UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

[X]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter ended June 30, 2004

[   ]	Transition report pursuant to Section 13 or 15(d)) of the Securities Exchange Act of 1934 For Transition Period from ________________ to _______________ Commission File Number 000-30447

VALLEY COMMUNITY BANCSHARES, INC.

(253) 848-2316
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)

Yes [  ] No [X]

The number of shares of the issuer’s Common Stock, $1.00 par value, outstanding at August 3, 2004 was 1,238,083.

VALLEY COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
INDEX TO QUARTERLY REPORT ON FORM 10-Q

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Item 1. FINANCIAL STATEMENTS

VALLEY COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
(dollars in thousands)

The accompanying notes are an integral part of these financial statements

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VALLEY COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF INCOME
(unaudited)
(dollars in thousands, except for per share amounts)

The accompanying notes are an integral part of these financial statements

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VALLEY COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(dollars in thousands, except for per share amounts)

The accompanying notes are an integral part of these financial statements

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VALLEY COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Description of Business and Basis of Presentation

Description of Business

Valley Community Bancshares, Inc. (the “Company”) is a Washington State bank holding company headquartered in Puyallup, Washington. The Company conducts its business primarily through its wholly owned bank subsidiary, Valley Bank. Valley Bank is referred to as the “Bank” in this Form 10-Q.

The Company’s main office is located in Puyallup, Washington, which also serves as the main office of the Bank. The Bank provides a full range of commercial banking services to small and medium-sized businesses, professionals and other individuals through eight banking offices located in Puyallup, Auburn, and Kent, Washington, and their environs.

The Bank also provides mortgage banking services to its customers through Puget Sound Mortgage Brokers, a division of the Bank.

The principal sources of the Company’s revenue are (i) interest and fees on loans; (ii) deposit service charges; (iii) merchant credit card processing fees; (iv) interest bearing deposits with Bank; (v) interest on investments (principally government securities) and (vi) origination fees on mortgage loans brokered. The Bank’s lending activity consists of short-to-medium-term commercial and consumer loans, including operating loans and lines of credit, equipment loans, automobile loans, recreational vehicle and truck loans, personal loans or lines of credit, home improvement loans and rehabilitation loans. The Bank also offers cash management services, merchant credit card processing, safe deposit boxes, wire transfers, direct deposit of payroll and social security checks, automated teller machine access, and automatic drafts for various accounts.

Basis of Presentation

The condensed consolidated financial statements have been prepared by the Company, for the three months and six months ended June 30, 2004 and June 30, 2003, without audit by the Company’s independent auditors. However, the financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of the Company’s management, all adjustments consisting of normal recurring accruals necessary for a fair presentation of the financial condition and results of operations for the interim periods included herein have been made. The consolidated balance sheet of the Company as of December 31, 2003 has been derived from the audited consolidated balance sheet of the Company as of that date. The results of operations for the three months and six months ended June 30, 2004, are not necessarily indicative of the results to be anticipated for the year ending December 31, 2004.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. Therefore, these consolidated financial statements and notes thereto should be read in conjunction with a reading of the financial statements for the year ended December 31, 2003 and notes thereto included in the Company’s Form 10-K filed with the Securities and Exchange Commission. Certain amounts in the 2003 financial statements have been reclassified to conform to the 2004 presentation.

Note 2 – Stock Option Plan

The Company accounts for the stock option plan under recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations using the intrinsic value method. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition method as provided under FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

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VALLEY COMMUNITY BANCSHARES, INC.

Note 3 - Earnings per share

Basic earnings per share amounts are computed based on the weighted average number of shares outstanding during the period after giving retroactive effect to stock dividends and stock splits. Diluted earnings per share amounts are computed by determining the number of additional shares that are deemed outstanding due to stock options under the treasury stock method.

The following table sets forth the computation of basic and diluted earnings per share for the three months and six months ended June 30, 2004 and 2003 (dollars in thousands, except per share amounts):

VALLEY COMMUNITY BANCSHARES, INC.

Note 4 –Comprehensive Income

Total comprehensive income, which includes net income and unrealized gains and losses on the Company’s available-for-sale securities, amounted to $(6,000) and $543,000, for the three months ended June 30, 2004 and 2003, respectively. Total comprehensive income, amounted to $503,000 and $930,000, for the six months ended June 30, 2004 and 2003, respectively.

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Note 5 — Investment Securities

Investment securities have been classified as available-for-sale in according with management’s intent. The carrying amount of securities and their estimated fair values are as follows (in thousands):

June 30, 2004

Securities Available-For-Sale

December 31, 2003

Securities Available-For-Sale

At June 30, 2004 and December 31, 2003, there were approximately 52 and 20 investment securities, respectively, that had fair values less than amortized cost and therefore contains unrealized losses. The Company has evaluated these securities and has determined that the decline in value is temporary and is related to the change in market interest rates since purchase. The decline in value is not related to any company or industry specific event. The Company anticipates full recovery of amortized cost with respect to these securities at maturity or sooner in the event of a more favorable market interest rate environment.

Note 6 — Loans

The major classifications of loans at June 30, 2004 and December 31, 2003 are summarized as follows (dollars in thousands):

VALLEY COMMUNITY BANCSHARES, INC.

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Note 7 – Allowance for Loan Losses

Management analyzes the loan portfolio to determine the adequacy of the allowance for loan losses and the appropriate provision required to maintain an adequate allowance. In assessing the adequacy of the allowance, management reviews the size, quality and risks of loans in the portfolio and considers factors such as specific known risks, past experience, the status and amount of nonperforming assets and economic conditions. A specific percentage is allocated to each major classification and not specifically reserved while additional amounts are added for individual loans considered to have specific loss potential. Loans identified as losses are charged-off. Based on total allocations, the provision is recorded to maintain the allowance at a level deemed appropriate by management. While management uses available information to recognize losses on loans, there can be no assurance that future additions to the allowance will not be necessary.

The allowance for loan losses at June 30, 2004 and December 31, 2003, totaled $1,388,000. Management believes that the allowance for loan losses at June 30, 2004 adequately reflects the risks in the loan portfolio. Various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize changes to the allowance based on their judgments of information available to them at the time of their examination.

The following table summarizes the activity in the allowance for loan losses (dollars in thousands):

VALLEY COMMUNITY BANCSHARES, INC.

Loan Loss Experience

Note 8 – Business Segment Information

Beginning January 1999 and through December 2002, the Company owned two community-banking institutions, Puyallup Valley Bank and Valley Bank. These banks were managed at the subsidiary bank level. Each subsidiary bank had a board of directors and an executive management team responsible for the operation and performance of the respective subsidiary bank.

On January 17, 2003, the Company merged the subsidiary banks into one community bank named Valley Bank. In addition, the company consolidated its board of directors and executive management team into a new organizational structure, while converting separated banking systems into a single operation. As a result of these system and organizational changes, the financial information that is used by the chief operating decision maker in allocating resources and assessing performance is only provided for one reportable segment for the three months and six months ended June 30, 2004 and 2003.

Note 9 – Recent Accounting Pronouncements

During the second quarter ended June 30, 2004 the Financial Accounting Standard Board (“FASB”) did not issue any new accounting pronouncements.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies

The preparation of the Company’s consolidated financial statements requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements. Changes in these estimates and assumptions are considered reasonably possible and may have a material impact on the consolidated financial statements and thus actual results could differ from the amounts reported and disclosed herein. The Company considers the allowance for loan loss a critical accounting policy subject to estimate. For a full discussion of the Company’s methodology of assessing the adequacy of the allowance for loan losses, see Management’s Discussion and Analysis of Financial Condition and Results of Operation in the Company’s 2003 Annual Report on Form 10-K.

Results of Operations

The following table shows the various performance ratios for the Company for the three months and six months ended June 30, 2004 and 2003, respectively:

VALLEY COMMUNITY BANCSHARES, INC.

The Company earned net income of $454,000 or $0.36 per diluted share for the three months ended June 30, 2004, compared to net income of $527,000 or $0.43 per diluted share, for the three-months ended June 30, 2003, a decrease of 13.9 percent. The Company’s return on average assets was 1.02 percent for the three months ended June 30, 2004, compared to 1.21 percent for the three months ended June 30, 2003. The decrease in net income for the three months ended June 30, 2004 was the result of decreases in net interest income and noninterest income and a increase in noninterest expense.

The Company earned net income of $922,000 or $0.74 per diluted share for the six months ended June 30, 2004, compared to net income of $972,000 or $0.79 per diluted share, for the six months ended June 30, 2003, a decrease of 5.1 percent. The Company’s return on average assets was 1.04 percent for the six months ended June 30, 2004, compared to 1.13 percent for the six months ended June 30, 2003. The decrease in net income for the six months ended June 30, 2004 was the result of a decrease in noninterest income partially offset by a increase in net interest income and a decrease in noninterest expense.

The major factors impacting net income for the three months ended June 30, 2004 are as follows:

•

A continued decrease in net interest margin resulting from loan customers refinancing their fixed rate loans to a lower interest rate.

•

Service charges on deposit accounts, primarily NSF fees, decreased in 2004.

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•

Origination fees on mortgage loans brokered declined as residential loan customers slowed their mortgage refinancing activity.

•

Noninterest expense increased largely as a result of higher equipment expense associated with the re-signage of the Bank.

•

Included in 2003 was the amortization of a deferred gain on the sale of real estate held for investment.

The Company anticipates higher non-interest expenses during the third quarter of 2004 when the implementation of the Bank’s internet banking product is completed. The Company does not anticipate sufficient revenues to offset the added costs of this product, as a result profitability is anticipated to be negatively impacted on a go forward basis.

Net Interest Income

Net interest income is the most significant component contributing to net income. It is the difference between interest earned on earning assets (primarily loans and investments) and interest paid on interest bearing liabilities (deposits and borrowings). The volume of and yields earned on earning assets and the volume of and the rates paid on interest bearing liabilities determine net interest income. Interest earned and interest paid is also affected by general economic conditions, particularly changes in market interest rates, and by government policies and the action of regulatory authorities.

The earnings on certain assets are exempt from federal income tax. It is customary in the financial services industry to analyze changes in net interest income on a “tax equivalent” (TE) basis. TE is a non-GAAP performance measure used by management in operating the business, which management believes provides investors with a more accurate picture of the interest margin for comparative purposes. Under this method, nontaxable income from loans and investments is adjusted to an amount, which would have been earned if such income were subject to federal income tax.

The discussion below presents an analysis based on tax equivalent amounts at a 34% tax rate.

VALLEY COMMUNITY BANCSHARES, INC.

TE net interest income, divided by average earning assets is referred to as net interest margin. For the three months ended June 30, 2004 the Company’s net interest margin was 4.83 percent compared to 4.94 percent for the three months ended June 30, 2003. For the six months ended June 30, 2004 the Company’s net interest margin was 4.83 percent compared to 4.93 percent for the six months ended June 30, 2003.

TE interest income was $2,234,000 and $4,466,000 for the three months and six months ended June 30, 2004, respectively compared to $2,332,000 and $4,653,000 for the three months and six months ended June 30, 2003, respectively. The yield on interest-earning assets decreased to 5.39 percent for the three months ended June 30, 2004 compared to 5.76 percent during the same period a year ago and decreased to 5.37 percent for the six months ended June 30, 2004 compared to 5.82 percent during the same period a year ago. The three month and six month decrease was the result of a decrease in the yield earned on earning assets partially offset by the additional earnings received on the increased volume of earning assets.

Interest expense was $233,000 and $454,000 for the three months and six months ended June 30, 2004, respectively compared to $331,000 and $710,000 for the three months and six months ended June 30, 2003, respectively. The cost of funds decreased to 0.78 percent for the three months ended June 30, 2004 compared to 1.10 percent during the same period a year ago and decreased to 0.76 percent for the six months ended June 30, 2004 compared to 1.19 percent

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during the same period a year ago. The three month and six month decrease was due to a decrease in the Company’s cost of funds resulting from low market interest rates.

Market interest rates continue to be at historical lows as a result of a slow national and regional economy and because of an aggressively accommodating Federal Reserve monetary policy beginning in 2001. The significant decrease in market interest rates initially had a positive impact on the Company’s net interest margin as the Company experienced a greater reduction in deposit costs in comparison to the reduction in the earnings on loans and investments. However, during 2003 and 2004 market interest remained relatively low which resulted in a greater reduction in the earnings on loans and investments as compared to the reduction in deposit costs.

The Company’s current interest rate risk position suggests that in the event of an increase in market interest rates, the Company’s TE net interest income and margin may decrease. The decrease results because the Company has a greater amount of interest bearing liabilities subject to repricing when compared to the repricing of interest earning assets. Any TE net interest income and margin decrease is dependent on the timing and magnitude of any interest rate increase. Therefore, the decrease may be somewhat offset because the rate paid on deposits, with administered interest rates, generally do not increase as rapidly as an account whose rates change with market interest rates. In the event of continued low market interest rates, the Company anticipates a further decrease in net interest margin as interest-earning assets reprice to the lower interest rate levels while the ability to lower deposit rates is somewhat limited.

The following table sets forth information concerning the Company’s average balance and average interest rates earned or paid, interest rate spread and net interest margin for the three months ended June 30, 2004 and 2003:

VALLEY COMMUNITY BANCSHARES, INC.

The following table sets forth information concerning the Company’s average balance and average interest rates earned or paid, interest rate spread and net interest margin for the six months ended June 30, 2004 and 2003:

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VALLEY COMMUNITY BANCSHARES, INC.

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The following table sets forth information concerning the Company’s change in TE net interest income for the period that are attributable to changes in interest rate and changes in volume for the three months and six month ended June 30, 2004 compared to the three months and six months ended June 30, 2003:

VALLEY COMMUNITY BANCSHARES, INC.

VALLEY COMMUNITY BANCSHARES, INC.

1		The change in interest due to both volume and yield/rate has been allocated to change due to volume and change due to yield/rate in proportion to the absolute value of the change in each.
2		Balances of nonaccrual loans, if any, and related income recognized have been included for computational purposes.
3		Tax-exempt income has been converted to a tax-equivalent basis using an incremental rate of 34%.

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Provision for loan losses

Provisions for loan losses reduce net interest income. The Company provided $0 for loan losses for the three months and six months ended June 30, 2004 and 2003.

Management believes the amount of the allowance for loan losses to be adequate to absorb losses in the current portfolio. This belief is based upon management’s continuing evaluation of inherent risks in the current loan portfolio, current levels of classified assets, and economic factors. The Company will continue to monitor the allowance and make future adjustments to the allowance as conditions dictate. For further discussion regarding the allowance for loan losses, see the discussion on allowance for loan losses under Risk Elements.

Noninterest income and expense

Net income is increased by noninterest income (primarily service charges, origination fees on mortgage loans brokered, and other operating income) and reduced by noninterest expenses (primarily salaries and employee benefits, occupancy, equipment, and other operating expenses).

Noninterest income was $255,000 and $531,000 for the three months and six months ended June 30, 2004, respectively, compared to $332,000 and $671, 000 during the same respective periods a year ago.

The decrease in noninterest income was the result of lower deposit service charges (NSF fees), lower loan origination fees on mortgage loans brokered, and a decrease in the amortization of deferred gain on the sale of real estate. The decrease was partially offset by gains realized on the sale of investment securities. The significant reduction in origination fees on mortgage loans brokered is the result of residential loan customer reducing their demand for mortgage refinance loans. The reduction in demand occurred because most mortgage loan refinance customers refinanced their mortgages shortly after the Federal Reserve lowered interest rates for the last time in 2003. Included in 2003 was the amortization of a portion of the $211,000 deferred gain realized on the sale of real estate that the Bank previously held for investment purpose.

The following table sets forth information concerning the various components of the Company’s noninterest income for the three months and six months ended June 30, 2004 and 2003, respectively:

VALLEY COMMUNITY BANCSHARES, INC.

Noninterest expense was $1,556,000 and $3,128,000 for the three months and six months ended June 30, 2004, respectively, compared to $1,530,000 and $3,134,000 during the same respective periods a year ago.

The decrease in noninterest expense was primarily the result of decreased salaries and employee benefits and from lower professional fees. The 2004 decrease in salaries and benefits was the result of decreased commissions paid to residential mortgage originators resulting from a drop in mortgage refinancing activity. The decrease in professional fees in 2004 occurred largely as a result of non-recurring merger related expenses (between Puyallup Valley Bank and Valley Bank) that were paid in 2003. The percentage of noninterest expense to average assets was 3.50 percent for the three months ended June 30, 2004, compared to 3.51 percent during the same period last year

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The following table sets forth information concerning the various components of the Company’s noninterest expense for the three months and six months ended June 30, 2004 and 2003, respectively:

VALLEY COMMUNITY BANCSHARES, INC.

The Company’s efficiency ratio, which is the ratio of noninterest expense to net interest income plus noninterest income, was 70.1 percent for the six months ended June 30, 2004 compared to 68.9 percent for the six months ended June 30, 2003.

Provision for income tax

The Company’s provision for income tax is a significant reduction of operating income. The provision for the three months ended June 30, 2004, was $206,000 compared to $242,000 for the three months ended June 30, 2003. The provision for the six months ended June 30, 2004, was $414,000 compared to $442,000 for the six months ended June 30, 2003. The provision represents an effective tax rate of 31 percent during 2004 and 2003, respectively. The Company’s marginal tax rate is currently 34 percent. The difference between the Company’s effective and marginal tax rate is primarily related to investments made in tax-exempt securities.

Financial Condition

The Company’s total consolidated assets decreased 1.3 percent to $179.9 million as of June 30, 2004, compared to $182.2 million as of December 31, 2003. Loans increased and deposits decreased 4.0 percent and 1.3 percent, respectively during the six months ended June 30, 2004. The increase in loans was funded with maturities of investments securities. The decrease in deposits was funded by a draw down of federal funds sold. Stockholders’ equity decreased as a result of the payment of a 60¢ per share cash dividend to stockholders and a decrease in other comprehensive income partially offset by earnings during the six months ended June 30, 2004.

Investment Portfolio

The major classifications of investments at June 30, 2004 and December 31, 2003, are summarized in Note 4 – Investment Securities in the Notes to Condensed Consolidated Financial Statements.

At June 30, 2004, the Company had $34.0 million of securities available-for-sale, compared to $38.6 million as of December 31, 2003. The investment portfolio decreased by $4.6 million during 2004, as a result of the sale and maturity of approximately $9.5 million of securities and a $.6 million decrease in the market value of securities partially offset by the purchase of approximately $5.7 million in securities. The funds received by the decrease in the securities portfolio were invested in more profitable loans.

At June 30, 2004, all of the Company’s securities were classified as available-for-sale. Management believes that holding securities as available-for-sale provides greater flexibility to respond to interest rate changes and liquidity needs to fund loan growth.

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Loan Portfolio

The major classifications of loans at June 30, 2004 and December 31, 2003, are summarized in Note 5 – Loans in the Notes to Condensed Consolidated Financial Statements.

In addition to the major classifications of loans summarized in Note 5, the Company has additional loan concentrations exceeding 10 percent of total loans at June 30, 2004. They include loans to medical doctors and dentists in the amount of approximately $25.8 million.

Loans were $118.9 million as of June 30, 2004, compared to $114.3 million as of December 31, 2003, an increase of 4.0 percent. The increase was primarily in real estate construction and commercial loans, partially offset by a decrease in real estate residential and real estate commercial loans. The percentage of loans to total assets increased to 66.1 percent at June 30, 2004 compared to 62.7 percent at December 31, 2003. It continues to be management’s intent to grow the loan portfolio and to increase the percent of loans to assets, which potentially could improve the Company’s net interest margin.

Risk Elements

The following table sets forth information concerning the Company’s non-performing assets as of the dates indicated (dollars in thousands):

VALLEY COMMUNITY BANCSHARES, INC.

As of June 30, 2004, the Company had no nonperforming assets, which include nonaccrual loans, loans 90 days or more past due and still accruing interest, and restructured loans. The Company had $10,000 in nonperforming assets as of December 31, 2003.

The accrual of interest on nonaccrual and other impaired loans is discontinued at 90 days or when, in the opinion of management, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. Interest income on restructured loans is recognized pursuant to the terms of the new loan agreement. Interest income on other impaired loans is monitored and based upon the terms of the underlying loan agreement. However, the recorded net investment in impaired loans, including accrued interest, is limited to the present value of the expected cash flows of the impaired loan or the observable fair market value of the loan’s collateral.

During the six months ended June 30, 2004, and 2003 there was one loan on nonaccrual status. The gross income that would have been recorded for the six months ended June 30, 2004, and 2003 if the nonaccrual loan had been current and in accordance with its original term was insignificant. Interest recognized on the loan for the year was insignificant.

Potential Problem Loans

At June 30, 2004 and December 31, 2003, the Company had potential problem loans totaling approximately $3,451,000 and $2,349,000, respectively. The increase occurred as a result of the Company’s recent adverse classification of loan credits within the Company’s Auburn and Kent markets. The Company believes that the loans are secured by sufficient collateral and guarantor financial strength to repay the loans, although there can be no assurances given with respect to potential losses in these credits. These loans are in addition to those categorized as non-performing listed above. Although these loans are currently classified as performing, management has information regarding credit weakness inherent in the loans.

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Summary of Loan Loss Experience

Changes in the Allowance for Loan Losses

The activity in the allowance for loan losses is summarized in Note 6 - Allowance for Loan Losses in the Notes to Condensed Consolidated Financial Statements.

The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries), and established through a provision for loan losses charged to expense. Loans are charged against the allowance for credit losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb losses inherent in existing loans, commitments to extend credit and standby letters of credit based on evaluations of collectibility and prior loss experience of loans, commitments to extend credit and standby letters of credit. The evaluations take into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, loan concentrations, specific problem loans, commitments, standby letters of credit and current economic conditions that may affect the borrowers’ ability to pay.

The majority of the Company’s loan portfolio consists of commercial loans and single-family residential loans secured by real estate in the Puyallup and Pierce County areas and also in the Auburn, Kent and King County areas. Real estate prices in this market are stable at this time but may weaken as a result of a slow local and national economy. Therefore, the ultimate collectibility of a substantial portion of the Company’s loan portfolio may be susceptible to change as local market conditions change in the future.

While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require the Company to recognize additional losses based on their judgment about information available to them at the time of their examination.

The following table sets forth other information regarding the allowance for loan losses for the dates indicated (dollars in thousands):

VALLEY COMMUNITY BANCSHARES, INC.