##### 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 September 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)1300 S. Jones Blvd., Las Vegas, NV
    
    89146(Address of Principal Executive Offices)
    
    (Zip Code)
  
   þ o
  o þ
  o þ




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VALLEY BANCORP
Form 10-Q Q3 05
  PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    

Financial Statements  UnauditedConsolidated Balance Sheets at September 30, 2005 and December 31, 2004
    
    
    2Consolidated Statements of Income for the Three Months Ended September 30, 2005 and 2004
    
    
    3Consolidated Statements of Income for the Nine Months Ended September 30, 2005 and 2004
    
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended September 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
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    24PART II
    
    OTHER INFORMATION
    
    
    25Item 1.
    
    Legal Proceedings
    
    
    25Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3.
    
    Defaults Upon Senior Securities
    
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 5.
    
    Other Information
    
    
    25Item 6.
    
    Exhibits
    
    
    26Signatures
    
    
    
    
    27EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
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##### Table of Contents



Part I. Financial Information
 
 ITEM 1. FINANCIAL STATEMENTS
 Valley Bancorp And Subsidiary
 
 Consolidated Balance Sheets (Unaudited)
 September 30,
    
    
    December 31,2005
    
    
    2004AssetsCash and due from banks
    
    $
    5,747,428
    
    
    $
    8,054,489Federal funds sold
    
    
    29,285,000
    
    
    
    17,850,000Cash and cash equivalents
    
    
    35,032,428
    
    
    
    25,904,489Interest-bearing deposits at other financial institutions
    
    
    8,094,750
    
    
    
    9,244,160Securities available for sale at fair value
    
    
    37,445,215
    
    
    
    36,412,828Investment in Federal Home Loan Bank Stock, at cost
    
    
    799,000
    
    
    
    Loans, net of allowance for loan losses of $2,840,668 and $2,113,188, respectively
    
    
    282,480,400
    
    
    
    196,156,715Loans held for sale
    
    
    
    
    
    
    163,829Premises and equipment, net
    
    
    7,022,675
    
    
    
    4,382,860Accrued interest receivable
    
    
    1,498,426
    
    
    
    863,912Deferred taxes, net
    
    
    488,756
    
    
    
    189,391Other assets
    
    
    321,658
    
    
    
    387,180Total assets
    
    $
    373,183,308
    
    
    $
    273,705,364Liabilities and Stockholders EquityDeposits:Non-interest bearing demand
    
    $
    50,114,116
    
    
    $
    42,664,063Interest bearing:Demand
    
    
    80,297,872
    
    
    
    70,228,073Savings
    
    
    11,346,135
    
    
    
    13,411,583Time, $100,000 and over
    
    
    79,257,315
    
    
    
    44,241,115Other time
    
    
    94,610,048
    
    
    
    65,666,600Total deposits
    
    
    315,625,486
    
    
    
    236,211,434Accrued interest payable and other liabilities
    
    
    1,812,708
    
    
    
    772,976Long-term debt
    
    
    15,436,038
    
    
    
    466,845Total liabilities
    
    
    332,874,232
    
    
    
    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;
2,824,901 shares issued and outstanding as of September 30, 2005 and
2,790,748 shares issued and outstanding as of December 31, 2004
    
    
    2,062,178
    
    
    
    2,037,246Additional paid-in capital
    
    
    30,052,445
    
    
    
    29,616,955Retained earnings
    
    
    8,636,666
    
    
    
    4,687,220Accumulated other comprehensive loss
    
    
    (442,213
    )
    
    
    (87,312
    )Total stockholders equity
    
    
    40,309,076
    
    
    
    36,254,109Total liabilities and stockholders equity
    
    $
    373,183,308
    
    
    $
    273,705,364
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Valley Bancorp And Subsidiary
 
 Consolidated Statements Of Income (Unaudited)
 Three Months Ended September 30,2005
    
    
    2004Interest income on:Loans, including fees
    
    $
    5,540,998
    
    
    $
    3,279,449Securities available for sale
    
    
    351,887
    
    
    
    81,900Other
    
    
    305,959
    
    
    
    112,688Total interest income
    
    
    6,198,844
    
    
    
    3,474,037Interest expense on:Deposits
    
    
    1,679,563
    
    
    
    662,783Long-term debt and other borrowed funds
    
    
    164,297
    
    
    
    7,080Total interest expense
    
    
    1,843,860
    
    
    
    669,863Net interest income
    
    
    4,354,984
    
    
    
    2,804,174Provision for loan losses
    
    
    324,000
    
    
    
    120,000Net interest income after provision for loan losses
    
    
    4,030,984
    
    
    
    2,684,174Other income:Service charges on deposit accounts
    
    
    48,020
    
    
    
    63,311Net loss on sale of available for sale securities
    
    
    
    
    
    
    (9,156
    )Other
    
    
    18,174
    
    
    
    8,76066,194
    
    
    
    62,915Other expense:Salaries and employee benefits
    
    
    954,655
    
    
    
    833,322Occupancy
    
    
    111,126
    
    
    
    97,441Data processing
    
    
    110,865
    
    
    
    90,215Equipment rentals, depreciation and maintenance
    
    
    108,746
    
    
    
    58,802Legal, professional and consulting
    
    
    101,408
    
    
    
    64,126Office supplies & printing
    
    
    76,310
    
    
    
    24,568Advertising and public relations
    
    
    62,525
    
    
    
    16,875Outside services
    
    
    58,872
    
    
    
    68,518Telephone
    
    
    53,163
    
    
    
    41,609Director fees
    
    
    45,650
    
    
    
    31,600Federal Reserve Bank & correspondent bank fees
    
    
    24,167
    
    
    
    27,951Other
    
    
    184,910
    
    
    
    59,3071,892,397
    
    
    
    1,414,334Income before income taxes
    
    
    2,204,781
    
    
    
    1,332,755Income tax expense
    
    
    751,426
    
    
    
    454,116Net income
    
    $
    1,453,355
    
    
    $
    878,639Comprehensive income
    
    $
    1,216,227
    
    
    $
    951,920Earnings per share:Basic
    
    $
    0.51
    
    
    $
    0.48Diluted
    
    $
    0.49
    
    
    $
    0.47
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##### Table of Contents



Valley Bancorp And Subsidiary
 
 Consolidated Statements Of Income (Unaudited)
 Nine Months Ended September 30,2005
    
    
    2004Interest income on:Loans, including fees
    
    $
    14,193,583
    
    
    $
    8,947,101Securities available for sale
    
    
    1,062,959
    
    
    
    258,009Other
    
    
    686,009
    
    
    
    330,387Total interest income
    
    
    15,942,551
    
    
    
    9,535,497Interest expense on:Deposits
    
    
    4,165,203
    
    
    
    1,955,327Long-term debt and other borrowed funds
    
    
    197,640
    
    
    
    26,354Total interest expense
    
    
    4,362,843
    
    
    
    1,981,681Net interest income
    
    
    11,579,708
    
    
    
    7,553,816Provision for loan losses
    
    
    604,000
    
    
    
    506,000Net interest income after provision for loan losses
    
    
    10,975,708
    
    
    
    7,047,816Other income:Service charges on deposit accounts
    
    
    149,512
    
    
    
    204,152Net loss on sale of available for sale securities
    
    
    
    
    
    
    (6,155
    )Other
    
    
    53,417
    
    
    
    26,505202,929
    
    
    
    224,502Other expense:Salaries and employee benefits
    
    
    2,761,637
    
    
    
    2,264,518Data processing
    
    
    321,253
    
    
    
    251,372Occupancy
    
    
    281,917
    
    
    
    251,435Equipment rentals, depreciation and maintenance
    
    
    261,444
    
    
    
    180,526Legal, professional and consulting
    
    
    211,327
    
    
    
    146,400Office supplies & printing
    
    
    193,594
    
    
    
    103,270Outside services
    
    
    179,610
    
    
    
    184,439Director fees
    
    
    149,700
    
    
    
    75,875Telephone
    
    
    145,231
    
    
    
    113,579Advertising and public relations
    
    
    132,551
    
    
    
    90,951Federal Reserve Bank & correspondent bank fees
    
    
    75,153
    
    
    
    85,269Other
    
    
    473,775
    
    
    
    198,5815,187,192
    
    
    
    3,946,215Income before income taxes
    
    
    5,991,445
    
    
    
    3,326,103Income tax expense
    
    
    2,041,999
    
    
    
    1,134,383Net income
    
    $
    3,949,446
    
    
    $
    2,191,720Comprehensive income
    
    $
    3,594,545
    
    
    $
    2,119,770Earnings per share:Basic
    
    $
    1.41
    
    
    $
    1.25Diluted
    
    $
    1.34
    
    
    $
    1.20
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Valley Bancorp And Subsidiary
 
 Consolidated Statements Of Cash Flows (Unaudited)
 Nine Months Ended September 30,2005
    
    
    2004Cash Flows from Operating Activities:Net income
    
    $
    3,949,446
    
    
    $
    2,191,720Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of premises and equipment
    
    
    284,462
    
    
    
    212,818Loss on sale of other real estate owned
    
    
    
    
    
    
    7,547Loss on sale of securities available for sale
    
    
    
    
    
    
    6,155Deferred taxes
    
    
    (116,537
    )
    
    
    (113,748
    )Tax benefit resulting from the exercise of nonqualified stock options
    
    
    152,475
    
    
    
    Net accretion/amortization of investment discount/premium
    
    
    (5,061
    )
    
    
    (81,847
    )Provision for loan losses
    
    
    604,000
    
    
    
    506,000Increase in accrued interest receivable
    
    
    (634,514
    )
    
    
    (77,547
    )(Increase) decrease in other assets
    
    
    65,522
    
    
    
    (155,776
    )Increase in accrued interest payable and other liabilities
    
    
    1,039,732
    
    
    
    431,093Net cash provided by operating activities
    
    
    5,339,525
    
    
    
    2,926,415Cash Flows from Investing Activities:Net increase in loans
    
    
    (86,763,856
    )
    
    
    (53,836,733
    )Net decrease in interest bearing deposits at other financial institutions
    
    
    1,149,410
    
    
    
    5,362,238Purchase of securities available for sale
    
    
    (3,034,632
    )
    
    
    (10,024,292
    )Proceeds from the maturities of securities available for sale
    
    
    1,469,576
    
    
    
    2,081,365Proceeds from the sale of securities available for sale
    
    
    
    
    
    
    14,078,675Proceeds from the sale of other real estate
    
    
    
    
    
    
    220,626Investment in Federal Home Loan Bank Stock
    
    
    (799,000
    )
    
    
    Purchase of premises and equipment
    
    
    (2,924,276
    )
    
    
    (79,506
    )Net cash used in investing activities
    
    
    (90,902,778
    )
    
    
    (42,197,627
    )Cash Flows from Financing Activities:Net increase in deposits
    
    
    79,414,052
    
    
    
    44,619,050Principal payments on notes payable
    
    
    (30,807
    )
    
    
    (28,693
    )Proceeds from FHLB borrowings
    
    
    15,000,000
    
    
    
    Proceeds from issuance of common stock
    
    
    
    
    
    
    17,123,882Proceeds from stock options exercised
    
    
    307,947
    
    
    
    Net cash provided by financing activities
    
    
    94,691,192
    
    
    
    61,714,239Increase in cash and cash equivalents
    
    
    9,127,939
    
    
    
    22,443,027Cash and cash equivalents, beginning of period
    
    
    25,904,489
    
    
    
    13,826,928Cash and cash equivalents, end of period
    
    $
    35,032,428
    
    
    $
    36,269,955
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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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income applicable to common stock
    
    $
    1,453,355
    
    
    $
    878,639
    
    
    $
    3,949,446
    
    
    $
    2,191,720Average number of common shares outstanding
    
    
    2,822,814
    
    
    
    1,817,978
    
    
    
    2,804,054
    
    
    
    1,756,650Effect of dilutive options
    
    
    140,639
    
    
    
    70,358
    
    
    
    151,612
    
    
    
    63,120Average number of common shares outstanding used to calculate
diluted earnings per common share
    
    
    2,963,453
    
    
    
    1,888,336
    
    
    
    2,955,666
    
    
    
    1,819,770Basic EPS
    
    $
    0.51
    
    
    $
    0.48
    
    
    $
    1.41
    
    
    $
    1.25Diluted EPS
    
    $
    0.49
    
    
    $
    0.47
    
    
    $
    1.34
    
    
    $
    1.20
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3. Stock Options
 Accounting for Stock Issued to Employees, Accounting for
Stock-Based Compensation,
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net Income As Reported
    
    $
    1,453,355
    
    
    $
    878,639
    
    
    $
    3,949,446
    
    
    $
    2,191,720Deduct: Total Stock-Based Employee Compensation Expense
Determined Under Fair Value Based Method For All Awards,
Net Of Related Tax Effects
    
    
    (18,355
    )
    
    
    (15,639
    )
    
    
    (53,446
    )
    
    
    (46,720
    )Proforma net income
    
    $
    1,435,000
    
    
    $
    863,000
    
    
    $
    3,896,000
    
    
    $
    2,145,000Basic earnings per share  As reported
    
    $
    0.51
    
    
    $
    0.48
    
    
    $
    1.41
    
    
    $
    1.25Basic earnings per share  Pro forma
    
    $
    0.51
    
    
    $
    0.47
    
    
    $
    1.39
    
    
    $
    1.22Diluted earnings per share  As reported
    
    $
    0.49
    
    
    $
    0.47
    
    
    $
    1.34
    
    
    $
    1.20Diluted earnings per share  Pro forma
    
    $
    0.48
    
    
    $
    0.46
    
    
    $
    1.32
    
    
    $
    1.18
 4. Loans
  At September 30,
    
    
    At December 31,2005
    
    
    2004Commercial and industrial
    
    $
    27,485,127
    
    
    $
    31,726,393Real Estate:Commercial
    
    
    94,063,229
    
    
    
    90,454,931Construction, raw land and land development
    
    
    157,142,230
    
    
    
    70,928,073Residential
    
    
    6,343,119
    
    
    
    4,520,612Consumer
    
    
    1,365,621
    
    
    
    1,404,676286,399,326
    
    
    
    199,034,685Deduct:Unearned net loan fees
    
    
    (1,078,258
    )
    
    
    (764,782
    )Allowance for loan losses
    
    
    (2,840,668
    )
    
    
    (2,113,188
    )Net loans
    
    $
    282,480,400
    
    
    $
    196,156,715
  7




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5. Commitments and Contingencies
 Contingencies
   Financial instruments with off-balance-sheet risk
    At September 30,
    
    
    At December 31,2005
    
    
    2004Commitments to extend credit, of which approximately
$4,030,000 and $6,237,000 are unsecured at September 30, 2005
and December 31, 2004, respectively
    
    $
    97,245,000
    
    
    $
    66,506,000Standby letters of credit, of which approximately
$25,000 and $275,000 are unsecured at September 30, 2005
and December 31, 2004, respectively
    
    
    3,125,000
    
    
    
    1,639,000$
    100,370,000
    
    
    $
    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 Nine Months Ended September 30, 2005 and 2004
   Critical Accounting Policies
  Allowance for Loan Loss Methodology.
 11




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Comparison of Financial Condition at September 30, 2005 and December 31, 2004
 Total Assets
   At September 30, 2005
    
    
    At December 31, 2004Amount
    
    
    Percent
    
    
    Amount
    
    
    Percent(Dollars in thousands)Construction, raw land and land development loans
    
    $
    157,142
    
    
    
    54.87
    %
    
    $
    70,928
    
    
    
    35.63
    %Commercial real estate loans
    
    
    94,063
    
    
    
    32.84
    %
    
    
    90,455
    
    
    
    45.45
    %Commercial and industrial loans
    
    
    27,485
    
    
    
    9.60
    %
    
    
    31,726
    
    
    
    15.94
    %Other loans
    
    
    7,709
    
    
    
    2.69
    %
    
    
    5,926
    
    
    
    2.98
    %Total loans
    
    
    286,399
    
    
    
    100.00
    %
    
    
    199,035
    
    
    
    100.00
    %Allowance for loan losses
    
    
    (2,841
    )
    
    
    
    
    
    
    (2,113
    )Unearned net loan fees
    
    
    (1,078
    )
    
    
    
    
    
    
    (765
    )Net loans
    
    $
    282,480
    
    
    
    
    
    
    $
    196,157
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##### Table of Contents



September 30,
    
    
    December 31,2005
    
    
    2004(Dollars in thousands)US Government agency securities
    
    $
    29,496
    
    
    $
    29,863Mortgage backed securities
    
    
    6,457
    
    
    
    4,625Collateralized mortgage obligations
    
    
    1,492
    
    
    
    1,925Total
    
    $
    37,445
    
    
    $
    36,413
 Deposits
  At September 30, 2005
    
    
    At December 31, 2004Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Deposits
    
    
    Amount
    
    
    Deposits(Dollars in thousands)Transaction accounts:Savings accounts
    
    $
    11,346
    
    
    
    3.59
    %
    
    $
    13,411
    
    
    
    5.68
    %Money market deposit accounts
    
    
    64,121
    
    
    
    20.32
    %
    
    
    52,126
    
    
    
    22.07
    %NOW accounts
    
    
    16,177
    
    
    
    5.13
    %
    
    
    18,102
    
    
    
    7.66
    %Noninterest-bearing demand accounts
    
    
    50,114
    
    
    
    15.87
    %
    
    
    42,664
    
    
    
    18.06
    %Total transaction accounts
    
    
    141,758
    
    
    
    44.91
    %
    
    
    126,303
    
    
    
    53.47
    %Time Deposits:$100,000 and over
    
    
    79,257
    
    
    
    25.11
    %
    
    
    44,241
    
    
    
    18.73
    %Other time
    
    
    94,610
    
    
    
    29.98
    %
    
    
    65,667
    
    
    
    27.80
    %Total time deposits
    
    
    173,867
    
    
    
    55.09
    %
    
    
    109,908
    
    
    
    46.53
    %Total Deposits
    
    $
    315,625
    
    
    
    100.00
    %
    
    $
    236,211
    
    
    
    100.00
    %
 Stockholders Equity
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Non-Performing Assets
  At September 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, raw land and land development loans
    
    $
    677
    
    
    
    54.87
    %
    
    $
    809
    
    
    
    35.63
    %Commercial real estate loans
    
    
    690
    
    
    
    32.84
    %
    
    
    526
    
    
    
    45.45
    %Commercial and industrial loans
    
    
    1,377
    
    
    
    9.60
    %
    
    
    720
    
    
    
    15.94
    %Other loans
    
    
    97
    
    
    
    2.69
    %
    
    
    58
    
    
    
    2.98
    %Total
    
    $
    2,841
    
    
    
    100.00
    %
    
    $
    2,113
    
    
    
    100.00
    %
 Comparison of Operating Results for the Three and Nine Months Ended September 30, 2005 and
2004.
 Net Income
  Net Interest Income
  14




---



##### Table of Contents



Three Months Ended September 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)
    
    $
    269,573
    
    
    $
    5,541
    
    
    
    8.15
    %
    
    $
    181,289
    
    
    $
    3,279
    
    
    
    7.20
    %Federal funds sold (6)
    
    
    26,825
    
    
    
    234
    
    
    
    3.46
    %
    
    
    17,274
    
    
    
    60
    
    
    
    1.38
    %Interest bearing deposits (6)
    
    
    7,566
    
    
    
    66
    
    
    
    3.46
    %
    
    
    9,705
    
    
    
    53
    
    
    
    2.17
    %Investment securities (6)
    
    
    38,863
    
    
    
    358
    
    
    
    3.65
    %
    
    
    12,761
    
    
    
    82
    
    
    
    2.56
    %Total earning assets and interest income
    
    
    342,827
    
    
    
    6,199
    
    
    
    7.17
    %
    
    
    221,029
    
    
    
    3,474
    
    
    
    6.25
    %Non-interest earning assets:Cash and due from banks
    
    
    7,455
    
    
    
    
    
    
    
    
    
    
    
    8,218Premises and equipment
    
    
    6,713
    
    
    
    
    
    
    
    
    
    
    
    4,358Other assets
    
    
    2,800
    
    
    
    
    
    
    
    
    
    
    
    1,039Allowance for credit losses
    
    
    (2,666
    )
    
    
    
    
    
    
    
    
    
    
    (2,015
    )Total assets
    
    $
    357,129
    
    
    
    
    
    
    
    
    
    
    $
    232,629Liabilities and Stockholders EquityInterest bearing liabilities:Interest bearing demand deposits
    
    $
    86,387
    
    
    $
    341
    
    
    
    1.57
    %
    
    $
    73,386
    
    
    $
    182
    
    
    
    0.99
    %Savings deposits
    
    
    11,341
    
    
    
    41
    
    
    
    1.43
    %
    
    
    12,156
    
    
    
    15
    
    
    
    0.49
    %Time deposits $100,000 or more
    
    
    67,520
    
    
    
    554
    
    
    
    3.26
    %
    
    
    31,405
    
    
    
    172
    
    
    
    2.18
    %Other time deposits
    
    
    86,456
    
    
    
    743
    
    
    
    3.41
    %
    
    
    49,835
    
    
    
    294
    
    
    
    2.35
    %Short-term borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Long-term borrowings
    
    
    15,443
    
    
    
    165
    
    
    
    4.24
    %
    
    
    483
    
    
    
    7
    
    
    
    5.77
    %Total interest bearing liabilities
    
    
    267,147
    
    
    
    1,844
    
    
    
    2.74
    %
    
    
    167,265
    
    
    
    670
    
    
    
    1.59
    %Noninterest-bearing liabilities:Demand deposits
    
    
    48,204
    
    
    
    
    
    
    
    
    
    
    
    46,489Other liabilities
    
    
    1,723
    
    
    
    
    
    
    
    
    
    
    
    816Stockholders equity
    
    
    40,055
    
    
    
    
    
    
    
    
    
    
    
    18,059Total liabilities and stockholders equity
    
    $
    357,129
    
    
    
    
    
    
    
    
    
    
    $
    232,629Net Interest Spread (7)
    
    
    
    
    
    
    
    
    
    
    4.43
    %
    
    
    
    
    
    
    
    
    
    
    4.66
    %Net interest income/margin (8)
    
    
    
    
    
    $
    4,355
    
    
    
    5.04
    %
    
    
    
    
    
    $
    2,804
    
    
    
    5.05
    %
 
 (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 $24,000 and $82,000 for the three months ended September, 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. 15




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##### Table of Contents



Nine Months Ended September 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)
    
    $
    239,703
    
    
    $
    14,194
    
    
    
    7.92
    %
    
    $
    166,350
    
    
    $
    8,947
    
    
    
    7.18
    %Federal funds sold (6)
    
    
    20,934
    
    
    
    474
    
    
    
    3.03
    %
    
    
    16,460
    
    
    
    138
    
    
    
    1.12
    %Interest bearing deposits (6)
    
    
    9,096
    
    
    
    206
    
    
    
    3.03
    %
    
    
    12,444
    
    
    
    193
    
    
    
    2.07
    %Investment securities (6)
    
    
    38,814
    
    
    
    1,069
    
    
    
    3.68
    %
    
    
    14,166
    
    
    
    258
    
    
    
    2.43
    %Total earning assets and interest income
    
    
    308,547
    
    
    
    15,943
    
    
    
    6.91
    %
    
    
    209,420
    
    
    
    9,536
    
    
    
    6.08
    %Non-interest earning assets:Cash and due from banks
    
    
    7,404
    
    
    
    
    
    
    
    
    
    
    
    7,684Premises and equipment
    
    
    6,268
    
    
    
    
    
    
    
    
    
    
    
    4,392Other assets
    
    
    2,408
    
    
    
    
    
    
    
    
    
    
    
    1,058Allowance for credit losses
    
    
    (2,430
    )
    
    
    
    
    
    
    
    
    
    
    (1,925
    )Total assets
    
    $
    322,197
    
    
    
    
    
    
    
    
    
    
    $
    220,629Liabilities and Stockholders EquityInterest bearing liabilities:Interest bearing demand deposits
    
    $
    78,373
    
    
    $
    816
    
    
    
    1.39
    %
    
    $
    69,417
    
    
    $
    457
    
    
    
    0.88
    %Savings deposits
    
    
    11,905
    
    
    
    81
    
    
    
    0.91
    %
    
    
    11,159
    
    
    
    41
    
    
    
    0.49
    %Time deposits $100,000 or more
    
    
    59,948
    
    
    
    1,335
    
    
    
    2.98
    %
    
    
    31,960
    
    
    
    536
    
    
    
    2.24
    %Other time deposits
    
    
    80,256
    
    
    
    1,933
    
    
    
    3.22
    %
    
    
    50,590
    
    
    
    921
    
    
    
    2.43
    %Short-term borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    1
    
    
    
    1.31
    %Long-term borrowings
    
    
    6,057
    
    
    
    198
    
    
    
    4.37
    %
    
    
    492
    
    
    
    26
    
    
    
    7.06
    %Total interest bearing liabilities
    
    
    236,539
    
    
    
    4,363
    
    
    
    2.47
    %
    
    
    163,720
    
    
    
    1,982
    
    
    
    1.62
    %Noninterest-bearing liabilities:Demand deposits
    
    
    45,907
    
    
    
    
    
    
    
    
    
    
    
    38,716Other liabilities
    
    
    1,436
    
    
    
    
    
    
    
    
    
    
    
    822Stockholders equity
    
    
    38,315
    
    
    
    
    
    
    
    
    
    
    
    17,371Total liabilities and stockholders equity
    
    $
    322,197
    
    
    
    
    
    
    
    
    
    
    $
    220,629Net Interest Spread (7)
    
    
    
    
    
    
    
    
    
    
    4.44
    %
    
    
    
    
    
    
    
    
    
    
    4.46
    %Net interest income/margin (8)
    
    
    
    
    
    $
    11,580
    
    
    
    5.02
    %
    
    
    
    
    
    $
    7,554
    
    
    
    4.82
    %
 
 (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 $106,000 and $319,000 for the nine months ended September, 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
  16




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##### Table of Contents



Interest Expense
  Provision for Loan Losses
   At or For theThree Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Balance at the beginning of period
    
    $
    2,497
    
    
    $
    1,888
    
    
    $
    2,113
    
    
    $
    1,457Charge-offs:Construction, land and land development loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (169
    )Commercial real estate loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (150
    )Commercial and industrial loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )Other loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8
    )Total charge-offs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (427
    )Recoveries:Commercial real estate loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
 17




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##### Table of Contents



At or For theThree Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Commercial and industrial loans
    
    
    20
    
    
    
    20
    
    
    
    130
    
    
    
    436Other loans
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    9Total recoveries
    
    
    20
    
    
    
    29
    
    
    
    130
    
    
    
    447Net (charge-offs)/recoveries
    
    
    20
    
    
    
    29
    
    
    
    130
    
    
    
    20Additions charge to operations
    
    
    324
    
    
    
    120
    
    
    
    604
    
    
    
    506Unfunded commitment reserve adjustments (1)
    
    
    
    
    
    
    (11
    )
    
    
    (6
    )
    
    
    43Balance at end of period
    
    $
    2,841
    
    
    $
    2,026
    
    
    $
    2,841
    
    
    $
    2,026Allowance for loan losses as a percent of total loans
    
    
    1.00
    %
    
    
    1.07
    %
    
    
    1.00
    %
    
    
    1.07
    %Ratio of net charge-offs/(recoveries) to average loans  annualized
    
    
    (0.03
    )%
    
    
    (0.06
    )%
    
    
    (0.07
    )%
    
    
    (0.02
    )%
 
 (1)
    
    Unfunded commitments reserve included in other liabilities was $100,000 at September 30, 2005 and $63,000 at September 30, 2004. Non-Interest Income
  Noninterest IncomeFor the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Banking and service charge fees
    
    $
    48
    
    
    $
    63
    
    
    $
    150
    
    
    $
    204Gain on sale of securities
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (6
    )Other income
    
    
    18
    
    
    
    9
    
    
    
    53
    
    
    
    26Total noninterest income
    
    $
    66
    
    
    $
    63
    
    
    $
    203
    
    
    $
    224
 Non-Interest Expense th th th
 18




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##### Table of Contents



Noninterest ExpenseFor the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004(Dollars in thousands)Salaries and employee benefits
    
    $
    955
    
    
    $
    833
    
    
    $
    2,762
    
    
    $
    2,265Occupancy and equipment
    
    
    220
    
    
    
    156
    
    
    
    543
    
    
    
    432Data processing
    
    
    111
    
    
    
    90
    
    
    
    321
    
    
    
    251Legal, professional and consulting
    
    
    101
    
    
    
    64
    
    
    
    211
    
    
    
    146Office supplies & printing
    
    
    76
    
    
    
    25
    
    
    
    194
    
    
    
    103Advertising and public relations
    
    
    62
    
    
    
    17
    
    
    
    132
    
    
    
    91Outside services
    
    
    59
    
    
    
    68
    
    
    
    180
    
    
    
    184Telephone
    
    
    53
    
    
    
    42
    
    
    
    145
    
    
    
    114Director fees
    
    
    46
    
    
    
    32
    
    
    
    150
    
    
    
    76Federal Reserve Bank & correspondent bank fees
    
    
    24
    
    
    
    28
    
    
    
    75
    
    
    
    85Other
    
    
    185
    
    
    
    59
    
    
    
    474
    
    
    
    199Total noninterest expense
    
    $
    1,892
    
    
    $
    1,414
    
    
    $
    5,187
    
    
    $
    3,946As a % of average earning assets  annualized
    
    
    2.21
    %
    
    
    2.56
    %
    
    
    2.24
    %
    
    
    2.51
    %Efficiency Ratio (1)
    
    
    42.80
    %
    
    
    49.17
    %
    
    
    44.02
    %
    
    
    50.69
    %Average earning assets
    
    $
    342,827
    
    
    $
    221,029
    
    
    $
    308,547
    
    
    $
    209,420
 
 (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
   19




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##### Table of Contents



Valley
BancorpsCapital Ratios At September 30, 2005To 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)
    
    $
    40,751
    
    
    
    11.41
    %
    
    $
    14,285
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTier 1 capital to risk weighted assets (1)
    
    
    40,751
    
    
    
    12.65
    %
    
    
    12,891
    
    
    
    4.00
    %
    
    
    n/a
    
    
    
    n/aTotal capital to risk weighted assets (1)
    
    
    43,692
    
    
    
    13.56
    %
    
    
    25,781
    
    
    
    8.00
    %
    
    
    n/a
    
    
    
    n/a
 
 (1)
    
    Tier 1 leverage (or core) capital ratio is computed as a percentage of average total assets of $357.1 million.
Risk-based capital ratios are computed as a percentage of risk-weighted assets of $322.3 million. 20




---



##### Table of Contents



Valley
BanksCapital Ratios At September 30, 2005To 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)
    
    $
    38,553
    
    
    
    10.84
    %
    
    $
    14,222
    
    
    
    4.00
    %
    
    $
    17,777
    
    
    
    5.00
    %Tier 1 capital to risk weighted assets (1)
    
    
    38,553
    
    
    
    11.98
    %
    
    
    12,875
    
    
    
    4.00
    %
    
    
    19,313
    
    
    
    6.00
    %Total capital to risk weighted assets (1)
    
    
    41,494
    
    
    
    12.89
    %
    
    
    25,751
    
    
    
    8.00
    %
    
    
    32,188
    
    
    
    10.00
    %
 
 (1)
    
    Tier 1 leverage (or core) capital ratio is computed as a percentage of average total assets of $355.5 million.Risk-based capital ratios are computed as a percentage of risk-weighted assets of $321.9 million.  Impact of Inflation and Changing Prices
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
   21




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##### Table of Contents



At September 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
    
    $
    8,095
    
    
    $
    
    
    
    $
    
    
    
    $
    8,095Fed funds sold
    
    
    29,285
    
    
    
    
    
    
    
    
    
    
    
    29,285Securities  all available for sale
    
    
    7,914
    
    
    
    24,019
    
    
    
    5,512
    
    
    
    37,445Construction and land development loans
    
    
    141,516
    
    
    
    15,626
    
    
    
    
    
    
    
    157,142Commercial real estate loans
    
    
    20,542
    
    
    
    6,046
    
    
    
    897
    
    
    
    27,485Commercial and industrial loans
    
    
    21,001
    
    
    
    70,472
    
    
    
    2,590
    
    
    
    94,063Other loans
    
    
    5,296
    
    
    
    2,413
    
    
    
    
    
    
    
    7,709Total Rate-Sensitive Assets
    
    
    233,649
    
    
    
    118,576
    
    
    
    8,999
    
    
    
    361,224Rate-Sensitive Liabilities:Interest-bearing demand deposits
    
    
    80,298
    
    
    
    
    
    
    
    
    
    
    
    80,298Savings deposits
    
    
    11,346
    
    
    
    
    
    
    
    
    
    
    
    11,346Time deposits
    
    
    171,565
    
    
    
    2,302
    
    
    
    
    
    
    
    173,867Note payable
    
    
    44
    
    
    
    15,209
    
    
    
    183
    
    
    
    15,436Total Rate-Sensitive Liabilities
    
    $
    263,253
    
    
    $
    17,511
    
    
    $
    183
    
    
    $
    280,947Excess (deficiency) of Rate-Sensitive Assets
over Rate-Sensitive Liabilities
    
    $
    (29,604
    )
    
    $
    101,065
    
    
    $
    8,816Cumulative Excess (deficiency) of Rate-Sensitive Assets
over Rate-Sensitive Liabilities
    
    $
    (29,604
    )
    
    $
    71,461
    
    
    $
    80,277Cumulative Excess (deficiency) of Rate-Sensitive Assets
over Rate-Sensitive Liabilities as a percentage of total assets
    
    
    (7.93
    )%
    
    
    19.15
    %
    
    
    21.51
    %
  22




---



##### Table of Contents



Increase in
    
    Net Interest Change
    
    
    
    Decrease in

    
    Net Interest ChangeInterest Rates
    
    $
    
    
    %
    
    
    
    Interest Rates

    
    $
    
    
    %(Dollars in thousands)+1.00%
    
    
    $483
    
    
    3%
    
    
    
    
    
    -1.00%
    
    
    
    $(536
    )
    
    (3)%+2.00%
    
    
    $998
    
    
    6%
    
    
    
    
    
    -2.00%
    
    
    
    $(1,140
    )
    
    (7)%+3.00%
    
    
    $1,546
    
    
    9%
    
    
    
    
    
    -3.00%
    
    
    
    $(1,812
    )
    
    (10)%
   23




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##### Table of Contents



Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures
  Changes in Internal Controls
  24




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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
  
 Item 5. Other Information
  25




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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
 26




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##### Table of Contents



VALLEY BANCORPDate: November 8, 2005
    
    By:
    
    /s/ Barry L. HulinBarry L. HulinPresident and Chief Executive OfficerDate: November 8, 2005
    
    By:
    
    /s/ Dick HoltzclawDick HoltzclawExecutive Vice President andChief Financial Officer(Principal Financial and AccountingOfficer)
 27