##### 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: September 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 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 
 
 
  þ o
 o þ
   o þ




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##### 



INDEX
 PagePART I. FINANCIAL INFORMATION
    
    
    1Item 1.
    
    Financial Statements
    
    
    1CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2007 AND DECEMBER 31, 2006
    
    
    1CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(Unaudited)
    
    
    2CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007
AND 2006 (Unaudited)
    
    
    3CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(Unaudited)
    
    
    4CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
AND 2006 (Unaudited)
    
    
    5CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(Unaudited)
    
    
    6CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007
(Unaudited)
    
    
    7NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.
    
    Controls and Procedures
    
    
    15PART II. OTHER INFORMATION
    
    
    16Item 1.
    
    Legal Proceedings
    
    
    16Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 3.
    
    Defaults Upon Senior Securities
    
    
    16Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    16Item 5.
    
    Other Information
    
    
    16Item 6.
    
    Exhibits
    
    
    16SIGNATURES
    
    
    16EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32.1 SECTION 906 CERTIFICATION 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
SEPTEMBER 30, 2007 AND DECEMBER 31, 2006
 SEPTEMBER 30,
    
    
    December 31,2007
    
    
    2006(Unaudited)
    
    (Audited)AssetsCash and due from banks
    
    $
    5,511,577
    
    
    $
    1,745,107Federal funds sold
    
    
    2,876,000
    
    
    
    467,000Securities available-for-sale, at fair value
    
    
    15,543,035
    
    
    
    15,672,761Securities held-to-maturity
    
    
    998,094
    
    
    
    996,913Federal Home Loan Bank stock, at cost
    
    
    303,500
    
    
    
    217,600Loans, net
of allowance for loan losses of $1,053,805 and $1,024,401,
respectively
    
    
    104,271,724
    
    
    
    83,615,031Premises and equipment, net
    
    
    2,395,599
    
    
    
    2,272,925Accrued interest receivable
    
    
    1,105,066
    
    
    
    788,527Foreclosed assets
    
    
    711,599
    
    
    
    Other assets
    
    
    549,350
    
    
    
    427,316$
    134,265,544
    
    
    $
    106,203,180Liabilities and Stockholders EquityDepositsNoninterest-bearing
    
    $
    7,493,192
    
    
    $
    5,450,394Interest-bearing
    
    
    95,673,745
    
    
    
    76,984,500Total deposits
    
    
    103,166,937
    
    
    
    82,434,894Other borrowings
    
    
    11,623,154
    
    
    
    9,074,875Other liabilities
    
    
    520,615
    
    
    
    337,555Total liabilities
    
    
    115,310,706
    
    
    
    91,847,324Shareholders equity1Common stock, par value $0.00; 6,250,000 shares authorized;
1,975,992 and 1,602,627 shares issued and outstanding
    
    
    
    
    
    
    Paid-in capital
    
    
    18,962,534
    
    
    
    14,797,474Retained
earnings (deficit)
    
    
    (62,105
    )
    
    
    (421,731
    )Accumulated
other comprehensive income (loss)
    
    
    54,409
    
    
    
    (19,887
    )Total stockholders equity
    
    
    18,954,838
    
    
    
    14,355,856$
    134,265,544
    
    
    $
    106,203,180
 
 1
    
    Adjusted to reflect the 5-for-4 common stock split
effected December 16, 2005. See Notes to Consolidated Financial Statements.




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##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
 Three Months Ended September 30,2007
    
    
    2006Interest incomeInterest and fees on loans
    
    $
    2,280,865
    
    
    $
    1,803,436Interest on securities
    
    
    202,923
    
    
    
    138,892Interest on federal funds sold
    
    
    21,148
    
    
    
    19,354Interest on deposits in other banks
    
    
    8,057
    
    
    
    2,8462,512,993
    
    
    
    1,964,528Interest expenseInterest on deposits
    
    
    1,140,202
    
    
    
    888,133Interest on other borrowings
    
    
    126,130
    
    
    
    71,0551,266,332
    
    
    
    959,188Net interest income
    
    
    1,246,661
    
    
    
    1,005,340Provision for loan losses
    
    
    76,100
    
    
    
    60,000Net interest income after provision for loan losses
    
    
    1,170,561
    
    
    
    945,340Noninterest incomeService charges on deposit accounts
    
    
    6,399
    
    
    
    4,648Other service charges, commissions and fees
    
    
    49,480
    
    
    
    44,834Mortgage origination fees
    
    
    45,774
    
    
    
    23,642Other
    
    
    216
    
    
    
    30101,869
    
    
    
    73,154Noninterest expenseSalaries and employee benefits
    
    
    614,247
    
    
    
    446,117Equipment
    
    
    44,410
    
    
    
    47,300Occupancy
    
    
    80,915
    
    
    
    36,868Advertising and marketing
    
    
    28,236
    
    
    
    31,612Legal and accounting
    
    
    44,039
    
    
    
    23,858Telephone
    
    
    8,977
    
    
    
    7,358Supplies
    
    
    37,002
    
    
    
    14,899Data processing fees
    
    
    89,432
    
    
    
    67,917Other operating
    
    
    102,688
    
    
    
    61,7391,049,946
    
    
    
    737,668Income before income taxes
    
    
    222,484
    
    
    
    280,826Applicable income taxes
    
    
    84,857
    
    
    
    Net income
    
    $
    137,627
    
    
    $
    280,826Basic earnings per share
    
    $
    0.07
    
    
    $
    0.21Diluted earnings per share
    
    $
    0.06
    
    
    $
    0.18
 See Notes to Consolidated Financial Statements.
 2




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MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
 Three Months Ended September 30,2007
    
    
    2006Net income
    
    $
    137,627
    
    
    $
    280,826Other comprehensive income (loss):Net unrealized holding gains (losses) arising during period
    
    
    152,293
    
    
    
    166,928Total other comprehensive income (loss)
    
    
    152,293
    
    
    
    166,928Comprehensive income (loss)
    
    $
    289,920
    
    
    $
    447,754
 See Notes to Consolidated Financial Statements.
 3




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##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
 Nine Months Ended September 30,2007
    
    
    2006Interest incomeInterest and fees on loans
    
    $
    6,402,376
    
    
    $
    4,774,001Interest on securities
    
    
    600,599
    
    
    
    314,363Interest on federal funds sold
    
    
    58,010
    
    
    
    31,554Interest on deposits in other banks
    
    
    15,664
    
    
    
    11,8877,076,649
    
    
    
    5,131,805Interest expenseInterest on deposits
    
    
    3,177,504
    
    
    
    2,214,183Interest on other borrowings
    
    
    391,739
    
    
    
    164,5893,569,243
    
    
    
    2,378,772Net interest income
    
    
    3,507,406
    
    
    
    2,753,033Provision for loan losses
    
    
    270,400
    
    
    
    196,000Net interest income after provision for
loan losses
    
    
    3,237,006
    
    
    
    2,557,033Noninterest incomeService charges on deposit accounts
    
    
    16,228
    
    
    
    13,125Other service charges, commissions and fees
    
    
    142,901
    
    
    
    130,328Mortgage origination fees
    
    
    151,798
    
    
    
    85,360Other
    
    
    503
    
    
    
    878311,430
    
    
    
    229,691Noninterest expenseSalaries and employee benefits
    
    
    1,774,126
    
    
    
    1,131,289Equipment
    
    
    146,453
    
    
    
    135,225Occupancy
    
    
    187,641
    
    
    
    101,205Advertising and marketing
    
    
    99,883
    
    
    
    104,873Legal and accounting
    
    
    148,251
    
    
    
    79,660Telephone
    
    
    25,755
    
    
    
    20,057Supplies
    
    
    86,030
    
    
    
    53,230Data processing fees
    
    
    243,771
    
    
    
    194,735Other operating
    
    
    258,483
    
    
    
    169,3132,970,393
    
    
    
    1,989,587Income before income taxes
    
    
    578,043
    
    
    
    797,137Applicable income taxes
    
    
    218,417
    
    
    
    Net income
    
    $
    359,626
    
    
    $
    797,137Basic earnings per share
    
    $
    0.19
    
    
    $
    0.62Diluted earnings per share
    
    $
    0.17
    
    
    $
    0.52
 See Notes to Consolidated Financial Statements.
 4




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##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2007 AND 2006
(UNAUDITED)
 Nine Months Ended September 30,2007
    
    
    2006Net income
    
    $
    359,626
    
    
    $
    797,137Other comprehensive loss:Net unrealized holding gains (losses) arising during period
    
    
    74,296
    
    
    
    129,420Total other comprehensive loss
    
    
    74,296
    
    
    
    129,420Comprehensive income
    
    $
    433,922
    
    
    $
    926,557
 See Notes to Consolidated Financial Statements.
 5




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##### Table of Contents



MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE NINE MONTHS
 ENDED SEPTEMBER 30, 2007 AND 2006
 (UNAUDITED)
 Nine Months Ended September 30,2007
    
    
    2006OPERATING ACTIVITIESNet income
    
    $
    359,626
    
    
    $
    797,137Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    158,478
    
    
    
    150,760Provision for loan losses
    
    
    270,400
    
    
    
    196,000Stock-based compensation expense
    
    
    107,582
    
    
    
    49,339(Increase) in interest receivable
    
    
    (316,539
    )
    
    
    (341,781
    )Increase in interest payable
    
    
    22,848
    
    
    
    11,047Net other operating activities
    
    
    (8,541
    )
    
    
    (277,861
    )Total adjustments
    
    
    234,228
    
    
    
    (212,496
    )Net cash provided by operating activities
    
    
    593,854
    
    
    
    584,641INVESTING ACTIVITIESPurchases of securities available for sale
    
    
    (2,292,190
    )
    
    
    (7,607,436
    )Proceeds from maturities of securities available for sale
    
    
    2,541,750
    
    
    
    1,530,062(Increase) of Federal home loan bank stock, net
    
    
    (85,900
    )
    
    
    (130,500
    )(Increase) in federal funds sold
    
    
    (2,409,000
    )
    
    
    1,957,000(Increase) in loans, net
    
    
    (21,638,692
    )
    
    
    (21,986,627
    )Purchase of premises and equipment
    
    
    (281,152
    )
    
    
    (92,683
    )Net cash (used in) investing activities
    
    
    (24,165,184
    )
    
    
    (26,330,184
    )FINANCING ACTIVITIESIncrease in deposits
    
    
    20,732,043
    
    
    
    16,461,765Increase in repurchase agreements
    
    
    2,950,352
    
    
    
    5,526,392Proceeds from other borrowings
    
    
    
    
    
    
    2,656,422Repayment of other borrowings
    
    
    (402,073
    )
    
    
    Issuance of common stock, net
    
    
    4,057,478
    
    
    
    2,812,279Net cash provided by financing activities
    
    
    27,337,800
    
    
    
    27,456,858Net increase in cash and due from banks
    
    
    3,766,470
    
    
    
    1,711,315Cash and due from banks at beginning of year
    
    
    1,745,107
    
    
    
    1,175,092Cash and due from banks at end of period
    
    $
    5,511,577
    
    
    $
    2,886,407Supplemental
schedule of non-cash investing activityLoans
transferred to other real estate owned
    
    
    711,599
    
    
    
    
 See Notes to Consolidated Financial Statements.
 6




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MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 FOR THE NINE MONTHS
 ENDED SEPTEMER 30, 2007
 (UNAUDITED)
 AccumulatedOtherCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Par Value
    
    
    Capital
    
    

Earnings
(Deficit)
    
    
    Income (Loss)
    
    
    TotalBalance, December 31, 2006
    
    
    1,602,627
    
    
    $
    0
    
    
    $
    14,797,474
    
    
    $
    (421,731
    )
    
    $
    (19,887
    )
    
    $
    14,355,856Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    359,626
    
    
    
    
    
    
    
    359,626Change in fair value of
available for sale securities,
net of tax of $45,536
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,296
    
    
    
    74,296Stock Option Expense
    
    
    
    
    
    
    
    
    
    
    107,582
    
    
    
    
    
    
    
    
    
    
    
    107,582Issuance of common stock
for exercise of warrants
    
    
    207,924
    
    
    
    
    
    
    
    1,663,392
    
    
    
    
    
    
    
    
    
    
    
    1,663,392Issuance of common stock
Secondary offering
    
    
    165,441
    
    
    
    
    
    
    
    2,394,086
    
    
    
    
    
    
    
    
    
    
    
    2,394,086Balance, September 30, 2007
    
    
    1,975,992
    
    
    $
    0
    
    
    $
    18,962,534
    
    
    $
    (62,105
    )
    
    $
    54,409
    
    
    $
    18,954,838
 See Notes to Consolidated Financial Statements.
 7




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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
   8




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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
 For the Nine Months Ended September 30, 2006WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    797,137Basic EPSIncome available to common
shareholders
    
    
    797,137
    
    
    
    1,283,799
    
    
    $
    0.62Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    258,200
    
    
    
    (.10
    )Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    797,137
    
    
    
    1,541,999
    
    
    $
    0.52
 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
 9




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For
the Three Months Ended September 30, 2006WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    280,826Basic EPSIncome available to common
shareholders
    
    
    280,826
    
    
    
    1,320,833
    
    
    $
    0.21Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    257,625
    
    
    
    (0.03
    )Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    280,826
    
    
    
    1,578,458
    
    
    $
    0.18
 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.
  10




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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
   11




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Critical Accounting Policies. .
 Results of operations
  Financial condition
   Liquidity
   RegulatoryActual
    
    MinimumConsolidated
    
    Bank
    
    RequirementLeverage capital ratios
    
    
    14.72
    %
    
    
    8.01
    %
    
    
    4.00
    %Risk-based capital ratios:Tier one capital
    
    
    17.18
    %
    
    
    9.35
    %
    
    
    4.00
    %Total capital
    
    
    18.14
    %
    
    
    10.31
    %
    
    
    8.00
    %
  12




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Net interest income
    Provision for loan losses
   September 30,2007
    
    2006(Dollars in thousands)Total non-accruing loans
    
    $
    50
    
    
    $
    32Loans 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
  13




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Nine Months EndedSeptember 30,2007
    
    
    2006(Dollars in thousands)Average amount of loans outstanding
    
    $
    104,642
    
    
    $
    79,966Balance of allowance for loan losses at beginning of period
    
    
    1,024
    
    
    
    864Loans charged offCommercial and financial
    
    
    4
    
    
    
    31Real estate
    
    
    250
    
    
    
    38Installment
    
    
    10
    
    
    
    45264
    
    
    
    114Loans recoveredCommercial and financial
    
    
    5
    
    
    
    Real estate
    
    
    Installment
    
    
    19
    
    
    
    2024
    
    
    
    20Net (charge-offs) recoveries
    
    
    (240
    )
    
    
    (94
    )Additions to allowance charged to operating expense
during Period
    
    
    270
    
    
    
    196Balance of allowance for loan losses at end of period
    
    
    1,054
    
    
    
    965Ratio of net loan (charge-offs) recoveries during the
period to average loans outstanding
    
    
    (0.23
    )%
    
    
    (0.12
    )%
 Non-interest income
   Non-interest expense
  14




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##### Table of Contents



Net income
  Forward-Looking Statements
  
 Item 3. Controls and Procedures
  15




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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
 No matters were submitted to a vote of security holders during the quarter ended
September 30, 2007.
 
 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:
    
    November 13, 2007
    
    /s/ Marc J. GreeneMarc J. Greene
President and CEODate:
    
    November 13, 2007
    
    /s/ Rachel MarshallRachel Marshall
Chief Financial Officer
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