##### 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: June 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(Do not check if a smaller reporting company) o þ
  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 June 30, 2008 (Unaudited) and December 31, 2007
    
    
    2Consolidated Statements of Income for the Three Months
Ended June 30, 2008 and 2007 (Unaudited)
    
    
    3Consolidated Statements of Comprehensive Income for the Three Months
Ended June 30, 2008 and 2007 (Unaudited)
    
    
    4Consolidated Statements of Income for the Six Months
Ended June 30, 2008 and 2007 (Unaudited)
    
    
    5Consolidated Statements of Comprehensive Income for the Six Months
Ended June 30, 2008 and 2007 (Unaudited)
    
    
    6Consolidated Statements of Stockholders Equity for the Six Months
Ended June 30, 2008 (Unaudited)
    
    
    7Consolidated Statements of Cash Flows for the Six Months
Ended June 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
    
    
    18Item 5.
    
    Other Information
    
    
    19Item 6.
    
    Exhibits
    
    
    19SIGNATURES
    
    
    19EX-31.1 302 CERTIFICATION OF CEOEX-31.2 302 CERTIFICATION OF CFOEX-32.1 906 CERTIFICATION OF CEO AND CFO




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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
  1




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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, 2008 AND DECEMBER 31, 2007
 June 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)
    
    
    (Audited)AssetsCash and due from banks, including reserve requirements
of $870,000 and $400,000, respectively
    
    $
    2,007,749
    
    
    $
    1,779,649Interest-bearing deposits
    
    
    53,310
    
    
    
    171,194Federal funds sold
    
    
    794,000
    
    
    
    5,096,000Securities available-for-sale, at fair value
    
    
    23,625,937
    
    
    
    19,069,773Securities held-to-maturity
    
    
    999,284
    
    
    
    998,502Federal Home Loan Bank stock, at cost
    
    
    506,900
    
    
    
    191,000Loans, net
    
    
    107,586,224
    
    
    
    102,694,819Land Deposit
    
    
    
    
    
    
    10,000Premises and equipment, net
    
    
    2,300,249
    
    
    
    2,359,288Accrued interest receivable
    
    
    817,172
    
    
    
    940,747Other Real Estate Owned
    
    
    599,099
    
    
    
    636,599Other assets
    
    
    587,376
    
    
    
    368,944$
    139,877,300
    
    
    $
    134,316,515Liabilities and Stockholders EquityDepositsNoninterest-bearing
    
    $
    7,274,740
    
    
    $
    7,545,843Interest-bearing
    
    
    96,376,275
    
    
    
    95,030,420Total deposits
    
    
    103,651,015
    
    
    
    102,576,263Other borrowings
    
    
    14,865,369
    
    
    
    10,196,578Other liabilities
    
    
    350,060
    
    
    
    492,347Total liabilities
    
    
    118,866,444
    
    
    
    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 June 30, 2008 and December 31, 2007, respectively
    
    
    
    
    
    
    Paid-in capital
    
    
    20,917,289
    
    
    
    20,839,186Retained earnings
    
    
    104,459
    
    
    
    32,773Accumulated other comprehensive income (loss)
    
    
    (10,892
    )
    
    
    179,368Total stockholders equity
    
    
    21,010,856
    
    
    
    21,051,327$
    139,877,300
    
    
    $
    134,316,515
 See Notes to Consolidated Financial Statements.
 2




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MOUNTAIN VALLEY BANCSHARES, INC.   CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS
ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)
 Three Months Ended June 30,2008
    
    
    2007Interest incomeInterest and fees on loans
    
    $
    1,739,726
    
    
    $
    2,154,324Interest on taxable securities
    
    
    293,219
    
    
    
    193,628Interest on federal funds sold
    
    
    7,917
    
    
    
    27,882Interest on deposits in other banks
    
    
    6,085
    
    
    
    5,4232,046,947
    
    
    
    2,381,257Interest expenseInterest on deposits
    
    
    939,119
    
    
    
    1,080,077Interest on other borrowings
    
    
    76,215
    
    
    
    124,0731,015,334
    
    
    
    1,204,150Net interest income
    
    
    1,031,613
    
    
    
    1,177,107Provision for loan losses
    
    
    50,061
    
    
    
    100,000Net interest income after provision for
loan losses
    
    
    981,552
    
    
    
    1,077,107Noninterest incomeService charges on deposit accounts
    
    
    6,845
    
    
    
    6,485Other service charges, commissions and fees
    
    
    51,302
    
    
    
    51,950Mortgage origination fees
    
    
    58,750
    
    
    
    57,019Other
    
    
    10,622
    
    
    
    171127,519
    
    
    
    115,625Noninterest expenseSalaries and employee benefits
    
    
    625,012
    
    
    
    604,607Equipment
    
    
    42,499
    
    
    
    48,929Occupancy
    
    
    85,545
    
    
    
    64,426Advertising and marketing
    
    
    27,546
    
    
    
    39,965Legal and accounting
    
    
    70,276
    
    
    
    58,657Telephone
    
    
    9,843
    
    
    
    8,540Supplies
    
    
    31,623
    
    
    
    30,113Data processing fees
    
    
    87,850
    
    
    
    76,314Other operating
    
    
    112,236
    
    
    
    85,4041,092,430
    
    
    
    1,016,955Income before income taxes
    
    
    16,641
    
    
    
    175,777Applicable income taxes
    
    
    6,359
    
    
    
    66,100Net income
    
    $
    10,282
    
    
    $
    109,677Basic earnings per share
    
    $
    0.00
    
    
    $
    0.06Diluted earnings per share
    
    $
    0.00
    
    
    $
    0.05
 See Notes to Consolidated Financial Statements.
 3




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MOUNTAIN VALLEY BANCSHARES, INC.   CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS
ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)
 Three Months Ended June 30,2008
    
    
    2007Net income
    
    $
    10,282
    
    
    $
    109,677Other comprehensive income:Net unrealized holding gains (losses) arising during period, net
of tax of $238,068 and $62,275
    
    
    (389,628
    )
    
    
    (101,608
    )Total other comprehensive income
    
    
    (389,628
    )
    
    
    (101,608
    )Comprehensive income (loss)
    
    $
    (379,346
    )
    
    $
    8,069
 See Notes to Consolidated Financial Statements.
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MOUNTAIN VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS
ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)
 Six Months Ended June 30,2008
    
    
    2007Interest incomeInterest and fees on loans
    
    $
    3,658,637
    
    
    $
    4,121,511Interest on taxable securities
    
    
    540,953
    
    
    
    397,676Interest on federal funds sold
    
    
    14,983
    
    
    
    36,862Interest on deposits in other banks
    
    
    10,300
    
    
    
    7,6074,224,873
    
    
    
    4,563,656Interest expenseInterest on deposits
    
    
    1,888,903
    
    
    
    2,037,302Interest on other borrowings
    
    
    181,550
    
    
    
    265,6092,070,453
    
    
    
    2,302,911Net interest income
    
    
    2,154,420
    
    
    
    2,260,745Provision for loan losses
    
    
    125,061
    
    
    
    194,300Net interest income after provision for
loan losses
    
    
    2,029,359
    
    
    
    2,066,445Noninterest incomeService charges on deposit accounts
    
    
    10,745
    
    
    
    9,829Other service charges, commissions and fees
    
    
    95,977
    
    
    
    93,421Mortgage origination fees
    
    
    113,876
    
    
    
    106,024Other
    
    
    23,894
    
    
    
    287244,492
    
    
    
    209,561Noninterest expenseSalaries and employee benefits
    
    
    1,233,158
    
    
    
    1,159,879Equipment
    
    
    90,294
    
    
    
    102,043Occupancy
    
    
    181,633
    
    
    
    106,726Advertising and marketing
    
    
    56,251
    
    
    
    71,647Legal and accounting
    
    
    126,207
    
    
    
    104,212Telephone
    
    
    17,687
    
    
    
    16,778Supplies
    
    
    47,288
    
    
    
    49,028Data processing fees
    
    
    194,721
    
    
    
    154,339Other operating
    
    
    210,933
    
    
    
    155,7952,158,172
    
    
    
    1,920,447Income before income taxes
    
    
    115,679
    
    
    
    355,559Applicable income taxes
    
    
    43,993
    
    
    
    133,560Net income
    
    $
    71,686
    
    
    $
    221,999Basic earnings per share
    
    $
    0.03
    
    
    $
    0.13Diluted earnings per share
    
    $
    0.03
    
    
    $
    0.11
 See Notes to Consolidated Financial Statements.
 5




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MOUNTAIN VALLEY BANCSHARES, INC.
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE SIX MONTHS
ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)
 Six Months Ended June 30,2008
    
    
    2007Net income
    
    $
    71,686
    
    
    $
    221,999Other comprehensive income:Net unrealized holding gains (losses) arising during period, net
of tax of $116,611 and $47,805
    
    
    (190,260
    )
    
    
    (77,997
    )Total other comprehensive income
    
    
    (190,260
    )
    
    
    (77,997
    )Comprehensive income (loss)
    
    $
    (118,574
    )
    
    $
    144,002
 See Notes to Consolidated Financial Statements.
 6




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MOUNTAIN VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE SIX MONTHS
ENDED JUNE 30, 2008
(UNAUDITED)
 AccumulatedCommon Stock
    
    
    
    
    
    
    
    
    
    
    OtherPaid-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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,686
    
    
    
    
    
    
    
    71,686Change in fair value of
available for sale securities,
net of tax of $116,611
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (190,260
    )
    
    
    (190,260
    )Stock options exercised
    
    
    8,750
    
    
    
    
    
    
    
    70,000
    
    
    
    
    
    
    
    
    
    
    
    70,000Stock option expense
    
    
    
    
    
    
    
    
    
    
    8,103
    
    
    
    
    
    
    
    
    
    
    
    8,103Balance, June 30, 2008
    
    
    2,115,352
    
    
    $
    0
    
    
    $
    20,917,289
    
    
    $
    104,459
    
    
    
    ($10,892
    )
    
    $
    21,010,856
 See Notes to Consolidated Financial Statements.
 7




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MOUNTAIN VALLEY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS
ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)
 Six Months Ended June 30,2008
    
    
    2007OPERATING ACTIVITIESNet income
    
    $
    71,686
    
    
    $
    221,999Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    99,486
    
    
    
    113,192Provision for loan losses
    
    
    125,061
    
    
    
    194,300Stock-based compensation expense
    
    
    8,103
    
    
    
    55,229Decrease (Increase) in interest receivable
    
    
    123,575
    
    
    
    (64,738
    )Increase (decrease) in interest payable
    
    
    (32,064
    )
    
    
    18,709Gain on sale of securities available for sale
    
    
    (22,035
    )
    
    
    Gain on sale of other real estate
    
    
    (1,748
    )
    
    
    Net other operating activities
    
    
    (212,044
    )
    
    
    (76,745
    )Total adjustments
    
    
    88,334
    
    
    
    239,947Net cash provided by operating activities
    
    
    160,020
    
    
    
    461,946INVESTING ACTIVITIESDecrease in interest-bearing deposits in banks
    
    
    117,884
    
    
    
    Purchases of securities available for sale
    
    
    (10,261,938
    )
    
    
    (2,292,190
    )Proceeds from maturities of securities available for sale
    
    
    2,628,669
    
    
    
    1,986,819Proceeds from the sale of securities available for sale
    
    
    2,792,269
    
    
    
    Purchase of Federal Home Loan Bank stock, net
    
    
    (316,682
    )
    
    
    26,600(Increase) decrease in federal funds sold
    
    
    4,302,000
    
    
    
    (3,867,000
    )Proceeds from sale of other real estate
    
    
    39,248
    
    
    
    (Increase) in loans, net
    
    
    (5,016,466
    )
    
    
    (17,204,426
    )Proceeds from refund of land deposit
    
    
    10,000
    
    
    
    Purchase of premises and equipment
    
    
    (40,447
    )
    
    
    (185,542
    )Net cash (used in) investing activities
    
    
    (5,745,463
    )
    
    
    (21,535,739
    )FINANCING ACTIVITIESIncrease in deposits
    
    
    1,074,752
    
    
    
    21,668,002Increase (decrease) in repurchase agreements
    
    
    (1,188,209
    )
    
    
    356,484Proceeds from other borrowings
    
    
    5,857,000
    
    
    
    Repayment of other borrowings
    
    
    
    
    
    
    (2,902,073
    )Issuance of common stock, net
    
    
    70,000
    
    
    
    3,950,866Net cash provided by financing activities
    
    
    5,813,543
    
    
    
    23,073,279Net increase in cash and due from banks
    
    
    228,100
    
    
    
    1,999,486Cash and due from banks at beginning of year
    
    
    1,779,649
    
    
    
    1,745,107Cash and due from banks at end of period
    
    $
    2,007,749
    
    
    $
    3,744,593
 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
    
    
    8,750
    
    
    $
    8.00Forfeited
    
    
    
    
    
    
    Outstanding at June 30, 2008
    
    
    184,580
    
    
    $
    9.51Exercisable at June 30, 2008
    
    
    159,160
    
    
    $
    8.68
  9




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Note 3  Earnings per share
   For the Six Months Ended June 30, 2008WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    71,686Basic EPSIncome available to common
shareholders
    
    
    71,686
    
    
    
    2,108,189
    
    
    $
    0.03Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    145,638
    
    
    
    (0.00
    )Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    71,686
    
    
    
    2,253,827
    
    
    $
    0.03
 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
    
    
    $
    0.11
 10




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For the Three Months Ended June 30, 2008WeightedAverage Shares-
    
    
    Per-ShareNumerator
    
    
    Denominator
    
    
    AmountNet income
    
    $
    10,282Basic EPSIncome available to common
shareholders
    
    
    10,282
    
    
    
    2,109,775
    
    
    $
    0.00Effect of dilutive securitiesOptions and Warrants
    
    
    
    
    
    
    113,555
    
    
    
    (0.00
    )Diluted EPSIncome available to common
shareholders and assumed
conversions
    
    $
    10,282
    
    
    
    2,223,330
    
    
    $
    0.00
 For 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
 Note 4  Fair Value Measurement
   11




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Investment Securities Available-for-Sale
  Loans
  12




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Foreclosed Assets
  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




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




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##### Table of Contents



ActualRegulatoryMinimumRegulatory
    
    
    RequirementsMinimum
    
    
    For Well CapitalizedConsolidated
    
    
    Bank
    
    
    Requirement
    
    
    StatusLeverage capital ratios
    
    
    15.06
    %
    
    
    7.49
    %
    
    
    4.00
    %
    
    
    5.00
    %Risk-based capital ratios:Tier one capital
    
    
    18.70
    %
    
    
    9.30
    %
    
    
    4.00
    %
    
    
    6.00
    %Total capital
    
    
    19.82
    %
    
    
    10.42
    %
    
    
    8.00
    %
    
    
    10.00
    %
  Net interest income
   15




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##### Table of Contents



Provision for loan losses
   June 30,2008
    
    2007(Dollars in thousands)Total non-accruing loans
    
    $
    410
    
    
    $
    1,811Loans 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
  Accounting by Creditors for Impairment of a Loan
 16




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##### Table of Contents



Six Months EndedJune 30,2008
    
    
    2007(Dollars in thousands)Average amount of loans outstanding
    
    $
    106,073
    
    
    $
    95,138Balance of allowance for loan losses at beginning of period
    
    
    1,154
    
    
    
    1,024Loans charged offCommercial and financial
    
    
    
    
    
    
    2Real estate
    
    
    3
    
    
    
    52Installment
    
    
    19
    
    
    
    1022
    
    
    
    64Loans recoveredCommercial and financial
    
    
    
    
    
    
    5Real estate
    
    
    1Installment
    
    
    2
    
    
    
    113
    
    
    
    16Net (charge-offs) recoveries
    
    
    (19
    )
    
    
    (48
    )Additions to allowance charged to operating expense
during Period
    
    
    125
    
    
    
    194Balance of allowance for loan losses at end of period
    
    
    1,259
    
    
    
    1,170Ratio of net loan (charge-offs) recoveries during the
period to average loans outstanding
    
    
    (0.02
    )%
    
    
    (0.05
    )%
 Non-interest income
   Non-interest expense
  17




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##### Table of Contents



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
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  Abstentions/BrokerName
    
    Votes For
    
    Votes Against/Withheld
    
    Non-VotesR. Keith Alexander
    
    1,307,069
    
    1,500
    
    0B. David Barrett
    
    1,307,069
    
    1,500
    
    0C. Lamar Black
    
    1,305,819
    
    2,750
    
    0Aubrey H. McIntyre
    
    1,307,069
    
    1,500
    
    0
 18




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##### Table of Contents



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, 2008
    /s/ Marc J. GreeneMarc J. GreenePresident and CEODate: August 14, 2008
    /s/ Rachel MarshallRachel MarshallChief Financial Officer 19