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CORRESP
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      Response to SEC Comments

    Vail
      Banks, Inc.

    Administrative
      Center

    P.O.
      Box
      1210, 20 Lindbergh Drive

    Gypsum,
      Colorado 81637

    (970)
      328-9717

    bburt@weststarbank.com

    June
      28, 2005

    Mr.
      Paul Cline

    Senior
      Accountant

    Securities
      and Exchange Commission

    100
      F Street, NE

    Washington,
      D.C. 20549

    Dear
      Mr. Cline:

    The
      following information is provided in response to your letter dated June 16,
      2005
      and your two questions which were:

            ·

              Investment
                Securities page F-15 - “In light of the significant other-than-temporary
                impairment charges recorded by other holders of FNMA and FHLMC preferred
                shares and considering the market conditions surrounding those shares,
                please advise us of the following:

            ·

              Whether
                the “agency preferred stock” as disclosed in the notes to your financial
                statements is actually FNMA or FHLMC preferred stock;
                and

            ·

              If
                these are in fact FNMA or FHLMC preferred shares, provide any additional
                commentary in support of the fact that your agency preferred shares
                were
                not impaired at 12/31/03 and
                12/31/04.”

            ·

              Note
                6 Goodwill and Other Intangible Assets, page F-20 - “Please tell us why it
                was necessary to properly record deferred taxes as goodwill in fiscal
                year
                2003 for the acquisition of the Vail Bank building. Please tell us
                what
                specific accounting literature you relied on in determining the
                appropriateness of your accounting. Also, tell us what income statement
                line items include the write-off of this amount in fiscal year
                2004.”

    We
      appreciate that your letter and review process are designed to assist in
      enhancing the applicable disclosures and do acknowledge that the company is
      responsible for the adequacy of the disclosures, that staff comments or changes
      to disclosures in response to staff comments do not foreclose the Commission
      from taking any action with respect to the filing, and the company may not
      assert staff comments as a defense in any proceeding initiated by the Commission
      or any person under the federal securities laws of the United
      States.

    Investment
      Securities

            ·

              In
                relation to your first question, the agency preferred stock as disclosed
                in the company’s notes to the financial statements represent two issues of
                FHLMC Fixed Rate Preferred Stock and one issue of FNMA Floating Rate
                Preferred Stock. Refer to the following table for the CUSIP detail
                of the
                unrealized gain (loss) by reporting period and as of May 31,
                2005:

          Page
            2
of
            3

          June
            28,
            2005

              Valuation
                Date

              420

              421

              423

              Net
                Unrealized Loss

              12/31/03

               (127,500)

               15,000

               (12,188)

               (124,688)

              12/31/04

               (158,825)

               (178,092)

               (27,375)

               (364,292)

              5/31/05

               (189,300)

               (75,600)

               (3,077)

               (267,977)

420
      CUSIP #313400855 FHLMC Fixed Rate Preferred Stock

    421
      CUSIP #313400822 FHLMC Fixed Rate Preferred Stock

    423
      CUSIP #313586869 FNMA Floating Rate Preferred Stock

            ·

              The
                company reviewed the investment portfolio and particularly these
                preferred
                stock issues with its outside auditors to assure that its analysis
                that
                these securities were not permanently impaired met the requirements
                of
                EITF 03-01. The conclusion which we believe was correct and is reflected
                in the improvement in the values of these securities (taken as a
                whole) in
                the first five months of 2005 is also supported by the fact that
                both
                agencies have demonstrated adequate capacity to continue to pay the
                required dividends and have continued to improve their overall capital
                structure.

            ·

              As
                stated in Footnote 15 of the company’s 12/31/04 10-K, “Management has the
                intent and the ability to hold the investments for the foreseeable
                future…”.

            o

              Ability
                - The company has considerable liquidity and finished 2003 and 2004
                with
                $101 million and $35.7 million, respectively, in cash and cash
                equivalents. In addition, capital ratios continue to be strong. Total
                risk-based capital was 13.72% and 12.05% for 12/31/03 and 12/31/04,
                respectively. Management has the intent and the ability to hold these
                investments until full market value recovery is
                realized.

            ·

              Management
                believes that the price decline in these securities from the date
                of
                purchase is directly tied to market interest rates and the perception
                of
                the existence of some credit risk in FHLMC and that this impairment
                is
                temporary.

            ·

              Despite
                the negative press regarding Freddie Mac during 2003 and 2004 pertaining
                to accounting restatements, Management believes that Freddie Mac
                has the
                strength and the capacity to continue as a going concern and that
                its
                preferred stock value would
                recover.

            ·

              The
                ratings on the Freddie Mac preferred stock is AA- by Standard &
                Poor’s.

            ·

              Dividends
                on the Freddie Mac and Fannie Mae securities have remained strong
                at
                around 5 percent per year and have never been
                reduced.

            ·

              The
                unrealized loss represented just under 9 percent of the fair market
                value
                of the company’s agency preferred stock at 12/31/04 which has further
                improved as of May 31, 2005 to 6%.

            ·

              As
                reported by CNNMoney, the current “Analyst Consensus Recommendation” for
                Freddie Mac is closer to “buy” at 2.2 on a scale of 1 to 5. 1 being
                “Strong Buy” and 5 being “Sell”.

            ·

              One
                of the company’s investment advisors, Sandler O’Neill, valued the three
                agency preferred stocks as of May 31, 2005 with an unrealized loss
                of
                $267,977. This is an improvement of $96 thousand or 26 percent as
                compared
                to the December 31, 2004 reported unrealized loss of
                $364,000.

          Page
            3
of
            3

          June
            28,
            2005

    We
      believe that the investments you have referenced are properly valued under
      GAAP.
      Throughout 2004 and 2005, we have had numerous discussions around EITF 03-01.
      Specifically, to quote parts of EITF 03-01 paragraph 10(a) and 10(b), we believe
      that Management not only has the “ability and intent to hold these investments
      for a reasonable period of time,” but Management also has sufficient evidence to
      indicate that “the cost of the investment is recoverable within a reasonable
      period of time” and Management believes that evidence outweighs evidence to the
      contrary.

    Goodwill

            ·

              In
                December 1997, Vail Banks, Inc. completed a tax-free merger with
                the Vail
                Bank building partnership. At the time of the merger, the company
                did not
                recognize deferred taxes resulting from the difference between the
                book
                and tax basis of the building. The purchase price was determined
                based on
                an appraisal of the net assets acquired. The cost of the assets was
                used
                for the tax basis.

            ·

              In
                the fourth quarter of 2003, management performed a valuation analysis
                of
                the Vail Bank building and concluded that the company should have
                recognized a deferred tax liability for the “step up” in the book basis of
                the building of $788 thousand. The offset to this deferred tax liability
                was to goodwill. The entry to goodwill was made net of the calculated
                amortization of goodwill that would have been recognized since the
                merger
                through January 1, 2002 (the company’s adoption of FAS 142, which
                eliminated the amortization of goodwill) and the offsetting entry
                to
                deferred tax liability. These entries were posted in the fourth quarter
                of
                2003.

            ·

              The
                materiality of this transaction was reviewed with the outside auditors
                and
                determined that the amortization expense pertaining to this goodwill,
                had
                it been booked in 1997, was immaterial each year to the results of
                operations and to the financial statements taken as a whole for said
                reporting periods.

            ·

              Accounting
                literature relied on for the deferred tax treatment was FAS 109
                (Accounting for Income Taxes).

            ·

              In
                March 2004, the company recognized a gain on the sale of the Vail
                Bank
                building in the amount of $1.7 million (pre-tax) and at the same
                time, the
                goodwill was written-off. The write-off of goodwill was netted within
                “other non-interest income”. In the company’s “Management’s Discussion and
                Analysis” section within the 2004 Annual Report, Management has broken out
                “total non-interest income” and disclosed the $1.7 million gain as a
                separate line item. The write-off of the goodwill is included within
                this
                line item.

    We
      would be pleased to discuss this response with you if you have further
      questions. Please call me at (970) 328-9711. Also, we would appreciate it if
      future correspondence could be faxed to my attention at (970)
      328-9704.

    Sincerely,

    /s/
      Brady Burt

    Brady
      Burt

    Executive
      Vice-President and Chief Financial Officer

    Vail
      Banks, Inc.

    Cc:       E.B.
      Chester, Chairman Vail Banks, Inc.

    Gary
      Judd, CEO and President Vail Banks, Inc.

    Lisa
      M. Dillon, Vice-Chairman Vail Banks, Inc.

    Ray
      Verlinde, Senior Executive Vice-President and Chief Administrative Officer
      Vail
      Banks, Inc.

    Dan
      E. Godec, President WestStar Bank