Provision for loan losses
    
    
    229,000
    
    
    
    281,000Net interest income after provision for loan losses
    
    
    3,622,921
    
    
    
    2,288,291Other income:Service charges on deposit accounts
    
    
    45,609
    
    
    
    63,875Net gain (loss) on sale of available for sale securities
    
    
    
    
    
    
    (10,950
    )Other
    
    
    15,628
    
    
    
    7,74161,237
    
    
    
    60,666Other expense:Salaries and employee benefits
    
    
    906,159
    
    
    
    740,640Data processing
    
    
    106,807
    
    
    
    86,325Occupancy
    
    
    85,787
    
    
    
    73,294Equipment rentals, depreciation and maintenance
    
    
    66,839
    
    
    
    58,358Outside services
    
    
    56,222
    
    
    
    58,838Director fees
    
    
    52,950
    
    
    
    19,700Office supplies & printing
    
    
    47,021
    
    
    
    45,053Telephone
    
    
    46,252
    
    
    
    37,500Federal Reserve Bank & correspondent bank fees
    
    
    25,555
    
    
    
    26,186Advertising and public relations
    
    
    23,855
    
    
    
    45,326Legal, professional and consulting
    
    
    (1,510
    )
    
    
    47,075Other
    
    
    137,708
    
    
    
    61,9901,553,645
    
    
    
    1,300,285Income before income taxes
    
    
    2,130,513
    
    
    
    1,048,672Income tax expense
    
    
    726,619
    
    
    
    357,922Net income
    
    $
    1,403,894
    
    
    $
    690,750Comprehensive income
    
    $
    1,628,069
    
    
    $
    505,674Earnings per share:Basic
    
    $
    0.50
    
    
    $
    0.40Diluted
    
    $
    0.48
    
    
    $
    0.39
  3




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##### Table of Contents



Valley Bancorp And Subsidiary
 
 
 Consolidated Statements Of Income (Unaudited)
 Six Months Ended June 302005
    
    2004Interest income on:Loans, including fees
    
    $
    8,652,585
    
    
    $
    5,667,652Securities available for sale
    
    
    711,072
    
    
    
    176,109Federal funds sold and interest-bearing deposits at other
financial institutions
    
    
    380,050
    
    
    
    217,699Total interest income
    
    
    9,743,707
    
    
    
    6,061,460Interest expense on:Deposits
    
    
    2,485,640
    
    
    
    1,292,544Long-term debt and other borrowed funds
    
    
    33,343
    
    
    
    19,274Total interest expense
    
    
    2,518,983
    
    
    
    1,311,818Net interest income
    
    
    7,224,724
    
    
    
    4,749,642Provision for loan losses
    
    
    280,000
    
    
    
    386,000Net interest income after provision for loan losses
    
    
    6,944,724
    
    
    
    4,363,642Other income:Service charges on deposit accounts
    
    
    101,492
    
    
    
    138,832Net gain (loss) on sale of available for sale securities
    
    
    
    
    
    
    3,001Other
    
    
    35,243
    
    
    
    19,754136,735
    
    
    
    161,587Other expense:Salaries and employee benefits
    
    
    1,806,982
    
    
    
    1,431,196Data processing
    
    
    210,388
    
    
    
    161,157Occupancy
    
    
    170,791
    
    
    
    153,994Equipment rentals, depreciation and maintenance
    
    
    152,698
    
    
    
    121,724Outside services
    
    
    120,738
    
    
    
    115,921Office supplies & printing
    
    
    117,284
    
    
    
    78,702Legal, professional and consulting
    
    
    109,919
    
    
    
    82,274Director fees
    
    
    104,050
    
    
    
    44,275Telephone
    
    
    92,068
    
    
    
    71,970Advertising and public relations
    
    
    70,026
    
    
    
    74,076Federal Reserve Bank & correspondent bank fees
    
    
    50,986
    
    
    
    57,318Other
    
    
    288,865
    
    
    
    139,2743,294,795
    
    
    
    2,531,881Income before income taxes
    
    
    3,786,664
    
    
    
    1,993,348Income tax expense
    
    
    1,290,573
    
    
    
    680,267Net income
    
    $
    2,496,091
    
    
    $
    1,313,081Comprehensive income
    
    $
    2,378,318
    
    
    $
    1,167,850Earnings per share:Basic
    
    $
    0.89
    
    
    $
    0.76Diluted
    
    $
    0.85
    
    
    $
    0.74
  4




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Valley Bancorp And Subsidiary
 
 
 Consolidated Statements Of Cash Flows (Unaudited)
 Six Months Ended June 30,2005
    
    2004Cash Flows from Operating Activities:Net income
    
    $
    2,496,091
    
    
    $
    1,313,081Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation of premises and equipment
    
    
    180,454
    
    
    
    142,996Loss on sale of other real estate owned
    
    
    
    
    
    
    4,405Gain on sale of securities available for sale
    
    
    
    
    
    
    (3,001
    )Deferred taxes
    
    
    (88,475
    )
    
    
    (66,958
    )Tax benefit resulting from the exercise of nonqualified stock options
    
    
    89,234
    
    
    
    Net accretion/amortization of investment discount/premium
    
    
    (3,425
    )
    
    
    (81,679
    )Provision for loan losses
    
    
    280,000
    
    
    
    386,000Increase in accrued interest receivable
    
    
    (229,862
    )
    
    
    (73,054
    )Increase in other assets
    
    
    (212,850
    )
    
    
    (72,125
    )Increase in accrued interest payable and other liabilities
    
    
    822,648
    
    
    
    115,244Net cash provided by operating activities
    
    
    3,333,815
    
    
    
    1,664,909Cash Flows from Investing Activities:Net increase in loans
    
    
    (49,616,404
    )
    
    
    (39,894,553
    )Net decrease in interest bearing deposits at other financial institutions
    
    
    1,270,296
    
    
    
    4,037,597Purchase of securities available for sale
    
    
    (3,034,632
    )
    
    
    (9,022,792
    )Proceeds from the maturities of securities available for sale
    
    
    880,548
    
    
    
    1,056,009Proceeds from the sale of securities available for sale
    
    
    
    
    
    
    14,078,675Investment in Federal Home Loan Bank Stock
    
    
    (792,900
    )
    
    
    Purchase of premises and equipment
    
    
    (2,224,220
    )
    
    
    (49,846
    )Net cash used in investing activities
    
    
    (53,517,312
    )
    
    
    (29,794,910
    )Cash Flows from Financing Activities:Net increase in deposits
    
    
    42,648,872
    
    
    
    38,834,573Principal payments on notes payable
    
    
    (20,355
    )
    
    
    (18,958
    )Proceeds from FHLB borrowings
    
    
    15,000,000
    
    
    
    Proceeds from stock options exercised
    
    
    159,670
    
    
    
    Net cash provided by financing activities
    
    
    57,788,187
    
    
    
    38,815,615Increase in cash and cash equivalents
    
    
    7,604,690
    
    
    
    10,685,614Cash and cash equivalents, beginning of period
    
    
    25,904,489
    
    
    
    13,826,928Cash and cash equivalents, end of period
    
    $
    33,509,179
    
    
    $
    24,512,542
  5




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Valley Bancorp
 
 Notes to Consolidated Financial Statements
 1. Nature of Business and Basis of Presentation
    2. Earnings Per Share
   Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income applicable to common stock
    
    $
    1,403,894
    
    
    $
    690,750
    
    
    $
    2,496,091
    
    
    $
    1,313,081Average number of common shares outstanding
    
    
    2,798,203
    
    
    
    1,725,478
    
    
    
    2,794,518
    
    
    
    1,725,478Effect of dilutive options
    
    
    138,739
    
    
    
    59,501
    
    
    
    150,926
    
    
    
    60,024Average number of common shares
outstanding used to calculate
diluted earnings per common share
    
    
    2,936,942
    
    
    
    1,784,979
    
    
    
    2,945,444
    
    
    
    1,785,502
 6




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Basic EPS
    
    $
    0.50
    
    
    $
    0.40
    
    
    $
    0.89
    
    
    $
    0.76Diluted EPS
    
    $
    0.48
    
    
    $
    0.39
    
    
    $
    0.85
    
    
    $
    0.74
 3. Stock Options
 Accounting for Stock Issued to Employees, Accounting for
Stock-Based Compensation,
 Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net Income As Reported
    
    $
    1,403,894
    
    
    $
    690,750
    
    
    $
    2,496,091
    
    
    $
    1,313,081Deduct: Total Stock-Based Employee Compensation Expense
Determined Under Fair Value Based Method For All
Awards,
Net Of Related Tax Effects
    
    
    (18,894
    )
    
    
    (15,750
    )
    
    
    (35,091
    )
    
    
    (31,081
    )Proforma net income
    
    $
    1,385,000
    
    
    $
    675,000
    
    
    $
    2,461,000
    
    
    $
    1,282,000Basic earnings per share  As reported
    
    $
    0.50
    
    
    $
    0.40
    
    
    $
    0.89
    
    
    $
    0.76Basic earnings per share  Pro forma
    
    $
    0.49
    
    
    $
    0.39
    
    
    $
    0.88
    
    
    $
    0.74Diluted earnings per share  As reported
    
    $
    0.48
    
    
    $
    0.39
    
    
    $
    0.85
    
    
    $
    0.74Diluted earnings per share  Pro forma
    
    $
    0.47
    
    
    $
    0.38
    
    
    $
    0.84
    
    
    $
    0.72
 4. Loans
  At June 30,
    
    At December 31,2005
    
    2004Commercial and industrial
    
    $
    38,358,790
    
    
    $
    31,726,393Real Estate:Commercial
    
    
    85,724,649
    
    
    
    90,454,931Construction, raw land and land
development
    
    
    116,406,788
    
    
    
    70,928,073Residential
    
    
    7,544,353
    
    
    
    4,520,612Consumer
    
    
    990,606
    
    
    
    1,404,676249,025,186
    
    
    
    199,034,685Deduct:Unearned net loan fees
    
    
    (871,570
    )
    
    
    (764,782
    )Allowance for loan losses
    
    
    (2,496,668
    )
    
    
    (2,113,188
    )Net loans
    
    $
    245,656,948
    
    
    $
    196,156,715
  7




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5. Commitments and Contingencies
 Contingencies
   Financial instruments with off-balance-sheet risk
    At June 30,
    
    At December 31,2005
    
    2004Commitments to extend credit, of which approximately
$6,316,000 and $6,237,000 are unsecured at June
30, 2005
and December 31, 2004, respectively
    
    $
    78,137,000
    
    
    $
    66,506,000Standby letters of credit, of which approximately
$25,000 and $275,000 are unsecured at June 30, 2005
and December 31, 2004, respectively
    
    
    1,025,000
    
    
    
    1,639,000$
    79,162,000
    
    
    $
    68,145,000
 Commitments to extend credit
  8




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Standby letters of credit
  Lease commitments
   Financial instruments with concentrations of credit risk
    Employment and severance agreements
  6. Reclassifications
  9




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7. Long-term Debt
   8. Recent Accounting Pronouncements
    10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview of Operating Results for the Three and Six Months Ended June 30, 2005 and 2004
   Critical Accounting Policies
  Allowance for Loan Loss Methodology.
 11




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Comparison of Financial Condition at June 30, 2005 and December 31, 2004
 Total Assets
   At June 30, 2005
    
    At December 31, 2004Amount
    
    Percent
    
    Amount
    
    Percent(Dollars in thousands)Construction, raw land and
land development loans
    
    $
    116,407
    
    
    
    46.75
    %
    
    $
    70,928
    
    
    
    35.63
    %Commercial real estate loans
    
    
    85,724
    
    
    
    34.42
    %
    
    
    90,455
    
    
    
    45.45
    %Commercial and industrial loans
    
    
    38,359
    
    
    
    15.40
    %
    
    
    31,726
    
    
    
    15.94
    %Other loans
    
    
    8,535
    
    
    
    3.43
    %
    
    
    5,926
    
    
    
    2.98
    %Total loans
    
    
    249,025
    
    
    
    100.00
    %
    
    
    199,035
    
    
    
    100.00
    %Allowance for loan losses
    
    
    (2,497
    )
    
    
    
    
    
    
    (2,113
    )
 12




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At June 30, 2005
    
    At December 31, 2004Amount
    
    Percent
    
    Amount
    
    Percent(Dollars in thousands)Unearned net loan fees
    
    
    (871
    )
    
    
    
    
    
    
    (765
    )Net loans
    
    $
    245,657
    
    
    
    
    
    
    $
    196,157
  June 30, 2005
    
    December 31, 2004(Dollars in thousands)US Government agency securities
    
    $
    29,770
    
    
    $
    29,863Mortgage backed securities
    
    
    6,967
    
    
    
    4,625Collateralized mortgage obligations
    
    
    1,655
    
    
    
    1,925Total
    
    $
    38,392
    
    
    $
    36,413
 Deposits
  At June 30, 2005
    
    At December 31, 2004Percent of
    
    
    
    
    
    Percent ofAmount
    
    Deposits
    
    Amount
    
    Deposits(Dollars in thousands)Transaction accounts:Savings accounts
    
    $
    11,667
    
    
    
    4.18
    %
    
    $
    13,411
    
    
    
    5.68
    %Money market deposit accounts
    
    
    60,607
    
    
    
    21.73
    %
    
    
    52,126
    
    
    
    22.07
    %NOW accounts
    
    
    18,131
    
    
    
    6.50
    %
    
    
    18,102
    
    
    
    7.66
    %Noninterest-bearing demand
accounts
    
    
    44,027
    
    
    
    15.79
    %
    
    
    42,664
    
    
    
    18.06
    %Total transaction accounts
    
    
    134,432
    
    
    
    48.20
    %
    
    
    126,303
    
    
    
    53.47
    %Time Deposits:$100,000 and over
    
    
    62,373
    
    
    
    22.37
    %
    
    
    44,241
    
    
    
    18.73
    %Other time
    
    
    82,055
    
    
    
    29.43
    %
    
    
    65,667
    
    
    
    27.80
    %Total time deposits
    
    
    144,428
    
    
    
    51.80
    %
    
    
    109,908
    
    
    
    46.53
    %Total Deposits
    
    $
    278,860
    
    
    
    100.00
    %
    
    $
    236,211
    
    
    
    100.00
    %
 13




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Stockholders Equity
 Non-Performing Assets
  At June 30, 2005
    
    At December 31, 2004Percent of
    
    
    
    
    
    Percent ofLoans in
    
    
    
    
    
    Loans inEach
    
    
    
    
    
    EachCategory to
    
    
    
    
    
    Category toAmount
    
    Total Loans
    
    Amount
    
    Total Loans(Dollars in thousands)Construction, land and land
development loans
    
    $
    592
    
    
    
    46.75
    %
    
    $
    809
    
    
    
    35.63
    %Commercial real estate loans
    
    
    478
    
    
    
    34.42
    %
    
    
    526
    
    
    
    45.45
    %Commercial and industrial loans
    
    
    1,349
    
    
    
    15.40
    %
    
    
    720
    
    
    
    15.94
    %Other loans
    
    
    78
    
    
    
    3.43
    %
    
    
    58
    
    
    
    2.98
    %Total
    
    $
    2,497
    
    
    
    100.00
    %
    
    $
    2,113
    
    
    
    100.00
    %
 Comparison of Operating Results for the Three and Six Months Ended June 30, 2005 and 2004.
 Net Income
  Net Interest Income
 14




---



##### Table of Contents



Three Months Ended June 30,2005
    
    2004Interest
    
    Average
    
    
    
    
    
    Interest
    
    AverageAverage
    
    Income/
    
    Yield/
    
    Average
    
    Income/
    
    Yield/Balance (1)
    
    Expense
    
    Cost (2)
    
    Balance (1)
    
    Expense
    
    Cost (2)(Dollars in thousands)AssetsEarning assets:Loans (3) (4) (5)
    
    $
    240,560
    
    
    $
    4,722
    
    
    
    7.87
    %
    
    $
    168,299
    
    
    $
    3,045
    
    
    
    7.28
    %Federal funds sold (6)
    
    
    16,270
    
    
    
    119
    
    
    
    2.93
    %
    
    
    19,015
    
    
    
    46
    
    
    
    0.97
    %Interest bearing deposits (6)
    
    
    10,682
    
    
    
    84
    
    
    
    3.15
    %
    
    
    13,255
    
    
    
    74
    
    
    
    2.25
    %Investment securities (6)
    
    
    39,101
    
    
    
    357
    
    
    
    3.66
    %
    
    
    13,392
    
    
    
    74
    
    
    
    2.22
    %Total earning assets and interest
income
    
    
    306,613
    
    
    
    5,282
    
    
    
    6.91
    %
    
    
    213,961
    
    
    
    3,239
    
    
    
    6.09
    %Non-interest earning assets:Cash and due from banks
    
    
    7,141
    
    
    
    
    
    
    
    
    
    
    
    7,153Premises and equipment
    
    
    6,282
    
    
    
    
    
    
    
    
    
    
    
    4,384Other assets
    
    
    2,392
    
    
    
    
    
    
    
    
    
    
    
    1,678Allowance for credit losses
    
    
    (2,374
    )
    
    
    
    
    
    
    
    
    
    
    (1,938
    )Total assets
    
    $
    320,054
    
    
    
    
    
    
    
    
    
    
    $
    225,238Liabilities and Stockholders EquityInterest bearing liabilities:Interest bearing demand deposits
    
    $
    75,394
    
    
    $
    262
    
    
    
    1.39
    %
    
    $
    68,483
    
    
    $
    140
    
    
    
    0.82
    %Savings deposits
    
    
    11,768
    
    
    
    22
    
    
    
    0.75
    %
    
    
    11,639
    
    
    
    14
    
    
    
    0.48
    %Time deposits $100,000 or more
    
    
    61,741
    
    
    
    457
    
    
    
    2.97
    %
    
    
    33,406
    
    
    
    185
    
    
    
    2.23
    %
 15




---



##### Table of Contents



Three Months Ended June 30,2005
    
    2004Interest
    
    Average
    
    
    
    
    
    Interest
    
    AverageAverage
    
    Income/
    
    Yield/
    
    Average
    
    Income/
    
    Yield/Balance (1)
    
    Expense
    
    Cost (2)
    
    Balance (1)
    
    Expense
    
    Cost (2)(Dollars in thousands)Other time deposits
    
    
    82,522
    
    
    
    664
    
    
    
    3.23
    %
    
    
    53,237
    
    
    
    321
    
    
    
    2.43
    %Long-term borrowings
    
    
    2,101
    
    
    
    25
    
    
    
    4.77
    %
    
    
    493
    
    
    
    9
    
    
    
    7.34
    %Total interest bearing liabilities
    
    
    233,526
    
    
    
    1,430
    
    
    
    2.46
    %
    
    
    167,258
    
    
    
    669
    
    
    
    1.61
    %Noninterest-bearing liabilities:Demand deposits
    
    
    46,959
    
    
    
    
    
    
    
    
    
    
    
    40,089Other liabilities
    
    
    1,554
    
    
    
    
    
    
    
    
    
    
    
    874Stockholders equity
    
    
    38,015
    
    
    
    
    
    
    
    
    
    
    
    17,017Total liabilities and stockholders
equity
    
    $
    320,054
    
    
    
    
    
    
    
    
    
    
    $
    225,238Net Interest Spread (7)
    
    
    
    
    
    
    
    
    
    
    4.45
    %
    
    
    
    
    
    
    
    
    
    
    4.48
    %Net interest income/margin (8)
    
    
    
    
    
    $
    3,852
    
    
    
    5.04
    %
    
    
    
    
    
    $
    2,570
    
    
    
    4.83
    %
 Six Months Ended June 30,2005
    
    2004Interest
    
    Average
    
    
    
    
    
    Interest
    
    AverageAverage
    
    Income/
    
    Yield/
    
    Average
    
    Income/
    
    Yield/Balance (1)
    
    Expense
    
    Cost (2)
    
    Balance (1)
    
    Expense
    
    Cost (2)(Dollars in thousands)AssetsEarning assets:Loans (3) (4) (5)
    
    $
    224,521
    
    
    $
    8,653
    
    
    
    7.77
    %
    
    $
    158,799
    
    
    $
    5,668
    
    
    
    7.18
    %Federal funds sold (6)
    
    
    17,939
    
    
    
    240
    
    
    
    2.70
    %
    
    
    16,048
    
    
    
    78
    
    
    
    0.98
    %Interest bearing deposits (6)
    
    
    9,898
    
    
    
    140
    
    
    
    2.85
    %
    
    
    13,605
    
    
    
    140
    
    
    
    2.07
    %Investment securities (6)
    
    
    38,764
    
    
    
    711
    
    
    
    3.70
    %
    
    
    14,877
    
    
    
    176
    
    
    
    2.38
    %Total earning assets and interest
income
    
    
    291,122
    
    
    
    9,744
    
    
    
    6.75
    %
    
    
    203,329
    
    
    
    6,062
    
    
    
    6.00
    %Non-interest earning assets:Cash and due from banks
    
    
    7,379
    
    
    
    
    
    
    
    
    
    
    
    6,502Premises and equipment
    
    
    6,042
    
    
    
    
    
    
    
    
    
    
    
    4,409Other assets
    
    
    2,207
    
    
    
    
    
    
    
    
    
    
    
    1,613Allowance for credit losses
    
    
    (2,310
    )
    
    
    
    
    
    
    
    
    
    
    (1,880
    )Total assets
    
    $
    304,440
    
    
    
    
    
    
    
    
    
    
    $
    213,973Liabilities and Stockholders EquityInterest bearing liabilities:Interest bearing demand deposits
    
    $
    74,300
    
    
    $
    475
    
    
    
    1.29
    %
    
    $
    67,410
    
    
    $
    275
    
    
    
    0.82
    %Savings deposits
    
    
    12,192
    
    
    
    40
    
    
    
    0.66
    %
    
    
    10,656
    
    
    
    26
    
    
    
    0.49
    %Time deposits $100,000 or more
    
    
    56,098
    
    
    
    781
    
    
    
    2.81
    %
    
    
    32,241
    
    
    
    364
    
    
    
    2.27
    %Other time deposits
    
    
    77,105
    
    
    
    1,190
    
    
    
    3.11
    %
    
    
    50,972
    
    
    
    628
    
    
    
    2.48
    %Short-term borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    153
    
    
    
    1
    
    
    
    1.31
    %Long-term borrowings
    
    
    1,287
    
    
    
    33
    
    
    
    5.17
    %
    
    
    497
    
    
    
    18
    
    
    
    7.28
    %Total interest bearing liabilities
    
    
    220,982
    
    
    
    2,519
    
    
    
    2.30
    %
    
    
    161,929
    
    
    
    1,312
    
    
    
    1.63
    %Noninterest-bearing liabilities:
 16




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##### Table of Contents



Six Months Ended June 30,2005
    
    2004Interest
    
    Average
    
    
    
    
    
    Interest
    
    AverageAverage
    
    Income/
    
    Yield/
    
    Average
    
    Income/
    
    Yield/Balance (1)
    
    Expense
    
    Cost (2)
    
    Balance (1)
    
    Expense
    
    Cost (2)(Dollars in thousands)Demand deposits
    
    
    44,739
    
    
    
    
    
    
    
    
    
    
    
    34,534Other liabilities
    
    
    1,288
    
    
    
    
    
    
    
    
    
    
    
    789Stockholders equity
    
    
    37,431
    
    
    
    
    
    
    
    
    
    
    
    16,721Total liabilities and stockholders
equity
    
    $
    304,440
    
    
    
    
    
    
    
    
    
    
    $
    213,973Net Interest Spread (7)
    
    
    
    
    
    
    
    
    
    
    4.45
    %
    
    
    
    
    
    
    
    
    
    
    4.37
    %Net interest income/margin (8)
    
    
    
    
    
    $
    7,225
    
    
    
    5.00
    %
    
    
    
    
    
    $
    4,750
    
    
    
    4.70
    %
 
 (1)
    
    Average balances are obtained from the best available daily data.(2)
    
    Annualized.(3)
    
    Loans are gross of allowance for credit losses but after unearned fees.(4)
    
    Non-accruing loans are included in the average balances.(5)
    
    Interest income includes loan fees of $22,000, $115,000, $82,000 and $237,000 for the three
and six months
ended June, 2005 and 2004, respectively.(6)
    
    All investments are taxable.(7)
    
    Represents the difference between the yield on interest-earning assets and the cost of
interest-bearing liabilities(8)
    
    Net interest margin represents net interest income as a percentage of average interest-earning
assets. Interest Income
  Interest Expense
  17




---



##### Table of Contents



Provision for Loan Losses
   At or For the
    
    At or For theThree Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004(Dollars in thousands)
    
    (Dollars in thousands)Balance at the beginning of period
    
    $
    2,248
    
    
    $
    1,761
    
    
    $
    2,113
    
    
    $
    1,457Charge-offs:Construction, land and land development loans
    
    
    
    
    
    
    (169
    )
    
    
    
    
    
    
    (169
    )Commercial real estate loans
    
    
    
    
    
    
    (150
    )
    
    
    
    
    
    
    (150
    )Commercial and industrial loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )Other loans
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )Total charge-offs
    
    
    
    
    
    
    (327
    )
    
    
    
    
    
    
    (427
    )Recoveries:Commercial real estate loans
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Commercial and industrial loans
    
    
    20
    
    
    
    116
    
    
    
    110
    
    
    
    416Total recoveries
    
    
    20
    
    
    
    118
    
    
    
    110
    
    
    
    418Net (charge-offs)/recoveries
    
    
    20
    
    
    
    (209
    )
    
    
    110
    
    
    
    (9
    )Additions charge to operations
    
    
    229
    
    
    
    281
    
    
    
    280
    
    
    
    386Unfunded commitment reserve adjustments (1)
    
    
    
    
    
    
    55
    
    
    
    (6
    )
    
    
    54Balance at end of period
    
    $
    2,497
    
    
    $
    1,888
    
    
    $
    2,497
    
    
    $
    1,888Allowance for loan losses as a percent of total loans
    
    
    1.01
    %
    
    
    1.08
    %
    
    
    1.01
    %
    
    
    1.08
    %Ratio of net charge-offs/(recoveries) to average loans  annualized
    
    
    (0.03
    )%
    
    
    0.50
    %
    
    
    (0.10
    )%
    
    
    0.01
    %
 
 (1)
    
    Unfunded commitments reserve included in other liabilities was $80,000 at June 30, 2005 and
$52,000 at June 30, 2004. 18




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##### Table of Contents



Non-Interest Income
  Noninterest Income
    
    Noninterest IncomeFor the Three Months
    
    For the Six MonthsEnded June 30,
    
    Ended June 30,2005
    
    2004
    
    2005
    
    2004(Dollars in thousands)
    
    (Dollars in thousands)Banking and service
charge fees
    
    $
    46
    
    
    $
    64
    
    
    $
    102
    
    
    $
    139Gain on sale of securities
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    3Other income
    
    
    16
    
    
    
    8
    
    
    
    35
    
    
    
    20Total noninterest income
    
    $
    62
    
    
    $
    61
    
    
    $
    137
    
    
    $
    162
 Non-Interest Expense th th
  Noninterest ExpenseFor the Three MonthsEnded June 30,2005
    
    2004(Dollars in thousands)Salaries and employee benefits
    
    $
    906
    
    
    $
    741Occupancy and equipment
    
    
    153
    
    
    
    131Data processing
    
    
    107
    
    
    
    86Outside services
    
    
    56
    
    
    
    59Director fees
    
    
    53
    
    
    
    20Office supplies & printing
    
    
    47
    
    
    
    45
 19




---



##### Table of Contents



Noninterest ExpenseFor the Three MonthsEnded June 30,2005
    
    2004(Dollars in thousands)Telephone
    
    
    46
    
    
    
    38Federal Reserve Bank & correspondent bank fees
    
    
    26
    
    
    
    26Advertising and public relations
    
    
    24
    
    
    
    46Legal, professional and consulting
    
    
    (2
    )
    
    
    47Other
    
    
    138
    
    
    
    62Total noninterest expense
    
    $
    1,554
    
    
    $
    1,301As a % of average earning assets  annualized
    
    
    2.03
    %
    
    
    2.43
    %Efficiency Ratio
    
    
    39.70
    %
    
    
    49.24
    %Average earning assets
    
    $
    306,613
    
    
    $
    213,961
 Noninterest ExpenseFor the Six MonthsEnded June 30,2005
    
    2004(Dollars in thousands)Salaries and employee benefits
    
    $
    1,807
    
    
    $
    1,431Occupancy and equipment
    
    
    324
    
    
    
    276Data processing
    
    
    210
    
    
    
    161Outside services
    
    
    121
    
    
    
    116Office supplies & printing
    
    
    117
    
    
    
    79Legal, professional and consulting
    
    
    110
    
    
    
    82Director fees
    
    
    104
    
    
    
    44Telephone
    
    
    92
    
    
    
    72Advertising and public relations
    
    
    70
    
    
    
    74Federal Reserve Bank & correspondent bank fees
    
    
    51
    
    
    
    57Other
    
    
    289
    
    
    
    140Total noninterest expense
    
    $
    3,295
    
    
    $
    2,532As a % of average earning assets  annualized
    
    
    2.26
    %
    
    
    2.49
    %Efficiency Ratio
    
    
    44.76
    %
    
    
    51.58
    %Average earning assets
    
    $
    291,122
    
    
    $
    203,329
 Liquidity and Capital Resources
  20




---



##### Table of Contents



Valley
BancorpsCapital Ratios At June 30, 2005To 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)
    
    $
    39,086
    
    
    
    12.21
    %
    
    $
    12,802
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTier 1 capital to risk weighted assets (1)
    
    
    39,086
    
    
    
    13.93
    %
    
    
    11,220
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTotal capital to risk weighted assets (1)
    
    
    41,663
    
    
    
    14.85
    %
    
    
    22,441
    
    
    
    8.00
    %
    
    
    n/a
    
    
    
    n/a
 21




---



##### Table of Contents



(1)
    
    Tier 1 leverage (or core) capital ratio is computed as a percentage of average total assets of
$320.1 million.
Risk-based capital ratios are computed as a percentage of risk-weighted assets of $280.5
million.(2)
    
    See Supervision and Regulation  Capital Adequacy  Prompt Corrective Action. Valley
BanksCapital Ratios At June 30, 2005To 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)
    
    $
    37,001
    
    
    
    11.62
    %
    
    $
    12,736
    
    
    
    4.00
    %
    
    $
    15,920
    
    
    
    5.00
    %Tier 1 capital to risk weighted assets (1)
    
    
    37,001
    
    
    
    13.21
    %
    
    
    11,208
    
    
    
    4.00
    %
    
    
    16,812
    
    
    
    6.00
    %Total capital to risk weighted assets (1)
    
    
    39,578
    
    
    
    14.12
    %
    
    
    22,416
    
    
    
    8.00
    %
    
    
    28,020
    
    
    
    10.00
    %
 
 (1)
    
    Tier 1 leverage (or core) capital ratio is computed as a percentage of average total assets of
$318.4 million.
Risk-based capital ratios are computed as a percentage of risk-weighted assets of $280.2
million.(2)
    
    See Supervision and Regulation  Capital Adequacy  Prompt Corrective Action.  22




---



##### Table of Contents



Impact of Inflation and Changing Prices
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
     At June 30,2005More ThanWithin
    
    One YearTwelve
    
    to Five
    
    Over FiveMonths
    
    Years
    
    Years
    
    Total(Dollars in thousands)Rate-Sensitive Assets:Interest-bearing deposits at other financial institutions
    
    $
    7,776
    
    
    $
    198
    
    
    
    
    
    
    $
    7,974Fed funds sold
    
    
    27,770
    
    
    
    
    
    
    
    
    
    
    
    27,770Securities  all available for sale
    
    
    4,955
    
    
    
    27,481
    
    
    
    5,956
    
    
    
    38,392Construction and land development loans
    
    
    109,400
    
    
    
    7,007
    
    
    
    
    
    
    
    116,407
 23




---



##### Table of Contents



At June 30,2005More ThanWithin
    
    One YearTwelve
    
    to Five
    
    Over FiveMonths
    
    Years
    
    Years
    
    Total(Dollars in thousands)Commercial real estate loans
    
    
    21,803
    
    
    
    63,921
    
    
    
    
    
    
    
    85,724Commercial and industrial loans
    
    
    26,563
    
    
    
    11,705
    
    
    
    91
    
    
    
    38,359Other loans
    
    
    6,072
    
    
    
    2,463
    
    
    
    
    
    
    
    8,535Total Rate-Sensitive Assets
    
    
    204,339
    
    
    
    112,775
    
    
    
    6,047
    
    
    
    323,161Rate-Sensitive Liabilities:Interest-bearing demand deposits
    
    
    78,738
    
    
    
    
    
    
    
    
    
    
    
    78,738Savings deposits
    
    
    11,667
    
    
    
    
    
    
    
    
    
    
    
    11,667Time deposits
    
    
    141,997
    
    
    
    2,431
    
    
    
    
    
    
    
    144,428Long-term debt
    
    
    43
    
    
    
    15,206
    
    
    
    197
    
    
    
    15,446Total Rate-Sensitive Liabilities
    
    $
    232,445
    
    
    $
    17,637
    
    
    $
    197
    
    
    $
    250,279Excess (deficiency) of Rate-Sensitive Assets
over Rate-Sensitive Liabilities
    
    $
    (28,106
    )
    
    $
    95,138
    
    
    $
    5,850Cumulative Excess (deficiency) of Rate-Sensitive Assets
over Rate-Sensitive Liabilities
    
    $
    (28,106
    )
    
    $
    67,032
    
    
    $
    72,882Cumulative Excess (deficiency) of Rate-Sensitive Assets
over Rate-Sensitive Liabilities as a percentage of total
assets
    
    
    (8.40
    )%
    
    
    20.02
    %
    
    
    21.77
    %
   Increase in
    
    Net Interest Change
    
    
    Decrease in
    
    Net Interest ChangeInterest Rates
    
    $
    
    %
    
    
    Interest Rates
    
    $
    
    %(Dollars in thousands)+1.00%
    
    $
    446
    
    
    
    3
    %
    
    
    
    -1.00
    %
    
    $
    (510
    )
    
    
    (3
    )%+2.00%
    
    $
    919
    
    
    
    5
    %
    
    
    
    -2.00
    %
    
    $
    (1,089
    )
    
    
    (6
    )%+3.00%
    
    $
    1,420
    
    
    
    8
    %
    
    
    
    -3.00
    %
    
    $
    (1,736
    )
    
    
    (10
    )%
   24




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures
 Form 10-Q
 Changes in Internal Controls
  25




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##### Table of Contents



Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
 (a)
    
    The Annual Shareholders Meeting was held on Tuesday, April 19, 2005 at 2:00pm. Total
shares outstanding amounted to 2,790,748. A total of 2,386,617 shares (85.52%) were
represented by shareholders in attendance at the meeting or by proxy.(b)
    
    Directors elected at the meeting were: Barry L. Hulin, Thomas J. Krob and James A.
McKellar to serve as directors for 3-year terms.Continuing directors are: George A. Brizendine, Don Hamilton, William F. Snyder, Mary
Hausch, Dick Rottman, Dan H. Stewart and Gary Vause.The voting results were:
 Votes CastFor
    
    Withheld
    
    TotalBarry L. Hulin
    
    
    2,356,817
    
    
    
    29,800
    
    
    
    2,386,617Thomas J. Krob
    
    
    2,352,902
    
    
    
    33,715
    
    
    
    2,386,617James A. McKellar
    
    
    2,350,254
    
    
    
    36,363
    
    
    
    2,386,617
 (c)
    
    A proposal amending the Valley Bancorp Employee Stock Option Plan was approved to (i)
extend the term of the Plan by 10 years (to March 23, 2015), (ii) to increase the number of
shares available for grant under the Plan by 100,000 (to 310,000), and (iii) to provide for
the grant of restricted stock awards.The voting results were:
 Votes CastBrokerFor
    
    Against
    
    Abstain
    
    Non-Votes
    
    Total1,523,739
    
    
    92,932
    
    
    
    9,960
    
    
    
    759,986
    
    
    
    2 ,386,617
 (d)
    
    N/A
 
 Item 5. Other Information
  26




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##### Table of Contents



Item 6. Exhibits
 31.1
    
    CEO Certification Pursuant Rule 13a-14(a)/15d-14(a)31.2
    
    CFO Certification Pursuant Rule 13a-14(a)/15d-14(a)32
    
    CEO and CFO Certification Pursuant 18 U.S.C. Section 1350, as adopted pursuant to section
906 of the Sarbanes  Oxley Act of 2002
 27




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##### Table of Contents



VALLEY BANCORPDate: August 10, 2005
    By:
    /s/ Barry L. HulinBarry L. HulinPresident and Chief Executive Officer Date: August 10, 2005
    By:
    /s/ Dick HoltzclawDick HoltzclawExecutive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer) 28