##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
 For the quarterly period ended: June 30, 2007
 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: 333-112960
 MOUNTAIN VALLEY BANCSHARES, INC.
  Georgia
    
    02-0714526(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 136 North Main Street, Cleveland, Georgia 30528
 (706) 348-6822
 N/A
 þ o
 o þ
  o þ




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##### 



INDEX
 PagePART I. FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2007 AND DECEMBER 31, 2006
    
    
    1CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006 (Unaudited)
    
    
    2CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006 (Unaudited)
    
    
    4CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (Unaudited)
    
    
    5CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (Unaudited)
    
    
    7CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (Unaudited)
    
    
    8CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2007 (Unaudited)
    
    
    9NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
    
    
    10Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Controls and Procedures
    
    
    17PART II. OTHER INFORMATION
    
    
    17Item 1. Legal Proceedings
    
    
    17Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    17Item 3. Defaults Upon Senior Securities
    
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    
    18Item 5. Other Information
    
    
    18Item 6. Exhibits
    
    
    18SIGNATURES
    
    
    18EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATIONS OF THE CEO AND CFO




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED BALANCE SHEETS AS OF
 JUNE 30, 2007 AND DECEMBER 31, 2006
 June 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)AssetsCash and due from banks
    
    $
    3,744,593
    
    
    $
    1,745,107Federal funds sold
    
    
    4,334,000
    
    
    
    467,000Securities available-for-sale, at fair value
    
    
    15,900,135
    
    
    
    15,672,761Securities held-to-maturity
    
    
    997,699
    
    
    
    996,913Federal Home Loan Bank stock, at cost
    
    
    191,000
    
    
    
    217,600Loans, net
    
    
    100,625,157
    
    
    
    83,615,031Premises and equipment, net
    
    
    2,345,275
    
    
    
    2,272,925Accrued interest receivable
    
    
    853,265
    
    
    
    788,527Other assets
    
    
    575,668
    
    
    
    427,316$
    129,566,792
    
    
    $
    106,203,180Liabilities and Stockholders EquityDepositsNoninterest-bearing
    
    $
    10,546,058
    
    
    $
    5,450,394Interest-bearing
    
    
    93,556,838
    
    
    
    76,984,500Total deposits
    
    
    104,102,896
    
    
    
    82,434,894Other borrowings
    
    
    6,529,286
    
    
    
    9,074,875Other liabilities
    
    
    428,656
    
    
    
    337,555Total liabilities
    
    
    111,060,838
    
    
    
    91,847,324Shareholders equity1Common stock, par value $0.00; 6,250,000 shares authorized;
1,963,509 and 1,602,627 shares issued and outstanding
    
    
    
    
    
    
    Paid-in capital
    
    
    18,803,570
    
    
    
    14,797,474Retained earnings
    
    
    (199,732
    )
    
    
    (421,731
    )Accumulated other comprehensive loss
    
    
    (97,884
    )
    
    
    (19,887
    )Total stockholders equity
    
    
    18,505,954
    
    
    
    14,355,856$
    129,566,792
    
    
    $
    106,203,180
 
 See Notes to Consolidated Financial Statements.
 1




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##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 FOR THE THREE MONTHS
 ENDED JUNE 30, 2007 AND 2006
 (UNAUDITED)
 Three Months Ended June 30,2007
    
    
    2006Interest incomeInterest and fees on loans
    
    $
    2,154,324
    
    
    $
    1,607,941Interest on taxable securities
    
    
    193,628
    
    
    
    88,547Interest on federal funds sold
    
    
    27,882
    
    
    
    6,746Interest on deposits in other banks
    
    
    5,423
    
    
    
    6,6542,381,257
    
    
    
    1,709,888Interest expenseInterest on deposits
    
    
    1,080,077
    
    
    
    743,535Interest on other borrowings
    
    
    124,073
    
    
    
    49,6531,204,150
    
    
    
    793,188Net interest income
    
    
    1,177,107
    
    
    
    916,700Provision for loan losses
    
    
    100,000
    
    
    
    95,000Net interest income after provision for
loan losses
    
    
    1,077,107
    
    
    
    821,700Noninterest incomeService charges on deposit accounts
    
    
    6,485
    
    
    
    4,264Other service charges, commissions and fees
    
    
    51,950
    
    
    
    49,604Mortgage origination fees
    
    
    57,019
    
    
    
    26,217Other
    
    
    171
    
    
    
    758115,625
    
    
    
    80,843Noninterest expenseSalaries and employee benefits
    
    
    604,607
    
    
    
    340,277Equipment
    
    
    48,929
    
    
    
    44,465Occupancy
    
    
    64,426
    
    
    
    27,444Advertising and marketing
    
    
    39,965
    
    
    
    37,446Legal and accounting
    
    
    58,657
    
    
    
    25,670
 2




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##### Table of Contents



Three Months Ended June 30,2007
    
    
    2006Telephone
    
    
    8,540
    
    
    
    6,033Supplies
    
    
    30,113
    
    
    
    20,718Data processing fees
    
    
    76,314
    
    
    
    69,319Other operating
    
    
    85,404
    
    
    
    62,0861,016,955
    
    
    
    633,458Income before income taxes
    
    
    175,777
    
    
    
    269,085Applicable income taxes
    
    
    66,100
    
    
    
    Net income
    
    $
    109,677
    
    
    $
    269,085Basic earnings per share
    
    $
    0.06
    
    
    $
    0.21Diluted earnings per share
    
    $
    0.05
    
    
    $
    0.17
 See Notes to Consolidated Financial Statements.
 3




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##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 FOR THE THREE MONTHS
 ENDED JUNE 30, 2007 AND 2006
 (UNAUDITED)
 Three Months Ended June 30,2007
    
    
    2006Net income
    
    $
    109,677
    
    
    $
    269,085Other comprehensive income (loss):Net unrealized holding gains (losses) arising during period
    
    
    (101,608
    )
    
    
    (17,055
    )Total other comprehensive income (loss)
    
    
    (101,608
    )
    
    
    (17,055
    )Comprehensive income (loss)
    
    $
    8,069
    
    
    $
    252,030
 See Notes to Consolidated Financial Statements.
 4




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##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 FOR THE SIX MONTHS
 ENDED JUNE 30, 2007 AND 2006
 (UNAUDITED)
 Six Months Ended June 30,2007
    
    
    2006Interest incomeInterest and fees on loans
    
    $
    4,121,511
    
    
    $
    2,970,565Interest on taxable securities
    
    
    397,676
    
    
    
    175,471Interest on federal funds sold
    
    
    36,862
    
    
    
    12,200Interest on deposits in other banks
    
    
    7,607
    
    
    
    9,0414,563,656
    
    
    
    3,167,277Interest expenseInterest on deposits
    
    
    2,037,302
    
    
    
    1,326,050Interest on other borrowings
    
    
    265,609
    
    
    
    93,5342,302,911
    
    
    
    1,419,584Net interest income
    
    
    2,260,745
    
    
    
    1,747,693Provision for loan losses
    
    
    194,300
    
    
    
    136,000Net interest income after provision for
loan losses
    
    
    2,066,445
    
    
    
    1,611,693Noninterest incomeService charges on deposit accounts
    
    
    9,829
    
    
    
    8,477Other service charges, commissions and fees
    
    
    93,421
    
    
    
    85,494Mortgage origination fees
    
    
    106,024
    
    
    
    61,718Other
    
    
    287
    
    
    
    848209,561
    
    
    
    156,537Noninterest expenseSalaries and employee benefits
    
    
    1,159,879
    
    
    
    685,172Equipment
    
    
    102,043
    
    
    
    87,925Occupancy
    
    
    106,726
    
    
    
    64,337Advertising and marketing
    
    
    71,647
    
    
    
    73,261Legal and accounting
    
    
    104,212
    
    
    
    55,802Telephone
    
    
    16,778
    
    
    
    12,699
 5




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##### Table of Contents



Six Months Ended June 30,2007
    
    
    2006Supplies
    
    
    49,028
    
    
    
    38,331Data processing fees
    
    
    154,339
    
    
    
    126,818Other operating
    
    
    155,795
    
    
    
    107,5741,920,447
    
    
    
    1,251,919Income before income taxes
    
    
    355,559
    
    
    
    516,311Applicable income taxes
    
    
    133,560
    
    
    
    Net income
    
    $
    221,999
    
    
    $
    516,311Basic earnings per share
    
    $
    0.13
    
    
    $
    0.40Diluted earnings per share
    
    $
    0.11
    
    
    $
    0.33
 See Notes to Consolidated Financial Statements.
 6




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MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 FOR THE SIX MONTHS
 ENDED JUNE 30, 2007 AND 2006
 (UNAUDITED)
 Six Months Ended June 30,2007
    
    
    2006Net income
    
    $
    221,999
    
    
    $
    516,311Other comprehensive loss:Net unrealized holding gains (losses) arising during period
    
    
    (77,997
    )
    
    
    (37,507
    )Total other comprehensive loss
    
    
    (77,997
    )
    
    
    (37,507
    )Comprehensive income
    
    $
    144,002
    
    
    $
    478,804
 See Notes to Consolidated Financial Statements.
 7




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##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE SIX MONTHS
 ENDED JUNE 30, 2007 AND 2006
 (UNAUDITED)
 Six Months Ended June 30,2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    221,999
    
    
    $
    516,311Adjustments to reconcile net income to net cash
provided by
operating activities:Depreciation and amortization
    
    
    113,192
    
    
    
    99,394Provision for loan losses
    
    
    194,300
    
    
    
    136,000Stock-based compensation expense
    
    
    55,229
    
    
    
    59,065(Increase) in foreclosed assets
    
    
    
    
    
    
    (152,042
    )(Increase) in interest receivable
    
    
    (64,738
    )
    
    
    (118,911
    )Increase (decrease) in interest payable
    
    
    18,709
    
    
    
    (262
    )Net other operating activities
    
    
    (76,745
    )
    
    
    (482,866
    )Total adjustments
    
    
    239,947
    
    
    
    (459,622
    )Net cash provided by (used in) operating activities
    
    
    461,946
    
    
    
    56,689INVESTING ACTIVITIESPurchases of securities available for sale
    
    
    (2,292,190
    )
    
    
    (556,804
    )Proceeds from maturities of securities available for sale
    
    
    1,986,819
    
    
    
    290,906(Increase) decrease of Federal home loan bank stock, net
    
    
    26,600
    
    
    
    (172,659
    )(Increase) decrease in federal funds sold
    
    
    (3,867,000
    )
    
    
    (239,000
    )(Increase) in loans, net
    
    
    (17,204,426
    )
    
    
    (18,162,264
    )Purchase of premises and equipment
    
    
    (185,542
    )
    
    
    (19,586
    )Net cash (used in) investing activities
    
    
    (21,535.739
    )
    
    
    (18,859,407
    )FINANCING ACTIVITIESIncrease in deposits
    
    
    21,668,002
    
    
    
    16,242,037Increase (decrease) in repurchase agreements
    
    
    356,484
    
    
    
    555,405Proceeds from other borrowings
    
    
    
    
    
    
    3,400,000Repayment of other borrowings
    
    
    (2,902,073
    )
    
    
    Issuance of common stock, net
    
    
    3,950,866
    
    
    
    154,712Net cash provided by financing activities
    
    
    23,073,279
    
    
    
    20,352,154Net increase (decrease) in cash and due from banks
    
    
    1,999,486
    
    
    
    1,549,436Cash and due from banks at beginning of year
    
    
    1,745,107
    
    
    
    1,175,092Cash and due from banks at end of period
    
    $
    3,744,593
    
    
    $
    2,724,528
 See Notes to Consolidated Financial Statements.
 8




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##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 FOR THE SIX MONTHS
 ENDED JUNE 30, 2007
 (UNAUDITED)
 AccumulatedOtherCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Par Value
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance, December 31, 2006
    
    
    1,602,627
    
    
    $
    0
    
    
    $
    14,797,474
    
    
    $
    (421,731
    )
    
    $
    (19,887
    )
    
    $
    14,355,856Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221,999
    
    
    
    
    
    
    
    221,999Change in fair value of
available for sale securities,
net of tax of $47,805
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (77,997
    )
    
    
    (77,997
    )Stock Option Expense
    
    
    
    
    
    
    
    
    
    
    55,229
    
    
    
    
    
    
    
    
    
    
    
    55,229Issuance of common stock
for exercise of warrants
    
    
    207,924
    
    
    
    
    
    
    
    1,663,392
    
    
    
    
    
    
    
    
    
    
    
    1,663,392Issuance of common stock
Secondary offering
    
    
    152,958
    
    
    
    
    
    
    
    2,287,475
    
    
    
    
    
    
    
    
    
    
    
    2,287,475Balance, June 30, 2007
    
    
    1,963,509
    
    
    $
    0
    
    
    $
    18,803,570
    
    
    $
    (199,732
    )
    
    $
    (97,884
    )
    
    $
    18,505,954
 See Notes to Consolidated Financial Statements.
 9




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##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 Note 1  Basis of Presentation and Accounting Estimates
    Note 2  Stock-based Compensation
 Accounting for Share-Based Payment
  Note 3  Earnings per share
   10




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For the Six Months Ended June 30, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    221,999Basic EPSIncome available to common
shareholders
    
    
    221,999
    
    
    
    1,754,409
    
    
    $
    0.13Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    249,589
    
    
    
    (0.02
    )Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    221,999
    
    
    
    2,003,998
    
    
    $
    0.11For the Six Months Ended June 30, 2006WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    516,311Basic EPSIncome available to common
shareholders
    
    
    516,311
    
    
    
    1,292,152
    
    
    $
    0.40Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    293,267
    
    
    
    (.07
    )Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    516,311
    
    
    
    1,585,419
    
    
    $
    0.33For the Three Months Ended June 30, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    109,677Basic EPSIncome available to common
shareholders
    
    
    109,677
    
    
    
    1,848,835
    
    
    $
    0.06Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    215,145
    
    
    
    (0.01
    )Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    109,677
    
    
    
    2,063,980
    
    
    $
    0.05
 11




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For the Three Months Ended June 30, 2006WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    269,085Basic EPSIncome available to common
shareholders
    
    
    269,085
    
    
    
    1,296,681
    
    
    $
    0.21Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    291,722
    
    
    
    (0.04
    )Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    269,085
    
    
    
    1,588,403
    
    
    $
    0.17
 Note 4  Impact of Recently Issued Accounting Standards
 , Accounting for Certain Hybrid Financial
Instruments, an amendment of FASB Statements No. 133 and 140. Accounting for Derivative Instruments and Hedging Activities Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets
 , Accounting for Servicing of Financial Assets, an
amendment of FASB Statement No. 140. Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB
Statement 125
 Accounting for Uncertainty in Income Taxes 
an interpretation of FASB Statement 109, Accounting for Income Taxes.
 Fair Value Measurements.
 12




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The Fair Value Option for Financial Assets and
Financial Liabilities Fair Value Measurements
 Note 5  Commitments and Contingencies
     
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
   13




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Critical Accounting Policies. .
 Results of operations
  Financial condition
   Liquidity
   RegulatoryActual
    
    MinimumConsolidated
    
    Bank
    
    RequirementLeverage capital ratios
    
    
    15.22
    %
    
    
    8.15
    %
    
    
    4.00
    %Risk-based capital ratios:Tier one capital
    
    
    17.61
    %
    
    
    9.42
    %
    
    
    4.00
    %Total capital
    
    
    18.71
    %
    
    
    10.53
    %
    
    
    8.00
    %
  14




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Net interest income
    Provision for loan losses
   June 30,2007
    
    2006(Dollars in thousands)Total non-accruing loans
    
    $
    1,811
    
    
    $
    78Loans contractually past due ninety days or more as to interest or
principal payments and still accruing
    
    $
    0
    
    
    $
    0Loans, the terms of which have been renegotiated to provide a reduction
or deferral of interest or principal because of deterioration in the
financial position of the borrower
    
    $
    0
    
    
    $
    0Loans now current about which there are serious doubts as to the
ability of the borrower to comply with present loan repayment terms
    
    $
    0
    
    
    $
    0
   15




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##### Table of Contents



Six Months EndedJune 30,2007
    
    
    2006(Dollars in thousands)Average amount of loans outstanding
    
    $
    95,138
    
    
    $
    70,415Balance of allowance for loan losses at beginning of period
    
    
    1,024
    
    
    
    864Loans charged offCommercial and financial
    
    
    2
    
    
    
    31Real estate
    
    
    52
    
    
    
    38Installment
    
    
    10
    
    
    
    3764
    
    
    
    106Loans recoveredCommercial and financial
    
    
    5Real estateInstallment
    
    
    11
    
    
    
    1616
    
    
    
    16Net (charge-offs) recoveries
    
    
    (48
    )
    
    
    (90
    )Additions to allowance charged to operating expense
during Period
    
    
    194
    
    
    
    136Balance of allowance for loan losses at end of period
    
    
    1,170
    
    
    
    910Ratio of net loan (charge-offs) recoveries during the
period to average loans outstanding
    
    
    (0.05
    )%
    
    
    (0.13
    )%
 Non-interest income
   Non-interest expense
  16




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##### Table of Contents



Net income
  Forward-Looking Statements
  
 Item 3. Controls and Procedures
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  17




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##### Table of Contents



Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  Name
    
    Votes For
    
    Votes Against/Withheld
    
    Abstentions/Broker Non-VotesE. Ray Black, Sr. 
J. Clifford Cox 
R. Gerald Sims
    
    1,025,718
1,025,718
1,025,718
    
    0
0
0
    
    0
0
0
  
 
 Item 5. Other Information
  
 Item 6. Exhibits
  31.1
    
    Certificate of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certificate of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certificate of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 SIGNATURES
  MOUNTAIN VALLEY BANCSHARES, INC.Date:      August 14, 2007
    /s/ Marc J. GreeneMarc J. GreenePresident and CEODate:      August 14, 2007

/s/ Rachel MarshallRachel MarshallChief Financial Officer 18