##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Quarterly Period Ended
March 31, 2006
 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)1300 S. Jones Blvd., Las Vegas, NV
    
    89146(Address of Principal Executive Offices)
    
    (Zip Code)
 
   þ o
  o o þ
  o þ
  2,827,881




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##### Table of Contents



VALLEY BANCORP
Form 10-Q Q1 06
  PagePART I FINANCIAL INFORMATIONItem 1.
Financial Statements  UnauditedConsolidated Balance Sheets at March 31, 2006 and December 31, 2005
    
    
    2Consolidated Statements of Income for the Three Months Ended March 31, 2006 and 2005
    
    
    3Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005
    
    
    4Notes to Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4. Controls and Procedures
    
    
    21PART II OTHER INFORMATION
    
    
    22Item 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    22Signatures
    
    
    22EXHIBIT 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)
 March 31,
    
    
    December 31,2006
    
    
    2005AssetsCash and due from banks
    
    $
    8,563,894
    
    
    $
    5,821,323Federal funds sold
    
    
    24,180,000
    
    
    
    30,575,000Cash and cash equivalents
    
    
    32,743,894
    
    
    
    36,396,323Interest-bearing deposits at other financial institutions
    
    
    4,135,152
    
    
    
    9,221,217Securities available for sale at fair value
    
    
    34,282,586
    
    
    
    35,813,461Investment in Federal Home Loan Bank stock, at cost
    
    
    817,500
    
    
    
    808,100Loans, net of allowance for loan losses of $3,289,708 and $3,022,708, respectively
    
    
    325,696,580
    
    
    
    299,263,562Premises and equipment, net
    
    
    7,359,726
    
    
    
    7,263,284Accrued interest receivable
    
    
    1,694,531
    
    
    
    1,557,815Deferred taxes, net
    
    
    689,152
    
    
    
    551,940Other assets
    
    
    268,780
    
    
    
    287,630Total assets
    
    $
    407,687,901
    
    
    $
    391,163,332Liabilities and Stockholders EquityDeposits:Non-interest bearing demand
    
    $
    55,232,943
    
    
    $
    46,030,326Interest bearing:Demand
    
    
    95,908,990
    
    
    
    93,898,937Savings
    
    
    17,712,303
    
    
    
    13,081,289Time, $100,000 and over
    
    
    85,770,917
    
    
    
    86,637,246Other time
    
    
    91,391,703
    
    
    
    92,788,699Total deposits
    
    
    346,016,856
    
    
    
    332,436,497Accrued interest payable and other liabilities
    
    
    2,747,502
    
    
    
    1,334,728Long-term debt
    
    
    15,414,569
    
    
    
    15,425,399Total liabilities
    
    
    364,178,927
    
    
    
    349,196,624Commitments 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;
2,827,881 shares issued and outstanding as of March 31, 2006 and
2,827,681 shares issued and outstanding as of December 31, 2005
    
    
    2,064,353
    
    
    
    2,064,207Additional paid-in capital
    
    
    30,145,152
    
    
    
    30,106,603Retained earnings
    
    
    11,930,094
    
    
    
    10,295,664Accumulated other comprehensive loss
    
    
    (630,625
    )
    
    
    (499,766
    )Total stockholders equity
    
    
    43,508,974
    
    
    
    41,966,708Total liabilities and stockholders equity
    
    $
    407,687,901
    
    
    $
    391,163,332
  2




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Valley Bancorp And Subsidiary
 
 Consolidated Statements Of Income (Unaudited)
 Three Months Ended March 31,2006
    
    
    2005Interest income on:Loans, including fees
    
    $
    6,614,477
    
    
    $
    3,930,766Securities available for sale
    
    
    333,763
    
    
    
    353,947Federal funds sold and interest-bearing deposits at other financial institutions
    
    
    455,503
    
    
    
    177,531Dividends from investment in Federal Home Loan Bank stock
    
    
    9,458
    
    
    
    Total interest income
    
    
    7,413,201
    
    
    
    4,462,244Interest expense on:Deposits
    
    
    2,279,855
    
    
    
    1,081,179Long-term debt and other borrowed funds
    
    
    160,519
    
    
    
    8,262Total interest expense
    
    
    2,440,374
    
    
    
    1,089,441Net interest income
    
    
    4,972,827
    
    
    
    3,372,803Provision for loan losses
    
    
    227,000
    
    
    
    51,000Net interest income after provision for loan losses
    
    
    4,745,827
    
    
    
    3,321,803Other income:Service charges on deposit accounts
    
    
    56,648
    
    
    
    55,883Other
    
    
    4,800
    
    
    
    19,61561,448
    
    
    
    75,498Other expense:Salaries and employee benefits
    
    
    1,239,140
    
    
    
    900,823Legal, professional and consulting
    
    
    177,768
    
    
    
    111,429Occupancy
    
    
    134,357
    
    
    
    85,004Data processing
    
    
    117,227
    
    
    
    103,581Equipment rentals, depreciation and maintenance
    
    
    106,560
    
    
    
    85,859Office supplies & printing
    
    
    98,447
    
    
    
    70,263Outside services
    
    
    77,437
    
    
    
    64,516Advertising and public relations
    
    
    71,391
    
    
    
    46,171Director fees
    
    
    69,350
    
    
    
    51,100Telephone
    
    
    54,292
    
    
    
    45,816Federal Reserve Bank & correspondent bank fees
    
    
    30,395
    
    
    
    25,431Other
    
    
    154,254
    
    
    
    151,1572,330,618
    
    
    
    1,741,150Income before income taxes
    
    
    2,476,657
    
    
    
    1,656,151Income tax expense
    
    
    842,227
    
    
    
    563,954Net income
    
    $
    1,634,430
    
    
    $
    1,092,197Comprehensive income
    
    $
    1,503,571
    
    
    $
    750,249Earnings per share:Basic
    
    $
    0.58
    
    
    $
    0.39Diluted
    
    $
    0.55
    
    
    $
    0.37
  3




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Valley
Bancorp And Subsidiary
 
 Consolidated Statements Of Cash Flows (Unaudited)
 Three Months Ended March 31,2006
    
    
    2005Cash Flows from Operating Activities:Net income
    
    $
    1,634,430
    
    
    $
    1,092,197Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation of premises and equipment
    
    
    127,919
    
    
    
    102,632Share-based compensation expense
    
    
    2,595
    
    
    
    Loss on sale and disposition of equipment
    
    
    13,092
    
    
    
    Deferred taxes
    
    
    (69,799
    )
    
    
    (22,216
    )Tax benefit resulting from the exercise of nonqualified stock options
    
    
    
    
    
    
    24,126Excess tax benefits from share-based payment arrangements
    
    
    (10,822
    )
    
    
    Net accretion/amortization of investment discount/premium
    
    
    (1,434
    )
    
    
    (1,808
    )Provision for loan losses
    
    
    227,000
    
    
    
    51,000Increase in accrued interest receivable
    
    
    (136,716
    )
    
    
    (274,271
    )Decrease in other assets
    
    
    18,850
    
    
    
    127,598Increase in accrued interest payable and other liabilities
    
    
    1,423,596
    
    
    
    1,069,152Net cash provided by operating activities
    
    
    3,228,711
    
    
    
    2,168,410Cash Flows from Investing Activities:Net increase in loans
    
    
    (26,660,018
    )
    
    
    (26,789,068
    )Net (increase) decrease in interest bearing deposits at other financial institutions
    
    
    5,086,065
    
    
    
    (1,249,261
    )Purchase of securities available for sale
    
    
    (997,770
    )
    
    
    (3,034,632
    )Proceeds from the maturities of securities available for sale
    
    
    2,331,807
    
    
    
    334,635Purchase of Federal Home Loan Bank stock
    
    
    (9,400
    )
    
    
    Proceeds from sale and disposition of equipment
    
    
    5,000
    
    
    
    Purchase of premises and equipment
    
    
    (242,453
    )
    
    
    (1,900,228
    )Net cash used in investing activities
    
    
    (20,486,769
    )
    
    
    (32,638,554
    )Cash Flows from Financing Activities:Net increase in deposits
    
    
    13,580,359
    
    
    
    35,515,002Principal payments on notes payable
    
    
    (10,830
    )
    
    
    (10,087
    )Proceeds from stock options exercised
    
    
    2,600
    
    
    
    50,000Proceeds from forfeited short swing profit
    
    
    22,678
    
    
    
    Excess tax benefits from share-based payment arrangements
    
    
    10,822
    
    
    
    Net cash provided by financing activities
    
    
    13,605,629
    
    
    
    35,554,915Increase (decrease) in cash and cash equivalents
    
    
    (3,652,429
    )
    
    
    5,084,771Cash and cash equivalents, beginning of period
    
    
    36,396,323
    
    
    
    25,904,489Cash and cash equivalents, end of period
    
    $
    32,743,894
    
    
    $
    30,989,260
  4




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Valley
Bancorp
 
 Notes to Consolidated Financial Statements
 (Unaudited)
 1. Nature of Business and Basis of Presentation
    2. Earnings Per Share
   Three Months Ended March 31,2006
    
    
    2005Net income
    
    $
    1,634,430
    
    
    $
    1,092,197Average number of common shares outstanding
    
    
    2,827,832
    
    
    
    2,790,792Effect of dilutive options
    
    
    138,761
    
    
    
    162,970Average number of common shares outstanding used to calculate diluted earnings per common share
    
    
    2,966,593
    
    
    
    2,953,762Basic EPS
    
    $
    0.58
    
    
    $
    0.39Diluted EPS
    
    $
    0.55
    
    
    $
    0.37
 5




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3. Stock Options
   Share Based Payment Accounting for Stock Issued to Employees
 Accounting for Stock-Based Compensation
     6




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##### Table of Contents



Three Months Ended March 31,2006
    
    
    2005Net income as reported
    
    $
    1,634,430
    
    
    $
    1,092,197Deduct: Share-based employee
compensation expense determined
under minimum value method for
awards granted prior to the IPO,
net of related tax effects
    
    
    (10,430
    )
    
    
    (16,197
    )Pro forma net income
    
    $
    1,624,000
    
    
    $
    1,076,000As reported:Basic earnings per share
    
    $
    0.58
    
    
    $
    0.39Diluted earnings per share
    
    $
    0.55
    
    
    $
    0.37Pro forma:Basic earnings per share
    
    $
    0.57
    
    
    $
    0.39Diluted earnings per share
    
    $
    0.55
    
    
    $
    0.36
  Options Granted in 2005
    
    Options Granted in 2003Incentive
    
    Nonqualified
    
    Incentive
    
    NonqualifiedStock Options
    
    Stock Options
    
    Stock Options
    
    Stock OptionsWeighted average grant-date fair value
per optional share
    
    $
    10.38
    
    
    
    
    
    
    $
    4.22
    
    
    $
    2.23Expected term (in years)
    
    
    5
    
    
    
    
    
    
    
    10
    
    
    
    5Expected volatility factor
    
    
    32
    %
    
    
    
    
    
    
    N/A
    
    
    
    N/ARisk-free interest rate
    
    
    3.77
    %
    
    
    
    
    
    
    4.00
    %
    
    
    4.00
    %Expected dividends
    
    None
    
    
    
    
    
    None
    
    
    None
    Weighted-AverageNumber of
    
    
    Weighted-Average
    
    
    RemainingShares
    
    
    Exercise Price
    
    
    Contract LifeOutstanding options at January 1, 2005
    
    
    245,100
    
    
    $
    9.85Granted
    
    
    5,000
    
    
    
    29.83Exercised
    
    
    (36,933
    )
    
    
    9.08Forfeited or expired
    
    
    (7,210
    )
    
    
    12.42Outstanding options at December 31, 2005
    
    
    205,957
    
    
    $
    10.38
    
    
    4.68 YrsOutstanding exercisable at December 31, 2005
    
    
    173,406
    
    
    $
    9.54
    
    
    4.23 Yrs
  7




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Number of
    
    
    Weighted-AverageShares
    
    
    Grant-Date Fair ValueNonvested stock options at January 1, 2005
    
    
    49,922
    
    
    $
    3.82Granted
    
    
    5,000
    
    
    
    10.38Vested
    
    
    (15,161
    )
    
    
    3.56Forfeited
    
    
    (7,210
    )
    
    
    4.01Nonvested stock options at December 31, 2005
    
    
    32,551
    
    
    $
    4.91
 4. Loans
  At March 31,
    
    
    At December 31,2006
    
    
    2005Commercial, financial and industrial
    
    $
    31,298,897
    
    
    $
    33,605,477Real Estate:Commercial
    
    
    100,733,278
    
    
    
    90,944,361Construction, raw land and land development
    
    
    190,641,363
    
    
    
    172,155,563Residential
    
    
    5,731,992
    
    
    
    4,662,172Consumer
    
    
    1,961,812
    
    
    
    1,978,744330,367,342
    
    
    
    303,346,317Deduct:Unearned net loan fees
    
    
    (1,381,054
    )
    
    
    (1,060,047
    )Allowance for loan losses
    
    
    (3,289,708
    )
    
    
    (3,022,708
    )Net loans
    
    $
    325,696,580
    
    
    $
    299,263,562
  5. Commitments and Contingencies
 Contingencies
   8




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Financial instruments with off-balance-sheet risk
    At March 31,
    
    
    At December 31,2006
    
    
    2005Commitments to extend credit, of which approximately $5,996,000 and $4,972,000 are unsecured at
March 31, 2006 and December 31, 2005, respectively
    
    $
    72,885,000
    
    
    $
    83,109,000Standby letters of credit, of which approximately $25,000 and $25,000 are unsecured at March 31,
2006 and December 31, 2005, respectively
    
    
    3,135,000
    
    
    
    3,135,000$
    76,020,000
    
    
    $
    86,244,000
 Commitments to extend credit
  Standby letters of credit
  Lease commitments
   9




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Financial instruments with concentrations of credit risk
 Concentration by geographic location
   Employment and severance agreements
  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 Months Ended March 31, 2006 and 2005
  Critical Accounting Policies
  Allowance for Loan Loss Methodology.
  11




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Comparison of Financial Condition at March 31, 2006 and December 31, 2005
 Total Assets
   At March 31, 2006
    
    
    At December 31, 2005Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Construction, raw land and land development loans
    
    $
    190,641
    
    
    
    57.71
    %
    
    $
    172,156
    
    
    
    56.75
    %Commercial real estate loans
    
    
    100,733
    
    
    
    30.49
    %
    
    
    90,944
    
    
    
    29.98
    %Commercial and industrial loans
    
    
    31,299
    
    
    
    9.47
    %
    
    
    33,605
    
    
    
    11.08
    %Other loans
    
    
    7,694
    
    
    
    2.33
    %
    
    
    6,641
    
    
    
    2.19
    %Total loans
    
    
    330,367
    
    
    
    100.00
    %
    
    
    303,346
    
    
    
    100.00
    %Allowance for loan losses
    
    
    (3,289
    )
    
    
    
    
    
    
    (3,022
    )Unearned net loan fees
    
    
    (1,381
    )
    
    
    
    
    
    
    (1,060
    )Net loans
    
    $
    325,697
    
    
    
    
    
    
    $
    299,264
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March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)US Government agency securities
    
    $
    27,308
    
    
    $
    28,452Mortgage backed securities
    
    
    5,711
    
    
    
    6,007Collateralized mortgage obligations
    
    
    1,264
    
    
    
    1,354Total
    
    $
    34,283
    
    
    $
    35,813
 Deposits
  At March 31, 2006
    
    
    At December 31, 2005Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Deposits
    
    
    Amount
    
    
    Deposits(Dollars in thousands)Transaction accounts:Savings accounts
    
    $
    17,712
    
    
    
    5.12
    %
    
    $
    13,081
    
    
    
    3.93
    %Money market deposit accounts
    
    
    78,821
    
    
    
    22.78
    %
    
    
    77,159
    
    
    
    23.21
    %NOW accounts
    
    
    17,088
    
    
    
    4.94
    %
    
    
    16,740
    
    
    
    5.04
    %Noninterest-bearing demand accounts
    
    
    55,233
    
    
    
    15.96
    %
    
    
    46,030
    
    
    
    13.85
    %Total transaction accounts
    
    
    168,854
    
    
    
    48.80
    %
    
    
    153,010
    
    
    
    46.03
    %Time Deposits:$100,000 and over
    
    
    85,771
    
    
    
    24.79
    %
    
    
    86,637
    
    
    
    26.06
    %Other time
    
    
    91,392
    
    
    
    26.41
    %
    
    
    92,789
    
    
    
    27.91
    %Total time deposits
    
    
    177,163
    
    
    
    51.20
    %
    
    
    179,426
    
    
    
    53.97
    %Total Deposits
    
    $
    346,017
    
    
    
    100.00
    %
    
    $
    332,436
    
    
    
    100.00
    %
 Stockholders Equity
 Non-Performing Assets
 13




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At March 31, 2006
    
    
    At December 31, 2005Percent of
    
    
    
    
    
    
    Percent ofLoans in
    
    
    
    
    
    
    Loans inEach
    
    
    
    
    
    
    EachCategory to
    
    
    
    
    
    
    Category toAmount
    
    
    Total Loans
    
    
    Amount
    
    
    Total Loans(Dollars in thousands)Construction, raw land and land development loans
    
    $
    872
    
    
    
    57.71
    %
    
    $
    706
    
    
    
    56.75
    %Commercial real estate loans
    
    
    739
    
    
    
    30.49
    %
    
    
    636
    
    
    
    29.98
    %Commercial and industrial loans
    
    
    1,501
    
    
    
    9.47
    %
    
    
    1,547
    
    
    
    11.08
    %Other loans
    
    
    177
    
    
    
    2.33
    %
    
    
    133
    
    
    
    2.19
    %Total
    
    $
    3,289
    
    
    
    100.00
    %
    
    $
    3,022
    
    
    
    100.00
    %
 Comparison of Operating Results for the Three Months Ended March 31, 2006 and 2005.
 Net Income
 Net Interest Income
  (Unaudited)
 Three Months Ended March 31,2006
    
    
    2005Interest
    
    
    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)
    
    $
    307,957
    
    
    $
    6,614
    
    
    
    8.71
    %
    
    $
    208,302
    
    
    $
    3,931
    
    
    
    7.65
    %Federal funds sold
    
    
    32,182
    
    
    
    358
    
    
    
    4.51
    %
    
    
    19,627
    
    
    
    121
    
    
    
    2.50
    %
 14




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Three Months Ended March 31,2006
    
    
    2005Interest
    
    
    Average
    
    
    
    
    
    
    Interest
    
    
    AverageAverage
    
    
    Income/
    
    
    Yield/
    
    
    Average
    
    
    Income/
    
    
    Yield/Balance (1)
    
    
    Expense
    
    
    Cost (2)
    
    
    Balance (1)
    
    
    Expense
    
    
    Cost (2)(Dollars in thousands)Interest bearing deposits (6)
    
    
    8,916
    
    
    
    98
    
    
    
    4.46
    %
    
    
    9,104
    
    
    
    56
    
    
    
    2.49
    %Investment securities (6)
    
    
    35,487
    
    
    
    343
    
    
    
    3.92
    %
    
    
    38,422
    
    
    
    354
    
    
    
    3.74
    %Total earning assets and interest income
    
    
    384,542
    
    
    
    7,413
    
    
    
    7.82
    %
    
    
    275,455
    
    
    
    4,462
    
    
    
    6.57
    %Non-interest earning assets:Cash and due from banks
    
    
    9,991
    
    
    
    
    
    
    
    
    
    
    
    7,622Premises and equipment
    
    
    7,342
    
    
    
    
    
    
    
    
    
    
    
    5,799Other assets
    
    
    2,350
    
    
    
    
    
    
    
    
    
    
    
    2,024Allowance for credit losses
    
    
    (3,062
    )
    
    
    
    
    
    
    
    
    
    
    (2,244
    )Total assets
    
    $
    401,163
    
    
    
    
    
    
    
    
    
    
    $
    288,656Liabilities and Stockholders EquityInterest bearing liabilities:Interest bearing demand deposits
    
    $
    96,004
    
    
    $
    405
    
    
    
    1.71
    %
    
    $
    73,194
    
    
    $
    213
    
    
    
    1.18
    %Savings deposits
    
    
    17,162
    
    
    
    81
    
    
    
    1.91
    %
    
    
    12,620
    
    
    
    18
    
    
    
    0.58
    %Time deposits $100,000 or more
    
    
    85,792
    
    
    
    869
    
    
    
    4.11
    %
    
    
    50,393
    
    
    
    324
    
    
    
    2.61
    %Other time deposits
    
    
    90,554
    
    
    
    925
    
    
    
    4.14
    %
    
    
    71,628
    
    
    
    526
    
    
    
    2.98
    %Long-term borrowings
    
    
    15,422
    
    
    
    160
    
    
    
    4.21
    %
    
    
    463
    
    
    
    8
    
    
    
    7.01
    %Total interest bearing liabilities
    
    
    304,934
    
    
    
    2,440
    
    
    
    3.25
    %
    
    
    208,298
    
    
    
    1,089
    
    
    
    2.12
    %Noninterest-bearing liabilities:Demand deposits
    
    
    51,117
    
    
    
    
    
    
    
    
    
    
    
    42,495Other liabilities
    
    
    2,013
    
    
    
    
    
    
    
    
    
    
    
    1,023Stockholders equity
    
    
    43,099
    
    
    
    
    
    
    
    
    
    
    
    36,840Total liabilities and stockholders equity
    
    $
    401,163
    
    
    
    
    
    
    
    
    
    
    $
    288,656Net Interest Spread (7)
    
    
    
    
    
    
    
    
    
    
    4.57
    %
    
    
    
    
    
    
    
    
    
    
    4.45
    %Net interest income/margin (8)
    
    
    
    
    
    $
    4,973
    
    
    
    5.24
    %
    
    
    
    
    
    $
    3,373
    
    
    
    4.97
    %
 
 (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)
    
    Fee income is included in interest income.(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
 15




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##### Table of Contents



Interest Expense
 Provision for Loan Losses
  At or For theThree Months EndedMarch 31,2006
    
    
    2005(Dollars in thousands)Balance at the beginning of period
    
    $
    3,022
    
    
    $
    2,113Recoveries:Commercial and industrial loans
    
    
    40
    
    
    
    90Total recoveries
    
    
    40
    
    
    
    90Net (charge-offs)/recoveries
    
    
    40
    
    
    
    90Provision for loan losses
    
    
    227
    
    
    
    51Unfunded commitment reserve adjustments (1)
    
    
    
    
    
    
    (6
    )Balance at end of period
    
    $
    3,289
    
    
    $
    2,248Allowance for loan losses as a percent of total loans
    
    
    1.00
    %
    
    
    1.00
    %Ratio of net charge-offs/(recoveries) to average loans  annualized
    
    
    (0.05
    )%
    
    
    (0.17
    )%
 
 (1)
    
    Unfunded commitments reserve included in other liabilities was $76,000 at March 31, 2006 and
$88,000 at March 31, 2005. Non-Interest Income
  For the Three MonthsEnded March 31,2006
    
    
    2005(Dollars in thousands)Banking and service charge fees
    
    $
    57
    
    
    $
    56Other income
    
    
    4
    
    
    
    19Total noninterest income
    
    $
    61
    
    
    $
    75
 16




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##### Table of Contents



Non-Interest Expense th rd th st
  For the Three MonthsEnded March 31,2006
    
    
    2005(Dollars in thousands)Salaries and employee benefits
    
    $
    1,239
    
    
    $
    901Occupancy and equipment
    
    
    241
    
    
    
    171Legal, professional and consulting
    
    
    178
    
    
    
    111Data processing
    
    
    117
    
    
    
    104Office supplies & printing
    
    
    99
    
    
    
    70Outside services
    
    
    78
    
    
    
    65Advertising and public relations
    
    
    72
    
    
    
    46Director fees
    
    
    69
    
    
    
    51Telephone
    
    
    54
    
    
    
    46Federal Reserve Bank & correspondent bank fees
    
    
    30
    
    
    
    25Other
    
    
    154
    
    
    
    151Total noninterest expense
    
    $
    2,331
    
    
    $
    1,741As a % of average earning assets  annualized
    
    
    2.42
    %
    
    
    2.53
    %Efficiency Ratio (1)
    
    
    46.30
    %
    
    
    50.49
    %Average earning assets
    
    $
    384,542
    
    
    $
    275,455
 
 (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. Liquidity and Capital Resources
  17




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##### Table of Contents



Valley
BancorpsCapital Ratios At March 31, 2006To 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)
    
    $
    44,140
    
    
    
    11.00
    %
    
    $
    16,047
    
    
    
    4.00
    %
    
    n/a
    
    n/aTier 1 capital to risk weighted assets (1)
    
    
    44,140
    
    
    
    12.24
    %
    
    
    14,425
    
    
    
    4.00
    %
    
    n/a
    
    n/aTotal capital to risk weighted assets (1)
    
    
    47,505
    
    
    
    13.17
    %
    
    
    28,850
    
    
    
    8.00
    %
    
    n/a
    
    n/a
 
 (1)
    
    Tier 1 leverage (or core) capital ratio is computed as a percentage of average total assets of $401.2 million. 18




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##### Table of Contents



Risk-based capital ratios are computed as a percentage of risk-weighted assets of $360.6 million.(2)
    
    See Supervision and Regulation  Capital Adequacy  Prompt Corrective Action. Valley
BanksCapital Ratios At March 31, 2006To 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)
    
    $
    42,075
    
    
    
    10.53
    %
    
    $
    15,983
    
    
    
    4.00
    %
    
    $
    19,979
    
    
    
    5.00
    %Tier 1 capital to risk weighted assets (1)
    
    
    42,075
    
    
    
    11.68
    %
    
    
    14,412
    
    
    
    4.00
    %
    
    
    21,618
    
    
    
    6.00
    %Total capital to risk weighted assets (1)
    
    
    45,440
    
    
    
    12.61
    %
    
    
    28,824
    
    
    
    8.00
    %
    
    
    36,029
    
    
    
    10.00
    %
 
 (1)
    
    Tier 1 leverage (or core) capital ratio is computed as a percentage of average total assets of $399.6 million.Risk-based capital ratios are computed as a percentage of risk-weighted assets of $360.3 million.(2)
    
    See Supervision and Regulation  Capital Adequacy  Prompt Corrective Action.  Impact of Inflation and Changing Prices
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   19




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##### Table of Contents



At March 31,2006More ThanWithin
    
    
    One YearTwelve
    
    
    to Five
    
    
    Over FiveMonths
    
    
    Years
    
    
    Years
    
    
    Total(Dollars in thousands)Rate-Sensitive Assets:Interest-bearing deposits at other financial institutions
    
    $
    4,135
    
    
    $
    
    
    
    $
    
    
    
    $
    4,135Fed funds sold
    
    
    24,180
    
    
    
    
    
    
    
    
    
    
    
    24,180Securities  all available for sale
    
    
    7,910
    
    
    
    23,420
    
    
    
    2,952
    
    
    
    34,282Construction, raw land and land development loans
    
    
    169,944
    
    
    
    20,697
    
    
    
    
    
    
    
    190,641Commercial real estate loans
    
    
    18,298
    
    
    
    82,435
    
    
    
    
    
    
    
    100,733Commercial and industrial loans
    
    
    21,814
    
    
    
    9,485
    
    
    
    
    
    
    
    31,299Other loans
    
    
    4,445
    
    
    
    3,249
    
    
    
    
    
    
    
    7,694Total Rate-Sensitive Assets
    
    
    250,726
    
    
    
    139,286
    
    
    
    2,952
    
    
    
    392,964Rate-Sensitive Liabilities:Interest-bearing demand deposits
    
    
    95,909
    
    
    
    
    
    
    
    
    
    
    
    95,909Savings deposits
    
    
    17,712
    
    
    
    
    
    
    
    
    
    
    
    17,712Time deposits
    
    
    175,401
    
    
    
    1,762
    
    
    
    
    
    
    
    177,163Note payable
    
    
    45
    
    
    
    15,217
    
    
    
    152
    
    
    
    15,414Total Rate-Sensitive Liabilities
    
    $
    289,067
    
    
    $
    16,979
    
    
    $
    152
    
    
    $
    306,198Excess (deficiency) of Rate-Sensitive Assets
over Rate-Sensitive Liabilities
    
    $
    (38,341
    )
    
    $
    122,307
    
    
    $
    2,800Cumulative Excess (deficiency) of Rate-Sensitive Assets
over Rate-Sensitive Liabilities
    
    $
    (38,341
    )
    
    $
    83,966
    
    
    $
    86,766Cumulative Excess (deficiency) of Rate-Sensitive Assets
over Rate-Sensitive Liabilities as a percentage of total assets
    
    
    (9.40
    )%
    
    
    20.60
    %
    
    
    21.28
    %
  20




---



##### Table of Contents



Increase in
    
    Net Interest Change
    
    Decrease in
    
    Net Interest ChangeInterest Rates
    
    $
    
    %
    
    Interest Rates
    
    $
    
    %(Dollars in thousands)+1.00%
    
    $
    535
    
    
    
    2
    %
    
    
    -1.00
    %
    
    $
    (569
    )
    
    
    (3
    )%+2.00%
    
    $
    1,108
    
    
    
    5
    %
    
    
    -2.00
    %
    
    $
    (1,202
    )
    
    
    (6
    )%+3.00%
    
    $
    1,720
    
    
    
    8
    %
    
    
    -3.00
    %
    
    $
    (1,897
    )
    
    
    (9
    )%
   
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures
  Changes in Internal Controls
  21




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##### Table of Contents



Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 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
  
 Item 5. Other Information
  
 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
  
 VALLEY BANCORPDate:  May 12, 2006
    By:
    /s/ Barry L. HulinBarry L. HulinPresident and Chief Executive OfficerDate:  May 12, 2006
    By:
    /s/ Dick HoltzclawDick HoltzclawExecutive Vice President and
                 Chief Financial Officer
(Principal Financial and Accounting Officer) 22