First Valley Bancorp (FVLY) 10-Q 2005 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2005 Commission file number 000-51408

FIRST VALLEY BANCORP, INC.

(Exact name of small business issuer as specified in its charter)

Connecticut	04-3806732
(State of incorporation)	(I.R.S. Employer Identification Number)

Four Riverside Avenue, Bristol, Connecticut 06010

(Address of principal executive offices)

(860) 582-8868

(Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  No X   

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.

Common stock, no par value per share, 1,078,361 shares issued and outstanding as of the close of business October 31, 2005.

Transitional Small Business Disclosure Format (check one): Yes   No X

Table of Contents

		Page
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Statements of Financial Condition as of September 30, 2005 and December 31, 2004 Consolidated Statements of Income for the three and nine month periods ended September 30, 2005 and 2004 Consolidated Statements of Changes in Capital Accounts for the nine month periods ended September 30, 2005 and 2004 Consolidated Statements of Cash Flows for the nine month periods ended September 30, 2005 and 2004 Notes to Consolidated Financial Statements	3 4 5 6 7 - 11
Item 2.	Management’s Discussion and Analysis or
	Plan of Operation	11 - 21
Item 3.	Controls and Procedures	21
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3. Item 4. Item 5.	Defaults Upon Senior Securities Submission of Matters to a Vote of Security Holders Other Information	21 21 21
Item 6.	Exhibits	21 - 22
SIGNATURES CERTIFICATIONS		23 23 - 28

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FIRST VALLEY BANCORP, INC. AND SUBSIDIARY FORM 10-QSB QUARTERLY REPORT
SEPTEMBER 30, 2005
Part 1 FINANCIAL INFORMATION
Item 1 Financial Statements:
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands except share data)
	September 30,			December 31,
	2005			2004
		(Unaudited)
ASSETS
Cash and due from depository institutions	$	4,425		$	5,764
Federal funds sold and money market accounts		7,883			4,269
Investment securities		38,563			39,548
Loans receivable, net		93,424			77,729
Premises and equipment, net		1,464			1,524
FHLB Stock		727			727
Accrued income receivable		561			560
Deferred income taxes		702			632
Other assets		545			187
TOTAL ASSETS	$	148,294		$	130,940
LIABILITIES AND CAPITAL ACCOUNTS
Deposits:
Non-interest bearing	$	17,543		$	12,300
Interest bearing		104,722			95,446
Total deposits		122,265			107,746
Federal Home Loan Bank advances		10,022			12,679
Junior subordinated debt		4,096			-
Mortgagors' escrow accounts		83			150
Other liabilities		2,194			1,206
Total Liabilities		138,660			121,781
Capital Accounts:
Common stock, no par value; authorized 2,000,000 shares;
issued and outstanding 1,076,082 and 1,072,902 at
June 30, 2005 and December 31, 2004, respectively		892			887
Additional paid-in capital		8,194			8,126
Retained earnings		816			305
Accumulated other comprehensive loss		(268	)		(159	)
Total Capital Accounts		9,634			9,159
TOTAL LIABILITIES AND CAPITAL ACCOUNTS	$	148,294		$	130,940
See notes to financial statements

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FIRST VALLEY BANCORP, INC. AND SUBSIDIARY FORM 10-QSB QUARTERLY REPORT
SEPTEMBER 30, 2005
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands except share data)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Interest income:	2005		2004		2005		2004
Interest on loans	$	1,510	$	1,185	$	4,228	$	3,302
Interest and dividends on investments
and deposits		426		357		1,186		967
Total interest income		1,936		1,542		5,414		4,269
Interest expense:
Deposits and escrow		609		409		1,582		1,045
Borrowed money		137		65		289		194
Total interest expense		746		474		1,871		1,239
Net interest income		1,190		1,068		3,543		3,030
Provision for loan losses		94		75		255		237
Net interest income after provision for loan losses		1,096		993		3,288		2,793
Noninterest income:
Service charges and other fees		99		79		290		217
Realized gains on investments		-		-		-		6
Total noninterest income		99		79		290		223
Noninterest expenses:
Salaries		452		382		1,262		1,100
Employee benefits and taxes		85		72		253		222
Occupancy and equipment		165		187		494		545
Professional fees		35		34		110		111
Marketing		19		24		71		70
Office supplies		16		15		54		50
Outside service fees		63		33		170		97
Other		175		46		345		148
Total noninterest expenses		1,010		793		2,759		2,343
Income before income tax expense		185		279		819		673
Income tax expense		57		109		308		260
NET INCOME	$	128	$	170	$	511	$	413
Basic income per share	$	0.12	$	0.16	$	0.47	$	0.39
Diluted income per share	$	0.11	$	0.16	$	0.45	$	0.38
Weighted-average shares outstanding - basic		1,078,237		1,072,121		1,076,773		1,071,026
Weighted-average shares outstanding - diluted		1,127,356		1,087,475		1,125,892		1,086,381
See notes to financial statements

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FIRST VALLEY BANCORP, INC. AND SUBSIDIARY FORM 10-QSB QUARTERLY REPORT
SEPTEMBER 30, 2005
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL ACCOUNTS (UNAUDITED)
(in thousands)
								Accumulated
			Addtl					Other			Total
	Common		Paid-In		Accumulated			Comprehensive			Capital
	Stock		Capital		Deficit			Income (Loss)			Accounts
Balance at December 31, 2003	$	884	$	8,090	$	(267	)	$	(62	)	$	8,645
Net income						413						413
Shares issued under stock
compensation plan		3		36								39
Net unrealized losses on
available-for-sale securities									(13	)		(13	)
Balance at September 30, 2004	$	887	$	8,126	$	146		$	(75	)	$	9,084
Balance at December 31, 2004	$	887	$	8,126	$	305		$	(159	)	$	9,159
Net income						511						511
Shares issued under stock
compensation plan		5		68								73
Net unrealized losses on
available-for-sale securities									(109	)		(109	)
Balance at September 30, 2005	$	892	$	8,194	$	816		$	(268	)	$	9,634
See notes to financial statements

5

FIRST VALLEY BANCORP, INC. AND SUBSIDIARY FORM 10-QSB QUARTERLY REPORT
SEPTEMBER 30, 2005
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
	Nine Months Ended September 30,
Cash flows from operating activities	2005			2004
Net income	$	511		$	413
Adjustments to reconcile net income to
cash provided by operating activities:
Realized gains on investments		-			(6	)
Depreciation		178			160
Provision for loan losses		255			237
Amortization (accretion) of premiums (discounts) net		133			162
Net Change in:
Accrued income receivable		(1	)		(90	)
Deferred loan fees		38			30
Other assets		(359	)		(30	)
Other liabilities		988			151
Net cash provided by operating activities		1,743			1,027
Cash flows from investing activities
Proceeds from maturities, calls and paydowns
of available-for-sale securities		17,746			11,087
Proceeds from sales of available-for-sale securities		-			-
Purchase of available-for-sale securities		(17,072	)		(21,117	)
Loan originations net of principal payments		(15,988	)		(13,862	)
Purchases of premises and equipment		(118	)		(720	)
Net cash used by investing activities		(15,432	)		(24,612	)
Cash flows from financing activities
Change in DDA, NOW, money market and
savings accounts		3,661			13,958
Change in time deposit accounts		10,858			11,528
Change in borrowed funds		1,439			(150	)
Change in mortgagors' escrow accounts		(67	)		(71	)
Proceeds from issuance of common stock		73			39
Net cash provided by financing activities		15,964			25,304
Net change in cash and cash equivalents		2,275			1,719
Cash and cash equivalents at beginning of period		10,033			7,074
Cash and cash equivalents at end of period	$	12,308		$	8,793
Supplemental Disclosures
Cash paid during the period for:
Interest	$	1,751		$	1,163
Income taxes	$	514		$	258
See notes to financial statements

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Notes to Financial Statements

(Unaudited)

Note 1. Business

Effective July 1, 2005, Valley Bank (the “Bank”), a Connecticut state-chartered commercial bank located in Bristol, Connecticut, reorganized into a bank holding company structure. As a result, a new bank holding company called First Valley Bancorp, Inc. (the “Company”) was formed and the Bank became the wholly owned subsidiary of the Company. The Board believes that the reorganization will increase the corporate flexibility of the Bank, will allow the Bank to better take advantage of additional business opportunities, and will provide the Bank with operational and competitive benefits.

The Bank is engaged principally in the business of attracting deposits from the general public and investing those deposits in small business, real estate, residential and consumer loans. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation within prescribed limits. The Bank is subject to competition from other financial institutions throughout the region. The Bank is also subject to the regulations of certain state and federal agencies and undergoes periodic examinations by those regulatory authorities.

Note 2. Basis of presentation

The interim consolidated financial statements of the Company include those of the Company and the Bank, its wholly owned subsidiary. The Company does not consolidate its subsidiary, FVB Capital Trust I, as described in Note 8. The accounting and reporting policies of the Company conform to generally accepted accounting principles in the United States of America and to general practices within the banking industry. Such policies have been followed on a consistent basis.

In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet, and income and expenses for the period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for losses on loans. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in credit quality and economic conditions, particularly in Connecticut.

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The data presented for the three and nine months ended September 30, 2005 and 2004 reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary to present fairly the results for such interim periods. Interim results at and for the three and nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ended December 31, 2005.

Note 3. Comprehensive Income

Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” establishes standards for disclosure of comprehensive income, which includes net income and any changes in equity from non-owner sources that are not recorded in the income statement (such as changes in the net unrealized gains (losses) on securities).

The Company’s one source of other comprehensive income is the net unrealized gain (loss) on securities.

	Nine Months Ended
(in thousands)	September 30,
	2005			2004
Net Income	$	511		$	413
Other comprehensive income (loss):
Net unrealized holding gains (losses) on securities available for sale		(178	)	$	(20	)
Reclassification adjustment for gain recognized in net income		-			(6	)
Other comprehensive income (loss) before tax expense		(178	)		(26	)
Income tax expense (benefit) related to items of other comprehensive income (loss)		69			13
Other comprehensive income net of tax		(109	)		(13	)
Total comprehensive income	$	402		$	400

Note 4. Income per Share

The Company has computed and presented income per share in accordance with Statement of Financial Accounting Standards No. 128.

Note 5. Commitment to Extend Credit

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit. These commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial condition.

The contractual amounts of outstanding commitments at September 30, 2005 and December 31, 2004 were as follows:

(in thousands)
	September 30, 2005		December 31, 2004
Commitments to extend credit:
Loan commitments	$	11,845	$	2,987
Unadvanced lines of credit		23,904		16,572
Standby letters of credit		482		504
Outstanding commitments	$	36,231	$	20,063

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Note 6. Stock Based Compensation

The Company has a long-term incentive plan authorizing various types of market and performance based incentive awards that may be granted to directors, officers and

employees. The Company accounts for stock options issued in accordance with APB Opinion 25, “Accounting for Stock Issued to Employees,” under which no compensation cost has been recognized, and related interpretations in accounting for its long-term incentive plan. The exercise price of stock options is set on the grant date and may not be less than the fair market value per share on that date. Stock options have a term of 10 years and vesting terms ranging from immediate to 3 years.

The following table illustrates the effect on net income and earnings per share as if the fair value based method described in SFAS No. 123, “Accounting for Stock-Based Compensation” had been applied to the Company’s long-term incentive plan.

	9 Months		9 Months
	Ended		Ended
(in thousands except share data)	9/30/05		9/30/04
Net income, as reported	$	511	$	413
Stock-based employee compensation
included in net income		-		-
Total stock-based employee compensation
expense determined under the fair value
based method for all awards		-		(20	)
Pro forma net income	$	511	$	393
Earnings per share:
Basic, as reported	$	0.47	$	0.39
Diluted, as reported	$	0.45	$	0.38
Basic, pro forma	$	0.47	$	0.37
Diluted, pro forma	$	0.45	$	0.36

Note 7. Recent Accounting Pronouncements

On March 9, 2004, the United States Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 105, “Application of Accounting Principles to Loan Commitments”. The bulletin sets forth the views of the accounting staff of the SEC as it pertains to loan commitments recognized for loans originated for sale. The bulletin concludes that expected future cash flows related to the servicing of loans should not be considered until the loan has been contractually separated from the servicing. The provisions of SAB 105 were effective for commitments entered into after March 31, 2004. The adoption of SAB 105 did not have any effect on the Company as no commitments have been recognized due to the immateriality of the amount.

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In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment”, that will require compensation costs related to share-based payment transactions to be recognized in the financial statements. That cost will be measured based on the grant-date fair value of equity or liability instruments issued. Statement No. 123(R) replaces Statement No. 123 “Accounting for Stock-Based Compensation”, and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. The Company will adopt Statement No 123(R) as of January 1, 2006. The Company does not believe its adoption will have a material effect on the financial statements.

Note 8. Long Term Debt

In July 2005, the Company formed a subsidiary, FVB Capital Trust I (the “Trust”), a trust formed under the laws of the state of Delaware. The Trust issued $4.1 million fixed/adjustable rate trust preferred securities through a pooled trust preferred securities offering. Sandler O’Neill & Partners, L.P. acted as placement agent in the pooled offering. The Company owns all of the common securities of the Trust and the Trust has no independent assets or operations, and exists for the sole purpose of issuing trust preferred securities and investing the proceeds in an equivalent amount of junior subordinated debentures issued by the Company. The junior subordinated debentures, which are the sole assets of the Trust, are unsecured obligations of the Company and generally are subordinate and junior in right of payment to all present and future senior and subordinated indebtedness and certain other financial obligations of the Company. The Company does not consolidate the Trust, pursuant to FIN 46R, “Consolidation of Variable Interest Entities - an interpretation of ARB No. 51”.

The trust preferred securities have an original term of thirty years and bear a fixed coupon of 6.42% for the first five years, and, thereafter, a floating-rate coupon that will reset quarterly at three-month LIBOR plus 1.90%. Interest on the securities is payable quarterly. The Company may redeem the trust preferred securities, in whole or in part, on or after August 2010. The subordinated debentures bear the same terms and conditions as the trust preferred securities. The Company paid approximately $28,000 in connection with the issuance of the trust preferred securities and this amount is being amortized over the estimated life of the underlying securities. The net proceeds qualify as Tier I capital for regulatory purposes.

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Part I. - FINANCIAL INFORMATION

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement

Reports issued by First Valley Bancorp, Inc. (the "Company") including this quarterly report on Form 10-QSB contain statements relating to future results of the Company that are considered “forward looking” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, expectations concerning loan demand, growth and performance, simulated changes in interest rates and the adequacy of the Company’s allowance for loan losses. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including but not limited to, changes in political and economic conditions, interest rate fluctuations, personal and corporate customers’ bankruptcies, inflation, acquisitions and integrations of acquired businesses, results from branch expansion, technological fluctuations, success in gaining regulatory approvals when required as well as other risks and uncertainties reported from time to time in the Company’s filings with the SEC.

(a)Plan of Operation

Not applicable since the Company had revenues from operations in each of the last two fiscal years.

(b)Management's Discussion and Analysis of Financial Condition and Results of Operation

Overview

The Company is the holding company for Valley Bank (the “Bank”), a Connecticut state-chartered commercial bank located in Bristol, Connecticut. The Bank, which has its main office in Bristol, a second full-service office in the Terryville section of Plymouth, and a loan production office in Southington that opened in January 2005, provides banking services to commercial and individual customers primarily in the town of Bristol and the neighboring communities of Burlington, Farmington, Plainville, Plymouth, Southington and Wolcott. The Bank offers to its business customers demand, savings and time deposit accounts and the granting of various types of commercial loans and commercial real estate loans.

The services provided by the Bank to consumers include checking, savings and time deposit accounts, as well as mortgage loans, consumer loans, investment services, and trust services through The Trust Company of Connecticut.

11

The Bank offers its customers investment services through a relationship with Tracy Driscoll, Inc., a local insurance agency, and Bannon, Ohanesian & Lecours, Inc., a full-service, independent broker/dealer headquartered in West Hartford, Connecticut.

The Bank has plans to open two additional full service branches over the next twelve to eighteen months. In April 2004, the Bank closed on the purchase of land and a building located at 888 Farmington Avenue, Bristol, Connecticut, 06010. The building, which prior to the purchase had served as a branch office of North American Bank and Trust, is currently being leased by the Bank to Bristol Travel, Inc. The Bank intends to file an application with the Department of Banking to operate the site as a full service branch office in the fourth quarter of 2005 or the first quarter of 2006. It is anticipated that the new branch will be staffed with 5 full-time equivalent employees (“FTE’s”).

In January 2005, the Bank opened a loan production office in Southington. In 2006, the Bank intends to file an application with the Department of Banking to open a full service branch office in Southington. The Bank is currently in the process of evaluating several potential locations for the new full service office which will replace the loan production office. It is anticipated that the new branch will be staffed with 5 “FTE’s.

In July 2005, the Company announced that Mark A. Gibson, President of Quality Coils, Inc. and Dynalock Corporation, had been elected a director of the Company. Mr. Gibson has also been elected a director of the Bank.

In July 2005, the Company raised approximately $4.1 million in additional capital through a trust-preferred offering that closed on July 28, 2005. The new capital will support additional growth by the Bank. See Note 8 for additional information.

The Company lists its stock on the Over The Counter Bulletin Board at www.otcbb.com under the symbol “FVLY”.

The following discussion and analysis presents a review of the operating results and financial condition of the Company, for the three and nine-month periods ended September 30, 2005 and 2004. The discussion below should be read in conjunction with the financial statements and other financial data presented elsewhere herein.

FINANCIAL CONDITION

General

Total assets increased by $11.7 million, or 8.5%, during the third quarter of 2005 and have grown by $17.4 million, or 13.3%, on a year-to-date basis. The increase for the year reflects growth in the loan portfolio. On the liability side, deposits and borrowed funds, which includes the debt from the trust preferred offering, have both increased since the beginning of the year.

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Investment Securities

The carrying value and estimated market values of investment securities are as follows:

(in thousands)

September 30, 2005
Available-for-sale securities:	Amortized		Gross Unrealized					Estimated
U.S. agency obligations:	Cost		Gain		Loss			Market Value
Due in less than one year	$	1,000	$	-	$	(12	)	$	988
Due from one through five years		8,010		-		(120	)		7,890
		9,010		-		(132	)		8,878
Corporate bonds:
Due from one through five years		2,104		-		(50	)		2,054
Municipal obligations:
Due from five through ten years		494		1		-			495
Due after ten years		2,071		1		(6	)		2,066
		2,565		2		(6	)		2,561
Mortgage-backed securities		22,318		3		(251	)		22,070
Variable rate preferred securities		3,000		-		-			3,000
Total available-for-sale securities	$	38,997	$	5	$	(439	)	$	38,563
December 31, 2004:
Available-for-sale securities:		Amortized	Gross Unrealized						Estimated
U.S. agency obligations:		Cost		Gain		Loss			Market Value
Due in less than one year	$	500	$	3	$	-		$	503
Due from one through five years		8,518		2		(86	)		8,434
		9,018		5		(86	)		8,937
Corporate bonds:
Due from one through five years		2,129		-		(27	)		2,102
Due after ten years		100		3		-			103
		2,229		3		(27	)		2,205
Mortgage-backed securities		26,557		23		(174	)		26,406
Variable rate preferred securities		2,000		-		-			2,000
Total available-for-sale securities	$	39,804	$	31	$	(287	)	$	39,548

The Company had no realized gains on securities during the three months ended September 30, 2005 and 2004. For the nine months ended September 30, 2005 and 2004, the Company had realized gains on securities of $0 and $6,000, respectively.

Loans

The Company’s loan portfolio increased by $15.9 million, or 20.1%, during the first nine months of 2005. The majority of the growth was in commercial and consumer real estate loans.

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At September 30, 2005 and December 31, 2004, the composition of the Company’s loan portfolio was as follows (dollars in thousands):

	AT			AT
	9/30/2005			12/31/2004
Commercial mortgages	$	46,651		$	38,186
Commercial loans		17,853			19,227
Residential mortgages		20,329			12,407
Consumer and home equity loans		10,292			9,409
		95,125			79,229
Less:
Deferred loan origination fees		243			205
Allowance for loan losses		1,458			1,295
Loans receivable, net	$	93,424		$	77,729
Weighted average yield		6.47	%		6.20	%

Critical Accounting Policies

In the ordinary course of business, the Company has made a number of estimates and assumptions relating to reporting results of operations and financial condition in preparing its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes the following discussion addresses the Company's only critical accounting policy, which is the policy that is most important to the presentation of the Company's financial results. This policy requires management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Allowance for Loan Losses

The allowance for loan losses is established by a provision charged to earnings and is maintained at a level considered adequate to provide for potential loan losses based on management’s evaluation of known and inherent risks in the loan portfolio. When a loan or portion of a loan is considered uncollectable, it is charged against the allowance for loan losses. Recoveries of loan previously charged off are credited to the allowance when collected.

Management makes regular evaluations of the loan portfolio to determine the adequacy of the level of the allowance for loan losses. Numerous factors are considered in the evaluation, including a review of certain borrowers’ current financial status and credit standing, available collateral, loss experience in relation to outstanding loans, the overall loan portfolio quality, management’s judgment regarding prevailing and anticipated economic conditions, and other relevant factors.

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In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

The following summarizes the changes in allowance for loan losses for the nine months ended September 30, 2005 (dollars in thousands):

Balance, beginning of period	$	1,295
Provision for loan losses		255
Chargeoffs		(99	)
Recoveries		7
Balance, end of period	$	1,458

At September 30, 2005, the Bank had $753,000 of loans on nonaccrual status. The loans are considered impaired. At December 31, 2004, the Company had no loans on nonaccrual status or any loans considered impaired.

Deposits

Deposits increased by $14.5 million, or 13.5%, in the first nine months of 2005. The majority of the growth was in time deposit balances and non-interest checking. Money market and regular savings balances declined with a portion of the decrease due to a shift of balances into time deposits to take advantage of higher interest rates.

At September 30, 2005 and December 31, 2004, the Company’s deposit balances were as follows (dollars in thousands):

	AT 9/30/2005					AT 12/31/2004
			Weighted					Weighted
			Average					Average
	Amount		Rate			Amount		Rate
Non-interest checking	$	17,543		0.00	%	$	12,300		0.00	%
Regular savings		22,921		0.77	%		23,782		0.81	%
Money market savings		20,846		2.18	%		21,326		1.40	%
NOW accounts		3,190		0.45	%		3,431		0.34	%
		64,500		1.00	%		60,839		0.83	%
Time deposits		57,765		3.28	%		46,907		2.73	%
Total Deposits	$	122,265		2.08	%	$	107,746		1.65	%

Borrowed Funds

At September 30, 2005 and December 31, 2004, the Company had $14.1 million and $12.7 million, respectively, in borrowed funds. Borrowings at December 31, 2004 were entirely in advances outstanding from the Federal Home Loan Bank while total borrowings at September 30, 2005 include $10.0 million of Federal Home Loan Bank advances and $4.1 million of junior subordinated debt related to the trust preferred offering that closed in July 2005. The weighted average rates on borrowed funds at September 30, 2005 and December 31, 2004 were 4.37% and 2.80%, respectively.

15

Liquidity and Capital Resources

At September 30, 2005, approximately 34.3% of the Company’s assets were held in cash, cash equivalents and securities and 64.1% of the Company’s assets were held in loans. The Company’s ratio of loans to deposits, which is used as a general guideline in managing the Company’s asset/liability mix, was 77.8% at September 30, 2005.

The Company has other liquidity related policy targets and thresholds which are reviewed on a regular basis by the Asset/Liability Committee (“ALCO”). The Company reviews and sets deposit rates weekly based upon its need for funds, competition in the market area, and the availability and pricing of other funding sources.

The Bank is also a member of the Federal Home Loan Bank of Boston (“FHLB”), which provides an alternative funding source for the Bank’s liquidity needs. The Bank currently has approximately $19 million of additional borrowing capacity at the FHLB.

Each of the Company’s sources of liquidity is vulnerable to various uncertainties beyond the control of the Company. Scheduled loan and security payments are a relatively stable source of funds, but prepayments in loans and securities, securities calls, and deposit flows can all vary widely in reaction to market conditions, primarily prevailing interest rates. The Company’s financial condition is also affected by its ability at attractive rates and other market conditions.

The Company considers its sources of liquidity to be adequate to provide for expected and unexpected balance sheet fluctuations and to provide funds for growth. Management closely monitors its liquidity/cash flow position and is not currently aware of any trends or uncertainties that would create liquidity problems in the near future.

The Bank’s regulatory capital ratios at September 30, 2005 were a total risk-based capital ratio of 14.1% and a Tier 1 capital ratio of 9.1%. These capital ratios at December 31, 2004 were 11.8% and 7.2%, respectively. The increase in both ratios at September 30, 2005 versus the start of the year reflects additional capital in 2005 from the trust preferred offering. The Bank’s capital ratios at September 30, 2005 were considered well capitalized for regulatory purposes.

16

RESULTS OF OPERATIONS

Comparison of the three and nine-month periods ended September 30, 2005 and 2004 Net Income

Net income for the three-month period ended September 30, 2005 was $128,000, or $0.12 basic income per share and $0.11 diluted income per share, compared to net income of $170,000, or $0.16 basic and diluted income per share, for the three-month period ended September 30, 2004. For the nine-month period ended September 30, 2005, net income was $511,000, or $0.47 basic income per share and $0.45 diluted income per share. That compares with net income of $413,000, or $0.39 basic income per share and $0.38 diluted income per share, for the first nine months of 2004. Net income for the three and nine months ended September 30, 2005 includes $98,000 of one-time expenses related to the formation of the holding company and is the reason for the decline in net income in the quarter ended September 30, 2005 compared with the same quarter in 2004. The increase in earnings for the nine months ended September 30, 2005 versus 2004 is due to strong growth in net interest income which more than offset an increase in non-interest expenses including the one-time holding company formation expenses.

Net Interest Income

Net interest income for the three months ended September 30, 2005 was $1,190,000 compared to $1,068,000 for the same period in 2004. The increase is due to growth in interest-earning assets which more than offset a decline in the Company’s average interest rate spread and net interest margin. The net interest margin for the three-month periods ended September 30, 2005 and 2004 was 3.45% and 3.64%, respectively. For the nine months ended September 30, 2005, net interest income increased to $3,543,000 from $3,030,000 in the first nine months of 2004. The nine-month increase was also primarily due to growth in interest-earning assets which more than compensated for compression in the Company’s net interest margin between periods. The average net interest margin was 3.67% for the first nine months of 2005 versus 3.73% for the first nine months of 2004.

Interest Income

Total interest income for the three-month periods ended September 30, 2005 and 2004 was $1,936,000 and $1,542,000, respectively. The average rate on interest-earning assets increased by 40 basis points in the current quarter reflecting generally higher short term interest rates and strong growth in the loan portfolio. In addition to the increase in the average rate, the average balance of interest earning assets increased by $19.1 million.

For the nine-month periods ended September 30, 2005 and 2004, total interest income was $5,414,000 and $4,269,000, respectively. The average rate on interest-earning assets was 35 basis points higher in the 2005 period, while average interest earnings assets were $20.7 million higher in 2005.

Interest Expense

Total interest expense for the three-month periods ended September 30, 2005 and 2004 was $746,000 and $474,000, respectively. The average rate on deposits and borrowings was 2.53% in the third quarter of 2005 compared to 1.86% in the same quarter of 2004, an increase of 67 basis points. The increase in the average rate reflects the general increase in short-term interest rates over the past twelve months as well as the added cost of the junior subordinated debt. The higher interest expense in the current quarter reflects the higher average rate as well as strong growth in average interest-bearing liabilities which increased by $15.7 million.

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For the first nine months of 2005 and 2004, total interest expense was $1,871,000 and $1,239,000, respectively. The average rate on interest-bearing liabilities was 49 basis points higher, while average interest-bearing liabilities were $17.1 million higher in 2005.

The tables below shows the major categories of average assets and average liabilities together with their respective interest income or expense and the rates earned and paid by the Company (dollars in thousands):

	For Three Months Ended
	September 30, 2005							September 30, 2004
Interest Earning Assets:		Average		Income/		Average			Average		Income/		Average
Federal funds sold and money		Balance		Expense		Rate			Balance		Expense		Rate
market accounts	$	8,438	$	70		3.29	%	$	4,882	$	15		1.22	%
Investment securities		38,186		356		3.70	%		38,991		342		3.49	%
Loans		90,199		1,510		6.64	%		73,893		1,185		6.38	%
Total interest earnings assets		136,823		1,936		5.61	%		117,766		1,542		5.21	%
Non-interest-earning assets		6,544							5,838
Total assets	$	143,366						$	123,604
Interest Bearing Liabilities:
NOW accounts		2,963		4		0.54	%		2,975		4		0.53	%
Savings and money market accounts		43,735		154		1.40	%		45,256		132		1.16	%
Time deposits		56,358		451		3.17	%		42,491		273		2.56	%
Borrowed money		13,810		137		3.94	%		10,443		65		2.48	%
Total interest bearing liabilities		116,867		746		2.53	%		101,165		474		1.86	%
Non-interest bearing demand deposits		15,132							12,242
Other non-interest-bearing liabilities		1,815							1,314
Capital accounts		9,552							8,883
Total liabilities and capital accounts	$	143,366						$	123,604
Net interest income				1,190							1,068
Net interest margin				3.45	%						3.64	%
Interest rate spread				3.08	%						3.35	%

	For Nine Months Ended
	September 30, 2005						September 30, 2004
Interest-Earning Assets:		Average		Income/	Average			Average		Income/	Average
Federal funds sold and money		Balance		Expense	Rate			Balance		Expense	Rate
market accounts	$	5,453	$	121	2.97	%	$	4,162	$	32	1.03	%
Investment securities		37,991		1,065	3.75	%		35,601		935	3.51	%
Loans		85,615		4,228	6.60	%		68,634		3,302	6.43	%
Total interest-earnings assets		129,059		5,414	5.61	%		108,397		4,269	5.26	%
Non-interest-earning assets		6,791						6,174
Total assets	$	135,850					$	114,571

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Interest-Bearing Liabilities:
NOW accounts		3,042	15		0.66	%		2,815	11		0.52	%
Savings and money market accounts		43,716	407		1.24	%		40,642	329		1.08	%
Time deposits		52,271	1,160		2.97	%		38,149	705		2.47	%
Borrowed money		10,473	289		3.69	%		10,836	194		2.39	%
Total interest-bearing liabilities		109,502	1,871		2.28	%		92,442	1,239		1.79	%
Non-interest-bearing demand deposits		14,366			0.00	%		11,996			0.00	%
Other non-interest-bearing liabilities		2,601						1,316
Capital accounts		9,381						8,817
Total liabilities and capital accounts	$	135,850					$	114,571
Net interest income			3,543						3,030
Net interest margin			3.67	%					3.73	%
Interest rate spread			3.32	%					3.47	%

Net interest income can be analyzed in terms of the impact of changing rates and changing volumes. The table on the next page describes the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by the prior rate), (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume), and (iii) the net change (dollars in thousands):

	For the 3 Months Ended								For the 9 Months Ended
	September 30, 2005 versus 2004								September 30, 2005 versus 2004
Interest Income:	Increase (Decrease) Due to								Increase (Decrease) Due to
Federal funds sold and money		Rate			Volume			Total		Rate			Volume			Total
market accounts	$	38		$	17		$	55	$	76		$	13		$	89
Investment securities		21			(7	)		14		65			65			130
Loans		51			274			325		91			835			926
Total interest income		110			284			394		232			913			1,145
Interest Expense:
NOW accounts		-			-			-		3			1			4
Savings and money market accounts		26			(4	)		22		52			26			78
Time deposits		75			104			179		159			296			455
Borrowed money		46			26			72		101			(7	)		94
Total interest expense		147			126			273		315			316			631
Change in Net interest income	$	(37	)	$	158		$	121	$	(83	)	$	597		$	515

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Provision for Loan Losses

The Company’s provision for loan losses was $94,000 in the third quarter of 2005 compared to $75,000 in the same quarter in 2004. For the first nine months of 2005 and 2004, the provision for loan losses was $255,000 and $237,000, respectively. Management performs a quarterly review of the loan portfolio and based on this review sets the level of provision necessary to maintain an adequate loan loss allowance. At September 30, 2005, the allowance for loan losses totaled $1,458,000, or 1.53% of total gross loans outstanding, compared to $1,295,000, or 1.63% of total loans outstanding, at December 31, 2004.

At September 30, 2005, the Bank had nonperforming loans totaling $753,000. At December 31, 2004, the Bank had no loans on nonaccrual status.

Noninterest Income

Total noninterest income for the three-month periods ended September 30, 2005 and 2004 was $99,000 and $79,000, respectively, with no realized gains on investment securities in either period. Total noninterest income for the nine-month periods ended September 30, 2005 and 2004 was $290,000 and $223,000, respectively, including $6,000 of realized gains on investment securities in the 2004 period. The higher noninterest income in 2005 reflects increased fees on loans as well as higher rental income in 2005 from property purchased by the Bank in April 2004.

Noninterest Expense

Total noninterest expenses in the third quarter of 2005 were $217,000 higher than the same quarter of the prior year. For the first nine months of 2005, noninterest expenses were higher by $416,000. The increases in both the third quarter and year-to-date include $98,000 of one-time expenses in 2005 related to the formation of the holding company. The increase in 2005 expenses is also due to higher salaries and employee benefits and reflects the overall strong growth in the Bank’s loan portfolio and total deposit accounts over the past year and the higher expenses related to the increased size and volume of activity. The Bank had 34 full-time equivalent employees at September 30, 2005 versus 31 full-time equivalent employees at September 30, 2004.

Both the three and nine month periods in 2005 show a decline in occupancy and equipment expenses and an increase in outside service fees. This is primarily due to the Bank’s conversion from an in-house data processing environment to a service bureau environment and the classification of the service bureau expenses to outside service fees. In addition to the holding company formation expenses, the increase in other noninterest expenses in the 2005 periods is due in part to higher loan related expenses and fees paid to directors. The Bank began paying directors fees in late 2004.

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Income Taxes

Total income tax expense for the three-month periods ended September 30, 2005 and 2004 was $57,000 and $109,000, respectively. The effective income tax rates for the respective quarters were 30.8% and 39.1%. Total income tax expense for the nine-month periods ended September 30, 2005 and 2004 was $308,000 and $260,000, respectively. The effective income tax rates for the respective nine-month periods were 37.6% and 38.6%. The lower effective rates in 2005 reflect an adjustment to the Company’s State income tax accrual.

(c)Off Balance Sheet Arrangements

There have been no significant changes in the Company’s off-balance sheet arrangements which primarily consist of [commitments to lend], during the quarter and nine months ended September 30, 2005.

Item 3. Controls and Procedures

As used herein, “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation described in the preceding paragraph that occurred during the Company’s fiscal quarter ended September 30, 2005 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. - OTHER INFORMATION

Item 1.   Legal Proceedings - Not applicable

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds - Not applicable

Item 3.   Defaults Upon Senior Securities - Not applicable

Item 4.   Submission of Matters to a Vote of Security Holders - Not applicable

Item 5.   Other Information - Not applicable

Item 6.   Exhibits -

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(a)           Exhibits

3.1	Certificate of Incorporation of First Valley Bancorp, Inc., incorporated herein by reference to Registrant's July 2005 Form 8-A
3.2	Bylaws of First Valley Bancorp, Inc., incorporated herein by reference to Registrant's July 2005 Form 8-A
4.1	Form of Common Stock Certificate of First Valley Bancorp, Inc., incorporated herein by reference to Registrant's July 2005 Form 8-A
10.1	Lease between Valley Bank and The Carpenter Realty Co., Inc. and the S. Carpenter Construction Co. & Bristol Holding, LLC dated October 4, 1999, incorporated herein by reference to Registrant's July 2005 Form 8-A
10.2	Lease between 888 Farmington Avenue, LLC and Bristol Travel, Inc. dba Global Travel Service dated April 6, 2004, incorporated herein by reference to Registrant's July 2005 Form 8-A
10.3	Lease between Valley Bank and Forpicus, LLC dated October 12, 2004, incorporated herein by reference to Registrant's July 2005 Form 8-A
10.4	Employment Agreement between Valley Bank and Robert L. Messier, Jr. dated July 1, 2004, as amended November 1, 2004, incorporated herein by reference to Registrant's July 2005 Form 8-A
10.5	Valley Bank Amended and Restated 1999 Stock Option and Stock Compensation Plan, incorporated herein by reference to Registrant's July 2005 Form 8-A
10.6	Change of Control Agreement between Valley Bank and Mark J. Blum dated October 1, 2004, incorporated herein by reference to Registrant's July 2005 Form 8-A
10.7	Change of Control Agreement between Valley Bank and Anthony M. Mattioli dated October 1, 2004, incorporated herein by reference to Registrant's July 2005 Form 8-A
10.8	Change of Control Agreement between Valley Bank and Robert L. Messier, Jr. dated October 1, 2004, incorporated herein by reference to Registrant's July 2005 Form 8-A
31.1	Chief Executive Officer Certification pursuant to 17 CFR 240.13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Chief Financial Officer Certification pursuant to 17 CFR 240.13a-14 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FIRST VALLEY BANCORP, INC.
	(Registrant)
Date:  November 14, 2005	/s/ Robert L. Messier, Jr.
	Robert L. Messier, Jr.
	President and Chief Executive
	Officer
Date:  November 14, 2005	/s/ Mark J. Blum
	Mark J. Blum
	Executive Vice President, Treasurer
	and Chief Financial Officer

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