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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.
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
 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
    
    oNon-accelerated filer


o
    
    
    Smaller reporting company
    
    þ
 o þ
  o þ




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##### 



INDEX
 PageCAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
    
    1Part I.    FINANCIAL INFORMATION
    
    2Item 1. Financial Statements
    
    2Consolidated Balance Sheets as of March 31, 2008 (Unaudited) and
December 31, 2007
    
    2Consolidated Statements of Income for the Three Months
Ended March 31, 2008 and 2007 (Unaudited)
    
    3Consolidated Statements of Comprehensive Income for the Three Months
Ended March 31, 2008 and 2007 (Unaudited)
    
    4Consolidated Statements of Stockholders Equity for the Three Month
Ended March 31, 2008 (Unaudited)
    
    5Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2008 and 2007 (Unaudited)
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    9Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    13Item 4. Controls and Procedures
    
    13Part II. OTHER INFORMATION
    
    13Item 1. Legal Proceedings
    
    13Item 1a. Risk Factors
    
    13Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    13Item 3. Defaults Upon Senior Securities
    
    13Item 4. Submission of Matters to a Vote of Security Holders
    
    13Item 5. Other Information
    
    14Item 6. Exhibits
    
    14SIGNATURES
    
    14EX-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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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
  1




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED BALANCE SHEETS AS OF
MARCH 31, 2008 AND DECEMBER 31, 2007
 March 31,
    
    December 31,2008
    
    2007(Unaudited)
    
    (Audited)AssetsCash and due from banks, including reserve requirements of
$534,000 and $400,000, respectively
    
    $
    2,213,918
    
    
    $
    1,779,649Interest-bearing deposits
    
    
    2,820,526
    
    
    
    171,194Federal funds sold
    
    
    25,000
    
    
    
    5,096,000Securities available-for-sale, at fair value
    
    
    19,094,628
    
    
    
    19,069,773Securities held-to-maturity
    
    
    998,904
    
    
    
    998,502Federal Home Loan Bank stock, at cost
    
    
    376,400
    
    
    
    191,000Loans, net
    
    
    105,311,002
    
    
    
    102,694,819Land Deposit
    
    
    10,000
    
    
    
    10,000Premises and equipment, net
    
    
    2,322,228
    
    
    
    2,359,288Accrued interest receivable
    
    
    898,013
    
    
    
    940,747Other Real Estate Owned
    
    
    599,099
    
    
    
    636,599Other assets
    
    
    276,737
    
    
    
    368,944$
    134,946,455
    
    
    $
    134,316,515Liabilities and Stockholders EquityDepositsNoninterest-bearing
    
    $
    7,563,845
    
    
    $
    7,545,843Interest-bearing
    
    
    95,565,588
    
    
    
    95,030,420Total deposits
    
    
    103,129,433
    
    
    
    102,576,263Other borrowings
    
    
    10,150,362
    
    
    
    10,196,578Other liabilities
    
    
    350,233
    
    
    
    492,347Total liabilities
    
    
    113,630,028
    
    
    
    113,265,188Shareholders equityCommon stock, par value $0.00; 5,000,000 shares authorized;
2,106,602 and 2,106,602 shares issued and outstanding
    
    
    
    
    
    
    Paid-in capital
    
    
    20,843,514
    
    
    
    20,839,186Retained earnings
    
    
    94,177
    
    
    
    32,773Accumulated other comprehensive income
    
    
    378,736
    
    
    
    179,368Total stockholders equity
    
    
    21,316,427
    
    
    
    21,051,327$
    134,946,455
    
    
    $
    134,316,515
 See Notes to Consolidated Financial Statements.
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MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED MARCH 31, 2008 AND 2007
(UNAUDITED)
 Three Months Ended March 31,2008
    
    2007Interest incomeInterest and fees on loans
    
    $
    1,918,911
    
    
    $
    1,967,187Interest on taxable securities
    
    
    247,734
    
    
    
    204,048Interest on federal funds sold
    
    
    7,066
    
    
    
    8,980Interest on deposits in other banks
    
    
    4,215
    
    
    
    2,1842,177,926
    
    
    
    2,182,399Interest expenseInterest on deposits
    
    
    949,784
    
    
    
    957,225Interest on other borrowings
    
    
    105,335
    
    
    
    141,5361,055,119
    
    
    
    1,098,761Net interest income
    
    
    1,122,807
    
    
    
    1,083,638Provision for loan losses
    
    
    75,000
    
    
    
    94,300Net interest income after provision for loan losses
    
    
    1,047,807
    
    
    
    989,338Noninterest incomeService charges on deposit accounts
    
    
    3,900
    
    
    
    3,344Other service charges, commissions and fees
    
    
    44,675
    
    
    
    41,471Mortgage origination fees
    
    
    55,126
    
    
    
    49,005Other
    
    
    13,272
    
    
    
    116116,973
    
    
    
    93,936Noninterest expenseSalaries and employee benefits
    
    
    608,146
    
    
    
    555,272Equipment
    
    
    47,795
    
    
    
    53,114Occupancy
    
    
    96,088
    
    
    
    42,300Advertising and marketing
    
    
    28,705
    
    
    
    31,682Legal and accounting
    
    
    55,931
    
    
    
    45,555Telephone
    
    
    7,844
    
    
    
    8,238Supplies
    
    
    15,665
    
    
    
    18,915Data processing fees
    
    
    106,871
    
    
    
    78,025Other operating
    
    
    98,697
    
    
    
    70,3911,065,742
    
    
    
    903,492Income before income taxes
    
    
    99,038
    
    
    
    179,782Applicable income taxes
    
    
    37,634
    
    
    
    67,460Net income
    
    $
    61,404
    
    
    $
    112,322Basic earnings per share
    
    $
    0.03
    
    
    $
    0.07Diluted earnings per share
    
    $
    0.03
    
    
    $
    0.06
 See Notes to Consolidated Financial Statements.
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MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS
ENDED MARCH 31, 2008 AND 2007
(UNAUDITED)
 Three Months Ended March 31,2008
    
    2007Net income
    
    $
    61,404
    
    
    $
    112,322Other comprehensive income:Net unrealized holding gains arising during period, net
of tax of $122,193 and $14,471
    
    
    199,368
    
    
    
    23,611Total other comprehensive income
    
    
    199,368
    
    
    
    23,611Comprehensive income
    
    $
    260,772
    
    
    $
    135,933
 See Notes to Consolidated Financial Statements.
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MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE THREE MONTHS
ENDED MARCH 31, 2008
(UNAUDITED)
 Common Stock
    
    
    
    
    
    
    
    
    
    
    AccumulatedOtherPaid-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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,404
    
    
    
    
    
    
    
    61,404Change in fair value of
available for sale securities,
net of tax of $122,193
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    199,368
    
    
    
    199,368Stock Option Expense
    
    
    
    
    
    
    
    
    
    
    4,328
    
    
    
    
    
    
    
    
    
    
    
    4,328Balance, March 31, 2008
    
    
    2,106,602
    
    
    $
    0
    
    
    $
    20,843,514
    
    
    $
    94,177
    
    
    $
    378,736
    
    
    $
    21,316,427
 See Notes to Consolidated Financial Statements.
 5




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MOUNTAIN VALLEY BANCSHARES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS
ENDED MARCH 31, 2008 AND 2007
(UNAUDITED)
 Three Months Ended March 31,2008
    
    2007OPERATING ACTIVITIESNet income
    
    $
    61,404
    
    
    $
    112,322Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortization
    
    
    50,728
    
    
    
    53,793Provision for loan losses
    
    
    75,000
    
    
    
    94,300Stock-based compensation expense
    
    
    4,328
    
    
    
    6,612Decrease (Increase) in interest receivable
    
    
    42,734
    
    
    
    (103,984
    )Increase (decrease) in interest payable
    
    
    (16,691
    )
    
    
    26,303Gain on sale of securities available for sale
    
    
    (11,385
    )
    
    
    Gain on sale of other real estate
    
    
    (1,748
    )
    
    
    Net other operating activities
    
    
    (155,409
    )
    
    
    47,632Total adjustments
    
    
    (12,443
    )
    
    
    124,656Net cash provided by operating activities
    
    
    48,961
    
    
    
    236,978INVESTING ACTIVITIES(Increase) in interest-bearing deposits in banks
    
    
    (2,649,332
    )
    
    
    Purchases of securities available for sale
    
    
    (3,051,250
    )
    
    
    (802,179
    )Proceeds from maturities of securities available for sale
    
    
    1,559,421
    
    
    
    1,358,656Proceeds from the sale of securities available for sale
    
    
    1,799,920
    
    
    
    Purchase of Federal home loan bank stock, net
    
    
    (185,802
    )
    
    
    (86,800
    )(Increase) decrease in federal funds sold
    
    
    5,071,000
    
    
    
    (1,839,000
    )Proceeds from sale of other real estate
    
    
    39,248
    
    
    
    (Increase) in loans, net
    
    
    (2,691,183
    )
    
    
    (12,064,331
    )Purchase of premises and equipment
    
    
    (13,668
    )
    
    
    (65,761
    )Net cash (used in) investing activities
    
    
    (121,646
    )
    
    
    (13,499,415
    )FINANCING ACTIVITIESIncrease in deposits
    
    
    553,170
    
    
    
    10,995,659Increase (decrease) in repurchase agreements
    
    
    (2,996,217
    )
    
    
    793,136Proceeds from other borrowings
    
    
    2,950,001
    
    
    
    Repayment of other borrowings
    
    
    
    
    
    
    (381,242
    )Issuance of common stock, net
    
    
    
    
    
    
    1,666,250Net cash provided by financing activities
    
    
    506,954
    
    
    
    13,073,803Net increase (decrease) in cash and due from banks
    
    
    434,269
    
    
    
    (188,634
    )Cash and due from banks at beginning of year
    
    
    1,779,649
    
    
    
    1,745,107Cash and due from banks at end of period
    
    $
    2,213,918
    
    
    $
    1,556,473
 See Notes to Consolidated Financial Statements.
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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
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at March 31, 2008
    
    
    193,330
    
    
    $
    9.44Exercisable at March 31, 2008
    
    
    167,076
    
    
    $
    8.64
 7




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Note 3  Earnings per share
   For the Three Months Ended March 31, 2008WeightedAverage Shares-
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    61,404Basic EPSIncome available to common
shareholders
    
    
    61,404
    
    
    
    2,106,602
    
    
    $
    0.03Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    177,720
    
    
    
    (0.00
    )Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    61,404
    
    
    
    2,284,322
    
    
    $
    0.03
 For the Three Months Ended March 31, 2007WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    112,322Basic EPSIncome available to common
shareholders
    
    
    112,322
    
    
    
    1,659,983
    
    
    $
    0.07Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    284,033
    
    
    
    (0.01
    )Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    112,322
    
    
    
    1,944,016
    
    
    $
    0.06
 Note 4  Impact of Recently Issued Accounting Standards
  8




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Note 5  Commitments and Contingencies
     
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
   Critical Accounting Policies.
 9




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.
 Overview
   Results of operations
  Financial condition
   Liquidity
   10




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ActualRegulatoryMinimumRegulatory
    
    
    RequirementsMinimum
    
    
    For Well CapitalizedConsolidated
    
    
    Bank
    
    
    Requirement
    
    
    StatusLeverage capital ratios
    
    
    15.83
    %
    
    
    7.90
    %
    
    
    4.00
    %
    
    
    5.00
    %Risk-based capital ratios:Tier one capital
    
    
    19.08
    %
    
    
    9.52
    %
    
    
    4.00
    %
    
    
    6.00
    %Total capital
    
    
    20.19
    %
    
    
    10.63
    %
    
    
    8.00
    %
    
    
    10.00
    %
  Net interest income
  Provision for loan losses
   March 31,2008
    
    
    2007(Dollars in thousands)Total non-accruing loans
    
    $
    165
    
    
    $
    1,227Loans 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
 11




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Accounting by Creditors for Impairment of a Loan
  Three Months EndedMarch 31,2008
    
    
    2007(Dollars in thousands)Average amount of loans outstanding
    
    $
    105,006
    
    
    $
    90,712Balance of allowance for loan losses at beginning of period
    
    
    1,154
    
    
    
    1,024Loans charged offCommercial and financial
    
    
    
    
    
    
    2Real estateInstallment
    
    
    99
    
    
    
    2Loans recoveredCommercial and financial
    
    
    
    
    
    
    6Real estateInstallment
    
    
    1
    
    
    
    101
    
    
    
    16Net (charge-offs) recoveries
    
    
    (8
    )
    
    
    14Additions to allowance charged to operating expense
during Period
    
    
    75
    
    
    
    94Balance of allowance for loan losses at end of period
    
    
    1,221
    
    
    
    1,132Ratio of net loan (charge-offs) recoveries during the
period to average loans outstanding
    
    
    (0.01
    %)
    
    
    0.02
    %
 12




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Non-interest income
  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.
    
    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
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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:
    
    May 14, 2008
    
    /s/ Marc J. Greene

Marc J. Greene 

President and CEODate:
    
    May 14, 2008
    
    /s/ Rachel Marshall

Rachel Marshall 

Chief Financial Officer
 14