##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D. C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 For the quarterly period ended: September 30, 2008
 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: 000-53196
 MOUNTAIN VALLEY BANCSHARES, INC.
  Georgia
    
    02-0714526(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 136 North Main Street, Cleveland, Georgia 30528
  (706) 348-6822
  N/A
  þ o
  Large accelerated filer o
    
    Accelerated filer   o
    
    Non-accelerated filer   o
    
    Smaller reporting company   þ
 o þ
  o þ




---



##### 



INDEX
  
 PageCAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
    
    
    1Part I. FINANCIAL INFORMATION
    
    
    2Item 1. Financial Statements
    
    
    2Consolidated Balance Sheets as of September 30, 2008 (Unaudited) and December 31, 2007
    
    
    2Consolidated Statements of Income (Loss) for the Three Months
Ended September 30, 2008 and 2007 (Unaudited)
    
    
    3Consolidated Statements of Comprehensive Income (Loss) for the Three Months
Ended September 30, 2008 and 2007 (Unaudited)
    
    
    4Consolidated Statements of Income (Loss) for the Nine Months
Ended September 30, 2008 and 2007 (Unaudited)
    
    
    5Consolidated Statements of Comprehensive Income (Loss) for the Nine Months
Ended September 30, 2008 and 2007 (Unaudited)
    
    
    6Consolidated Statements of Stockholders Equity for the Nine Months
Ended September 30, 2008 (Unaudited)
    
    
    7Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2008 and 2007 (Unaudited)
    
    
    8Notes to Consolidated Financial Statements (Unaudited)
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18Part II. OTHER INFORMATION
    
    
    18Item 1.     Legal Proceedings
    
    
    18Item 1A.  Risk Factors
    
    
    18Item 2.     Changes in Securities and Use of Proceeds
    
    
    18Item 3.     Defaults Upon Senior Securities
    
    
    18Item 4.     Submission of Matters to a Vote of Security Holders
    
    
    19Item 5.     Other Information
    
    
    19Item 6.     Exhibits
    
    
    19SIGNATURES
    
    
    20EX-31.1EX-31.2EX-32.1




---



##### Table of Contents



CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
  1




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1.
    
    Financial Statements
 
 MOUNTAIN VALLEY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 30, 2008 AND DECEMBER 31, 2007
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Audited)AssetsCash and due from banks, including reserve requirements of
of $1,268,000 and $462,000, respectively
    
    $
    3,897,823
    
    
    $
    1,779,649Interest-bearing deposits
    
    
    125,647
    
    
    
    171,194Federal funds sold
    
    
    3,209,000
    
    
    
    5,096,000Securities available-for-sale, at fair value
    
    
    23,659,848
    
    
    
    19,069,773Securities held-to-maturity
    
    
    999,689
    
    
    
    998,502Federal Home Loan Bank stock, at cost
    
    
    466,400
    
    
    
    191,000Loans, net
    
    
    108,690,262
    
    
    
    102,694,819Land deposit
    
    
    
    
    
    
    10,000Premises and equipment, net
    
    
    2,305,801
    
    
    
    2,359,288Accrued interest receivable
    
    
    752,597
    
    
    
    940,747Other real estate owned
    
    
    1,053,599
    
    
    
    636,599Other assets
    
    
    526,348
    
    
    
    368,944$
    145,687,014
    
    
    $
    134,316,515Liabilities and Stockholders EquityDepositsNoninterest-bearing
    
    $
    8,791,335
    
    
    $
    7,545,843Interest-bearing
    
    
    102,454,201
    
    
    
    95,030,420Total deposits
    
    
    111,245,536
    
    
    
    102,576,263Other borrowings
    
    
    13,152,950
    
    
    
    10,196,578Other liabilities
    
    
    351,878
    
    
    
    492,347Total liabilities
    
    
    124,750,364
    
    
    
    113,265,188Shareholders equityCommon stock, par value $0.00; 5,000,000 shares authorized;
2,115,352 and 2,106,602 shares issued and outstanding at
September 30, 2008 and December 31, 2007, respectively
    
    
    
    
    
    
    Paid-in capital
    
    
    20,969,642
    
    
    
    20,839,186Retained earnings (loss)
    
    
    (119,124
    )
    
    
    32,773Accumulated other comprehensive income
    
    
    77,783
    
    
    
    179,368Total stockholders equity
    
    
    20,928,301
    
    
    
    21,051,327$
    145,678,665
    
    
    $
    134,316,515
 See Notes to Consolidated Financial Statements.
 2




---



##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2008 AND 2007
(UNAUDITED)
 Three Months Ended September 30,2008
    
    
    2007Interest incomeInterest and fees on loans
    
    $
    1,690,418
    
    
    $
    2,280,865Interest on taxable securities
    
    
    303,583
    
    
    
    202,923Interest on federal funds sold
    
    
    6,506
    
    
    
    21,148Interest on deposits in other banks
    
    
    6,916
    
    
    
    8,0572,007,423
    
    
    
    2,512,993Interest expenseInterest on deposits
    
    
    924,310
    
    
    
    1,140,202Interest on other borrowings
    
    
    82,456
    
    
    
    126,1301,006,766
    
    
    
    1,204,150Net interest income
    
    
    1,000,657
    
    
    
    1,266,332Provision for loan losses
    
    
    205,000
    
    
    
    76,100Net interest
income after provision for loan losses
    
    
    795,657
    
    
    
    1,170,561Noninterest incomeService charges on deposit accounts
    
    
    6,019
    
    
    
    6,399Other service charges, commissions and fees
    
    
    55,807
    
    
    
    49,480Mortgage origination fees
    
    
    10,918
    
    
    
    45,774Other
    
    
    77,395
    
    
    
    216150,139
    
    
    
    101,869Noninterest expenseSalaries and employee benefits
    
    
    649,659
    
    
    
    614,247Equipment
    
    
    43,263
    
    
    
    44,410Occupancy
    
    
    88,196
    
    
    
    80,915Advertising and marketing
    
    
    19,009
    
    
    
    28,236Legal and accounting
    
    
    74,018
    
    
    
    44,039Telephone
    
    
    7,114
    
    
    
    8,977Supplies
    
    
    11,950
    
    
    
    37,002Data processing fees
    
    
    117,448
    
    
    
    89,432Other operating
    
    
    197,502
    
    
    
    102,6881,208,159
    
    
    
    1,049,946Income (loss) before income taxes
    
    
    (262,363
    )
    
    
    222,484Applicable income taxes (benefit)
    
    
    (38,780
    )
    
    
    84,857Net income (loss)
    
    $
    (223,583
    )
    
    $
    137,627Basic earnings (loss) per share
    
    $
    (0.11
    )
    
    $
    0.07Diluted earnings (loss) per share
    
    $
    (0.11
    )
    
    $
    0.06
 See Notes to Consolidated Financial Statements.
 3




---



##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2008 AND 2007
(UNAUDITED)
 Three Months Ended September 30,2008
    
    
    2007Net income (loss)
    
    $
    (223,583
    )
    
    $
    137,627Other comprehensive income:Net unrealized holding gains arising during period, net
of tax of $54,349 and $93,341
    
    
    88,675
    
    
    
    152,293Total other comprehensive income
    
    
    88,675
    
    
    
    152,293Comprehensive income (loss)
    
    $
    (134,908
    )
    
    $
    289,920
 See Notes to Consolidated Financial Statements.
 4




---



##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2008 AND 2007
(UNAUDITED)
 Nine Months Ended September 30,2008
    
    
    2007Interest incomeInterest and fees on loans
    
    $
    5,349,055
    
    
    $
    6,402,376Interest on taxable securities
    
    
    844,536
    
    
    
    600,599Interest on federal funds sold
    
    
    21,489
    
    
    
    58,010Interest on deposits in other banks
    
    
    17,216
    
    
    
    15,6646,232,296
    
    
    
    7,076,649Interest expenseInterest on deposits
    
    
    2,813,213
    
    
    
    3,177,504Interest on other borrowings
    
    
    264,006
    
    
    
    391,7393,077,219
    
    
    
    3,569,243Net interest income
    
    
    3,155,077
    
    
    
    3,507,406Provision for loan losses
    
    
    330,061
    
    
    
    270,400Net interest income after provision for
loan losses
    
    
    2,825,016
    
    
    
    3,237,006Noninterest incomeService charges on deposit accounts
    
    
    16,764
    
    
    
    16,228Other service charges, commissions and fees
    
    
    151,784
    
    
    
    142,901Mortgage origination fees
    
    
    124,794
    
    
    
    151,798Other
    
    
    101,289
    
    
    
    503394,631
    
    
    
    311,430Noninterest expenseSalaries and employee benefits
    
    
    1,882,817
    
    
    
    1,774,126Equipment
    
    
    133,517
    
    
    
    146,453Occupancy
    
    
    269,829
    
    
    
    187,641Advertising and marketing
    
    
    75,260
    
    
    
    99,883Legal and accounting
    
    
    200,225
    
    
    
    148,251Telephone
    
    
    24,801
    
    
    
    25,755Supplies
    
    
    59,238
    
    
    
    86,030Data processing fees
    
    
    312,169
    
    
    
    243,771Other operating
    
    
    408,435
    
    
    
    258,4833,366,331
    
    
    
    2,970,393Income (loss) before income taxes
    
    
    (146,684
    )
    
    
    578,043Applicable income taxes
    
    
    5,213
    
    
    
    218,417Net income (loss)
    
    $
    (151,897
    )
    
    $
    359,626Basic earnings (loss) per share
    
    $
    (0.07
    )
    
    $
    0.19Diluted earnings (loss) per share
    
    $
    (0.07
    )
    
    $
    0.17
 See Notes to Consolidated Financial Statements.
 5




---



##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2008 AND 2007
(UNAUDITED)
 Nine Months Ended September 30,2008
    
    
    2007Net income (loss)
    
    $
    (151,897
    )
    
    $
    359,626Other comprehensive income:Net unrealized holding gains (losses) arising during period, net
of tax of $(62,262) and $45,536
    
    
    (101,585
    )
    
    
    74,296Total other comprehensive income
    
    
    (101,585
    )
    
    
    74,296Comprehensive income (loss)
    
    $
    (253,482
    )
    
    $
    433,922
 See Notes to Consolidated Financial Statements.
 6




---



##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2008
(UNAUDITED)
 AccumulatedOtherCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Par Value
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    TotalBalance, December 31, 2007
    
    
    2,106,602
    
    
    $
    0
    
    
    $
    20,839,186
    
    
    $
    32,773
    
    
    $
    179,368
    
    
    $
    21,051,327Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (151,897
    )
    
    
    
    
    
    
    (151,897
    )Change in fair value of
available for sale securities,
net of tax of $(62,261)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101,585
    )
    
    
    (101,585
    )Stock options exercised
    
    
    8,750
    
    
    
    
    
    
    
    70,000
    
    
    
    
    
    
    
    
    
    
    
    70,000Stock option expense
    
    
    
    
    
    
    
    
    
    
    60,456
    
    
    
    
    
    
    
    
    
    
    
    60,456Balance, September 30, 2008
    
    
    2,115,352
    
    
    $
    0
    
    
    $
    20,969,642
    
    
    $
    (119,124
    )
    
    $
    77,783
    
    
    $
    20,928,301
 See Notes to Consolidated Financial Statements.
 7




---



##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2008 AND 2007
(UNAUDITED)
 Nine Months Ended September 30,2008
    
    
    2007OPERATING ACTIVITIESNet income (loss)
    
    $
    (151,897
    )
    
    $
    359,626Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    158,956
    
    
    
    158,478Provision for loan losses
    
    
    330,061
    
    
    
    270,400Stock-based compensation expense
    
    
    60,456
    
    
    
    107,582Decrease (increase) in interest receivable
    
    
    188,150
    
    
    
    (316,539
    )Increase (decrease) in interest payable
    
    
    (42,462
    )
    
    
    22,848Gain on sale of securities available for sale
    
    
    (22,035
    )
    
    
    Loss on sale of other real estate
    
    
    90,198
    
    
    
    Net other operating activities
    
    
    (185,987
    )
    
    
    (8,541
    )Total adjustments
    
    
    515,822
    
    
    
    234,228Net cash provided by operating activities
    
    
    425,440
    
    
    
    593,854INVESTING ACTIVITIESDecrease in interest-bearing deposits in banks
    
    
    45,547
    
    
    
    Purchases of securities available for sale
    
    
    (10,261,938
    )
    
    
    (2,292,190
    )Proceeds from maturities of securities available for sale
    
    
    2,737,782
    
    
    
    2,541,750Proceeds from the sale of securities available for sale
    
    
    2,792,269
    
    
    
    Purchase of Federal Home Loan Bank stock, net
    
    
    (275,400
    )
    
    
    (85,900
    )(Increase) decrease in federal funds sold
    
    
    1,887,000
    
    
    
    (2,409,000
    )Proceeds from sale of other real estate
    
    
    297,302
    
    
    
    (Increase) in loans, net
    
    
    (7,130,004
    )
    
    
    (21,638,692
    )Proceeds from refund of land deposit
    
    
    10,000
    
    
    
    Purchase of premises and equipment
    
    
    (105,469
    )
    
    
    (281,152
    )Net cash (used in) investing activities
    
    
    (10,002,911
    )
    
    
    (24,165,184
    )FINANCING ACTIVITIESIncrease in deposits
    
    
    8,669,273
    
    
    
    20,732,043Increase (decrease) in repurchase agreements
    
    
    (2,043,628
    )
    
    
    2,950,352Proceeds from other borrowings
    
    
    5,000,000
    
    
    
    Repayment of other borrowings
    
    
    
    
    
    
    (402,073
    )Issuance of common stock, net
    
    
    70,000
    
    
    
    4,057,478Net cash provided by financing activities
    
    
    11,695,645
    
    
    
    27,337,800Net increase in cash and due from banks
    
    
    2,118,174
    
    
    
    3,766,470Cash and due from banks at beginning of year
    
    
    1,779,649
    
    
    
    1,745,107Cash and due from banks at end of period
    
    $
    3,897,823
    
    
    $
    5,511,577
 See Notes to Consolidated Financial Statements.
 8




---



##### 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
     ExercisePriceOptions
    
    
    Per ShareOutstanding at December 31, 2007
    
    
    193,330
    
    
    $
    9.44Granted
    
    
    
    
    
    
    Exercised
    
    
    8,750
    
    
    $
    8.00Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2008
    
    
    184,580
    
    
    $
    9.51Exercisable at September 30, 2008
    
    
    170,827
    
    
    $
    9.11
  9




---



##### Table of Contents



Note 3  Earnings per share
    For the Nine Months Ended September 30, 2008WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet loss
    
    $
    (151,897
    )Basic EPSIncome (loss) available to
common shareholders
    
    
    (151,897
    )
    
    
    2,110,576
    
    
    $
    (0.07
    )Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    
    
    
    
    Diluted EPSIncome (loss) available to common
shareholders and assumed
conversions
    
    $
    (151,897
    )
    
    
    2,110,576
    
    
    $
    (0.07
    )
  For the Nine Months Ended September 30, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    359,626Basic EPSIncome available to common
shareholders
    
    
    359,626
    
    
    
    1,825,098
    
    
    $
    0.19Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    234,092
    
    
    
    (0.02
    )Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    359,626
    
    
    
    2,059,190
    
    
    $
    0.17
 10




---



##### Table of Contents



For the Three Months Ended September 30, 2008WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet loss
    
    $
    (223,583
    )Basic EPSIncome (loss) available to
common shareholders
    
    
    (223,583
    )
    
    
    2,115,352
    
    
    $
    (0.11
    )Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    
    
    
    
    Diluted EPSIncome (loss) available to common
shareholders and assumed
conversions
    
    $
    (223,583
    )
    
    
    2,115,352
    
    
    $
    (0.11
    )
  For the Three Months Ended September 30, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    137,627Basic EPSIncome available to common
shareholders
    
    
    137,627
    
    
    
    1,966,476
    
    
    $
    0.07Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    203,098
    
    
    
    (0.01
    )Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    137,627
    
    
    
    2,169,574
    
    
    $
    0.06
 Note 4  Fair Value Measurement
  11




---



##### Table of Contents



Investment Securities Available-for-Sale
  Loans
  12




---



##### Table of Contents



Note 5  Other Recent Accounting Pronouncements
  Note 6  Commitments and Contingencies
     
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
  13




---



##### Table of Contents



Critical Accounting Policies. .
 Overview
  th
 Results of operations
  Financial condition
   Liquidity
  14




---



##### Table of Contents



RegulatoryMinimumRegulatory
    
    RequirementsActual
    
    Minimum
    
    For Well CapitalizedConsolidated
    
    Bank
    
    Requirement
    
    StatusLeverage capital ratios
    
    
    14.52
    %
    
    
    7.18
    %
    
    
    4.00
    %
    
    
    5.00
    %Risk-based capital ratios:Tier one capital
    
    
    18.72
    %
    
    
    9.26
    %
    
    
    4.00
    %
    
    
    6.00
    %Total capital
    
    
    19.95
    %
    
    
    10.49
    %
    
    
    8.00
    %
    
    
    10.00
    %
  15




---



##### Table of Contents



Net interest income
    Provision for loan losses
   September 30,2008
    
    
    2007(Dollars in thousands)Total non-accruing loans
    
    $
    2,780
    
    
    $
    50Loans 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
   16




---



##### Table of Contents



Accounting by Creditors for Impairment of a Loan
  Nine Months EndedSeptember 30,2008
    
    
    2007(Dollars in thousands)Average amount of loans outstanding
    
    $
    107,484
    
    
    $
    104,642Balance of allowance for loan losses at beginning of period
    
    
    1,154
    
    
    
    1,024Loans charged offCommercial and financial
    
    
    5
    
    
    
    4Real estate
    
    
    97
    
    
    
    250Installment
    
    
    20
    
    
    
    10122
    
    
    
    264Loans recoveredCommercial and financial
    
    
    
    
    
    
    5Real estate
    
    
    2
    
    
    
    Installment
    
    
    3
    
    
    
    195
    
    
    
    24Net (charge-offs) recoveries
    
    
    (117
    )
    
    
    (240
    )Additions to allowance charged to operating expense
during Period
    
    
    330
    
    
    
    270Balance of allowance for loan losses at end of period
    
    
    1,367
    
    
    
    1,054Ratio of net loan (charge-offs) recoveries during the
period to average loans outstanding
    
    
    (0.11
    )%
    
    
    (0.23
    )%
 Non-interest income
   17




---



##### Table of Contents



Non-interest expense
   Net income
  
 Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4.
    
    Controls and Procedures
  
 PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1a.
    
    Risk Factors
  
 Item 2.
    
    Changes in Securities and Use of Proceeds
  
 Item 3.
    
    Defaults Upon Senior Securities
  18




---



##### Table of Contents



Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 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
 19




---



##### Table of Contents



SIGNATURES
  MOUNTAIN VALLEY BANCSHARES, INC.Date: November 14, 2008
    /s/ Marc J. GreeneMarc J. GreenePresident and CEODate: November 14, 2008
    /s/ Rachel MarshallRachel MarshallChief Financial Officer 20