-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FMsSjiZvZ6/4i2J+U8y1OIYzoh39QsPehmjQZWAVdfVdx5CUKuE7HXVFnjbBV9BD eA2PmCI8KJLnRvNE5Em7mw== 0000950124-01-504054.txt : 20020410 0000950124-01-504054.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950124-01-504054 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUE VALLEY BAN CORP CENTRAL INDEX KEY: 0000901842 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 481070996 STATE OF INCORPORATION: KS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15933 FILM NUMBER: 1789363 BUSINESS ADDRESS: STREET 1: 11935 RILEY CITY: OVERLAND PARK STATE: KS ZIP: 66225 BUSINESS PHONE: 9133381000 MAIL ADDRESS: STREET 1: 11935 RILEY CITY: OVERLAND PARK STATE: KS ZIP: 66225 10-Q 1 c66062e10-q.txt QUARTERLY REPORT DATED 09/30/01 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________________ TO __________________ COMMISSION FILE NUMBER: 001-15933 BLUE VALLEY BAN CORP (Exact name of registrant as specified in its charter) KANSAS 48-1070996 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11935 RILEY OVERLAND PARK, KANSAS 66225-6128 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (913) 338-1000 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 [ ] Number of shares of Common Stock ($1.00 par value) outstanding at the close of business on September 30, 2001 was 2,172,076 shares. BLUE VALLEY BAN CORP INDEX
Page No. PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS Independent Accountants' Report 3 Consolidated Balance Sheets - September 30, 2001 (unaudited) and December 31, 2000 4 Consolidated Statements of Income (unaudited) - three-months and nine-months ended September 30, 2001 and 2000 6 Consolidated Statements of Changes in Stockholders' Equity (unaudited) - nine-months ended September 30, 2001 and 2000 7 Consolidated Statements of Cash Flows (unaudited) - nine-months ended September 30, 2001 and 2000 8 Notes to Consolidated Financial Statements (unaudited) - nine-months ended September 30, 2001 and 2000 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 20 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INDEPENDENT ACCOUNTANTS' REPORT Board of Directors Blue Valley Ban Corp Overland Park, Kansas 66225 We have reviewed the consolidated balance sheet of BLUE VALLEY BAN CORP as of September 30, 2001, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 2001 and 2000, and the consolidated statements of changes in stockholders' equity and cash flows for the nine-month periods ended September 30, 2001 and 2000. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2000 and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended (not presented herein), and in our report dated February 9, 2001 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2000 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ BKD, LLP Kansas City, Missouri October 30, 2001 3 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
SEPTEMBER 30, 2001 DECEMBER 31, 2000 ------------------------ ----------------------- (UNAUDITED) Cash and due from banks $21,242 $13,720 Federal funds sold - 22,200 ------------------------ ----------------------- Cash and cash equivalents 21,242 35,920 Available-for-sale securities 76,617 76,503 Held-to-maturity securities - 2,000 Mortgage loans held for sale 48,215 1,207 Loans 320,265 287,669 Less allowance for loan losses (4,786) (4,440) ------------------------ ----------------------- Net loans 315,479 283,229 Premises and equipment 8,034 6,591 Foreclosed assets held for sale, net 105 334 Interest receivable 2,237 3,058 Deferred income taxes 450 939 Prepaid expenses and other assets 1,735 2,041 Federal Home Loan Bank stock, Federal Reserve Bank stock and other securities 3,477 1,550 Excess of cost over fair value of net assets acquired, at amortized cost 1,471 1,295 ------------------------ ----------------------- Total Assets $479,062 $414,667 ======================== =======================
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Report. 4 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2001 AND DECEMBER 31, 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) LIABILITIES AND STOCKHOLDERS' EQUITY
SEPTEMBER 30, 2001 DECEMBER 31, 2000 ------------------------ ----------------------- (UNAUDITED) LIABILITIES Demand deposits $60,052 $44,354 Savings, NOW and money market deposits 167,010 154,464 Time deposits 160,783 139,403 ------------------------ ----------------------- Total Deposits 387,845 338,221 Securities sold under agreements to repurchase 20,407 15,299 Short-term debt 1,000 5,000 Long-term debt 24,156 16,768 Guaranteed preferred beneficial interest in Company's subordinated debt 11,500 11,500 Advances from borrowers for taxes and insurance 3,130 1,350 Accrued interest and other liabilities 3,684 2,714 ------------------------ ----------------------- Total Liabilities 451,722 390,852 ------------------------ ----------------------- STOCKHOLDERS' EQUITY Capital stock Common stock, par value $1 per share; Authorized 15,000,000 shares; issued and outstanding 2001 - 2,172,076 shares; 2000 - 2,141,720 2,172 2,142 Additional paid-in capital 5,584 5,277 Retained earnings 18,252 15,935 Accumulated other comprehensive income Unrealized appreciation on available-for-sale securities, net of income taxes of $887 in 2001 and $307 in 2000 1,332 461 ------------------------ ----------------------- Total Stockholders' Equity 27,340 23,815 ------------------------ ----------------------- Total Liabilities and Stockholders' Equity $479,062 $414,667 ======================== =======================
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Report. 5 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 2001 2000 2001 2000 ------------- ------------- ------------- ------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) INTEREST INCOME Interest and fees on loans $7,170 $6,813 $21,173 $19,537 Federal funds sold 76 390 656 443 Available-for-sale securities 1,046 905 3,304 2,472 Held-to-maturity securities 39 - 119 - ------------- ------------- ------------- ------------- Total Interest Income 8,331 8,108 25,252 22,452 ------------- ------------- ------------- ------------- INTEREST EXPENSE Interest-bearing demand deposits 221 243 692 635 Savings and money market deposit accounts 1,167 1,472 4,008 4,096 Other time deposits 2,470 2,137 7,425 5,273 Securities sold under repurchase agreements 124 120 350 297 Long-term debt and advances 595 644 1,828 1,500 ------------- ------------- ------------- ------------- Total Interest Expense 4,577 4,616 14,303 11,801 ------------- ------------- ------------- ------------- NET INTEREST INCOME 3,754 3,492 10,949 10,651 PROVISION FOR LOAN LOSSES 570 495 1,665 1,440 ------------- ------------- ------------- ------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,184 2,997 9,284 9,211 NONINTEREST INCOME Service fees 2,251 758 4,405 2,052 Realized gain on sales of investment securities 282 - 499 - Other income 53 59 165 219 ------------- ------------- ------------- ------------- Total Noninterest Income 2,586 817 5,069 2,271 ------------- ------------- ------------- ------------- NONINTEREST EXPENSE Salaries and employee benefits 2,686 1,466 6,850 4,299 Net occupancy expense 438 291 1,088 824 Other operating expense 1,060 832 2,943 2,459 ------------- ------------- ------------- ------------- Total Noninterest Expense 4,184 2,589 10,881 7,582 ------------- ------------- ------------- ------------- INCOME BEFORE INCOME TAXES 1,586 1,225 3,472 3,900 PROVISION FOR INCOME TAXES 544 411 1,155 1,307 ------------- ------------- ------------- ------------- NET INCOME $1,042 $814 $2,317 $2,593 ============= ============= ============= ============= BASIC EARNINGS PER SHARE $0.48 $0.38 $1.07 $1.21 ============= ============= ============= ============= DILUTED EARNINGS PER SHARE $0.47 $0.37 $1.05 $1.19 ============= ============= ============= =============
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Report. 6 \ BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Accumulated Other Comprehensive Income ------------------ Unrealized Appreciation Additional (Depreciation) on Comprehensive Common Paid-In Retained Available-for-Sale Income Stock Capital Earnings Securities, Net Total ------------- ------ ------- -------- --------------- ------- BALANCE, DECEMBER 31, 1999 $2,138 $5,230 $12,458 $(957) $18,869 Issuance of 4,000 shares of common stock 4 47 51 Net income $2,593 2,593 2,593 Change in unrealized depreciation on available-for-sale securities, net of income taxes of $308 462 462 462 ------------- ------ ------- -------- --------------- -------- $3,055 ============= BALANCE, SEPTEMBER 30, 2000 $2,142 $5,277 $15,051 $(495) $21,975 ------ ------- -------- --------------- ------- Net income $884 884 884 Change in unrealized appreciation on available-for-sale securities, net of income taxes of $637 956 956 956 ------------- ------ ------- -------- --------------- ------- $4,895 ============= BALANCE, DECEMBER 31, 2000 $2,142 $5,277 $15,935 $461 $23,815 ------ ------- -------- --------------- ------- Issuance of 30,356 shares of common stock 30 307 337 Net income $2,317 2,317 2,317 Change in unrealized appreciation on available-for-sale securities, net of income taxes of $580 871 871 871 ------------- ------ ------- -------- --------------- ------- $3,188 ============= BALANCE, SEPTEMBER 30, 2001 $2,172 $5,584 $18,252 $1,332 $27,340 ====== ======= ======== =============== =======
September 30, December 31, September 30, 2001 2000 2000 ------------- ------------ ------------- RECLASSIFICATION DISCLOSURE: Unrealized appreciation on available-for-sale securities, net of income taxes of $780, $637, and $308 for the periods ended September 30, 2001, $1,170 $956 $462 December 31, 2000, and September 30, 2000, respectively Less: reclassification adjustments for appreciation included in net income, net of income taxes of $(200) for the period ended September 30, 2001 (299) -- -- ------------- ------------ ------------- Change in unrealized appreciation on available-for-sale securities, net of income taxes of $580, $637, and $308 for the periods ended September 30, 2001, December 31, 2000, and September 30, 2000, respectively $871 $956 $462 ============= ============ =============
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Report. 7 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 -------------------- --------------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income $2,317 $2,593 Items not requiring (providing) cash: Depreciation and amortization 553 464 Amortization of premiums and discounts on securities 8 60 Provision for loan losses 1,665 1,440 Deferred income taxes (91) - Gain on sales of available-for-sale securities (499) - Loss on sale of foreclosed assets 153 - Gain on sale of premises and equipment (5) - Changes in: Accrued interest receivable 821 (652) Mortgage loans held for sale (47,008) (1,687) Prepaid expenses and other assets 303 18 Accrued interest payable and other liabilities 970 752 -------------------- --------------------- Net cash provided by (used in) operating activities (40,813) 2,988 -------------------- --------------------- CASH FLOWS FROM INVESTING ACTIVITIES Net originations of loans (38,692) (35,084) Proceeds from sales of loan participations 4,514 658 Purchase of premises and equipment (1,195) (931) Proceeds from the sale of premises and equipment 11 - Proceeds from the sale of foreclosed assets 339 431 Proceeds from maturities of held-to-maturity securities 2,000 - Purchases of held-to-maturity securities - (2,000) Proceeds from sales of available-for-sale securities 16,400 - Proceeds from maturities of available-for-sale securities 31,675 3,205 Purchases of available-for-sale securities (46,247) (16,935) Purchases of FHLB stock, FRB stock, and other securities (1,927) (431) Net cash acquired in branch acquisition 1,604 - -------------------- --------------------- Net cash used in investing activities (31,518) (51,087) -------------------- --------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits, money market, NOW and savings accounts 26,775 20,587 Net increase in certificates of deposit 20,265 32,936 Repayments of long-term debt (112) (104) Proceeds from long-term debt 7,500 - Net proceeds from guaranteed preferred beneficial interest in Company's subordinated debt - 10,615 Net payments on short-term debt (4,000) (7,450) Proceeds from sale of common stock 337 51 Net increase in other borrowings 5,108 2,946 Net increase in advances from borrowers for taxes and insurance 1,780 758 -------------------- --------------------- Net cash provided by financing activities 57,653 60,339 -------------------- --------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (14,678) 12,240 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 35,920 23,460 -------------------- --------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $21,242 $35,700 ==================== =====================
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Report. 8 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (UNAUDITED) NOTE 1: BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company's consolidated financial position as of September 30, 2001, and the consolidated results of its operations, changes in stockholders' equity and cash flows for the periods ended September 30, 2001 and 2000, and are of a normal recurring nature. Certain information and note disclosures normally included in the company's annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's December 31, 2000 Form 10-K filed with the Securities and Exchange Commission. The results of operations for the period are not necessarily indicative of the results to be expected for the full year. The report of BKD, LLP commenting upon their review accompanies the consolidated financial statements included in Item 1 of Part I. NOTE 2: EARNINGS PER SHARE Basic earnings per share is computed based on the weighted average number of shares outstanding during each year. Diluted earnings per share is computed using the weighted average common shares and all potential dilutive common shares outstanding during the period. The computation of per share earnings for the nine-months ended September 30, 2001 and 2000 is as follows:
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 ------------------- ------------------- (UNAUDITED) (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net income $ 2,317 $ 2,593 ------------------- ------------------- Average common shares outstanding 2,162,535 2,141,457 Average common share stock options outstanding 45,154 34,372 ------------------- ------------------- Average diluted common shares 2,207,689 2,175,829 ------------------- ------------------- Basic earnings per share $ 1.07 $ 1.21 =================== =================== Diluted earnings per share $ 1.05 $ 1.19 =================== ===================
9 NOTE 3: SHORT-TERM DEBT Short-term debt at September 30, 2001 and December 31, 2000, consisted of the following components:
SEPTEMBER 30, 2001 DECEMBER 31, 2000 --------------------- --------------------- (UNAUDITED) (IN THOUSANDS) Note Payable - other (A) $ 1,000 $ - Federal Home Loan Bank advance (B) - 5,000 --------------------- --------------------- Total short-term debt $ 1,000 $ 5,000 ===================== =====================
(A) Note payable to related party due in December 2001; principal, plus interest at 6.0%, due at maturity. The note payable is unsecured and funds were utilized for short-term working capital needs. Management is currently reviewing and evaluating alternative working capital financing. (B) Due in June 2001; collateralized by various assets including mortgage-backed loans and securities, and U.S. Treasury and Agency securities. The interest rate on the advance was 7.170%. NOTE 4: LONG-TERM DEBT Long-term debt at September 30, 2001 and December 31, 2000, consisted of the following components:
SEPTEMBER 30, 2001 DECEMBER 31, 2000 --------------------- --------------------- (UNAUDITED) (IN THOUSANDS) Note Payable - other (A) $ 1,656 $ 1,768 Federal Home Loan Bank advances (B) 22,500 15,000 --------------------- --------------------- Total long-term debt $ 24,156 $ 16,768 ===================== =====================
(A) Due in August 2009, payable in monthly installments of $23,175, plus interest at 7.5%; collateralized by land, building and assignment of future rents. (B) Due in 2008, 2010, and 2011; collateralized by various assets including mortgage-backed loans and securities, and U.S. Treasury and Agency securities. The interest rates on the advances range from 4.63% to 5.68%. Federal Home Loan Bank advance availability is determined quarterly and at September 30, 2001, approximately $66,206,000 was available. Aggregate annual maturities of long-term debt at September 30, 2001 are as follows:
(IN THOUSANDS) --------------------- October 1 to December 31, 2001 $ 39 2002 162 2003 175 2004 188 2005 203 Thereafter 23,389 --------------------- $ 24,156 =====================
10 NOTE 5: TRUST PREFERRED SECURITIES On July 21, 2000, BVBC Capital Trust I (the "Trust"), a Delaware business trust formed by the Company, completed the sale of $11,500,000 of 10.375% trust preferred securities. The Trust is a 100% owned finance subsidiary of the Company. The Trust also issued $355,672 of common securities to the Company and used the total proceeds of $11,855,672 from the offering to purchase $11,855,672 in principal amount of 10.375% junior subordinated debentures of the Company due September 30, 2030. Payments to the Company on the common securities are subordinated to the trust preferred securities in the event of a default on the junior subordinated debentures. The Company paid all underwriting discounts and other operating expenses related to the offering and received net proceeds of $10,578,000. The junior subordinated debentures are the sole assets of the Trust and are eliminated, along with the related income statement effects, in the Company's consolidated financial statements. The trust preferred securities are mandatorily redeemable upon the maturity of the junior subordinated debentures or upon earlier redemption as provided in the indenture. The Company has the right to redeem the junior subordinated debentures, in whole or in part, on or after September 30, 2005, at a redemption price specified in the indenture plus any accrued but unpaid interest to the redemption date. The Company has fully and unconditionally guaranteed the Trust's obligations under the trust preferred securities on a subordinated basis to the extent that the funds are held by the Trust. The trust preferred securities meet the criteria to be considered regulatory capital. NOTE 6: RECENTLY ISSUED ACCOUNTING STANDARDS Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," applies to all combinations initiated after June 30, 2001. It requires that all business combinations be accounted for by a single method--the purchase method. Prior to this standard, business combinations were accounted for using one of two methods, the pooling-of-interests method (pooling method) or the purchase method. SFAS No. 142, "Goodwill and Other Intangible Assets," will be adopted by the Company on January 1, 2002. This Statement addresses the accounting and reporting for acquired goodwill and other intangible assets. Goodwill shall not be amortized after December 31, 2001. It shall be tested for impairment at a reporting unit level, under certain circumstances. Intangible assets with definite useful lives shall be amortized over their respective estimated useful lives to the estimated residual values, and reviewed for impairment. In connection with the transitional goodwill impairment evaluation, SFAS 142 requires the Company to assess whether there is an indication that goodwill is impaired as of the date of adoption. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. As of the date of adoption, the Company expects to have identifiable intangible assets of approximately $1,433,000 that will be subject to the transition provisions of SFAS 142. Amortization expense related to intangible assets was $114,000 for the nine months ended September 30, 2001 and 2000. We estimate that the initial adoption of this Standard will not have a material impact on the financial statements of the Company. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of those safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, can generally be identified by use of the words "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions. The Company is unable to predict the actual results of its future plans or strategies with certainty. Factors which could have a material adverse effect on the operations and future prospects of the Company include, but are not limited to, fluctuations in market rates of interest and loan and deposit pricing; a deterioration of general economic conditions or the demand for housing in the Company's market areas; legislative or regulatory changes; adverse developments in the Company's loan or investment portfolio; any inability to obtain funding on favorable terms; the loss of key personnel; significant increases in competition; and the possible dilutive effect of potential acquisitions or expansions. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. GENERAL RESULTS OF OPERATIONS Three months ended September 30, 2001 and 2000. Net income for the quarter ended September 30, 2001, was $1.0 million, as compared to net income of $814,000 for the quarter ended September 30, 2000, representing an increase of $228,000, or 28.01%. Diluted earnings per share increased 27.03% to $0.47 during the third quarter of 2001 from $0.37 in the same period of 2000. The Company's annualized return on average assets and average stockholders' equity for the three-month period ended September 11 30, 2001 were 0.89% and 15.83%, compared to 0.85% and 15.28%, respectively, for the same period in 2000, slight increases of 4.71% and 3.60%, respectively. The annualized returns remained relatively unchanged from the prior year quarter; however, the returns increased significantly from the second quarter of 2001. The Company's annualized return on average assets and average stockholders' equity for the three-month period ended June 30, 2001 were 0.69% and 12.23%. The increase in our net income was primarily a result of an increase in fee income earned on mortgage loans originated and sold and, to a lesser extent, an increase in interest income generated from mortgage loans originated and held for sale and realized gains on the sale of investment securities. Net interest income for the three-month period ended September 30, 2001 was $3.8 million, an increase of $262,000, or 7.50%, from $3.5 million for the three-month period ended September 30, 2000. Net interest income increased primarily due to an increase of $78.5 million in average interest-earning assets, which more than offset an increase in average interest-bearing liabilities of $65.3 million for the quarter ended September 30, 2001 as compared to the same period of 2000. This increase in average earning assets, coupled with declines in interest rates paid on money market and savings deposits offset an overall decline in rates on earning assets and resulted in a modest net increase in net interest income. Interest income for the three-month period ended September 30, 2001 was $8.3 million, an increase of $223,000, or 2.75%, from $8.1 million for the three-month period ended September 30, 2000. This increase was mainly the result of the growth in interest-earning assets of $78.5 million, or 21.91%. This volume increase was partially mitigated by a decrease in yield on interest-earning assets of 145 basis points, to 7.62% in the third quarter of 2001, as compared to 9.07% in the prior year third quarter. The 145 basis point decrease in yield has resulted primarily from market interest rate decreases during the twelve-month period ended September 30, 2001. A significant increase in the volume of mortgage loans held-for-sale during the third quarter of 2001 helped offset the decrease in yield. The average balance of mortgage loans held-for-sale for the three-month period ended September 30, 2001 was $35.2 million as compared to the average balance for the three-month period ended September 30, 2000 of $2.4 million. Interest expense of $4.6 million remained virtually unchanged during the three-month period ended September 30, 2001 as compared to the three-month period ended September 30, 2000. Average interest-bearing deposits increased by $60.7 million, or 22.56% and average interest-bearing other liabilities increased by $4.6 million, or 9.41%. The increase in interest expense generated by this volume was offset by a decrease in the rates paid on average interest-bearing liabilities which declined to 4.74% in the current year period from 5.78% in the prior year period, a decrease of 104 basis points. This change in rate paid is primarily attributable to the changes in market interest rates. Nine months ended September 30, 2001 and 2000. Net income for the nine-month period ended September 30, 2001, was $2.3 million, a $276,000, or 10.64%, decrease as compared to $2.6 million for the nine-month period ended September 30, 2000. Diluted earnings per share decreased 11.76% to $1.05 during the nine-month period ended September 30, 2001 from $1.19 in the same period of 2000. The Company's annualized return on average assets and average stockholders' equity for the nine-month period ended September 30, 2001 were 0.70% and 12.31%, compared to 0.99% and 17.28%, respectively, for the same period in 2000, decreases of 29.29% and 28.76%, respectively. The changes in the annualized returns were due to a decrease in our net income from the prior year resulting from the decline in interest rates on net interest margin, offset by a significant increase in interest-earning assets, and the continued growth in non-interest expense incurred as the Company expands. Increases in salaries and employee benefits expense, occupancy expense, and other operating expense are primarily due to personnel and facilities expansion to promote current and future growth in the products and services that we offer our customers. The outcome of these efforts is validated by the growth of average interest-earning assets and non-interest income. Asset growth remains strong, though decreases in market interest rates have diminished current interest income results. Additionally, we continue to expand non-interest income through many services, most significantly through our mortgage departments, which includes our recently expanded Internet Mortgage Division. Non-interest income generated from these sources, particularly during the current quarter, have mitigated the effect lower interest rates have had on net interest margin as well as increases in non-interest expense. Net interest income for the nine-month period ended September 30, 2001 was $10.9 million, an increase of $298,000, or 2.80%, from $10.7 million for the nine-month period ended September 30, 2000. Rapid and steep declines in market interest rates during the first nine-months of 2001 have continued to push the Company's net interest margin down to 3.56% at September 30, 2001 as compared to 4.42% at September 30, 2000. However, average volume growth in loan and mortgage loans held-for-sale in addition to growth in the investment portfolio during the current period have offset the impact of declines in market interest rates on net interest margin for the period. Interest income for the nine-month period ended September 30, 2001 was $25.3 million, an increase of $2.8 million, or 12.47%, from $22.5 million for the nine-month period ended September 30, 2000. This increase was primarily a result of a $91.0 million, or 27.78%, growth in interest-earning assets, the effect of which was partially offset by a decrease in yield on interest-earning assets of 111 basis points to 8.12% during the first three quarters of 2001, as compared to 9.23% during the same period of 2000. The 111 basis point decrease in yield has resulted primarily from decreases in market interest rates during the current period. 12 Interest expense for the current year nine-month was $14.3 million, an increase of $2.5 million, or 21.20%, from $11.8 million in the same period of the prior year. The increase is attributable to a $72.0 million, or 29.13%, increase in our average interest-bearing deposits as well as a $8.2 million, or 19.31%, increase in other interest-bearing liabilities. The increase in other interest-bearing liabilities is primarily attributable to our issuance of junior subordinated debentures in July 2000 and additional Federal Home Loan Bank advances taken to fund our growth. Rates paid on average interest-bearing liabilities decreased to 5.17% in the current year period from 5.44% in the prior year period, a decrease of 27 basis points. Rates paid on interest-bearing demand accounts and savings and money management accounts have continued to decrease during 2001 consistent with the decline in overall market interest rates. The decline in market interest rates has been less dramatic on deposit products due to rates paid on certificates of deposit offered through promotions during May, June, and July 2000, which bore higher interest rates. The impact of the decline in time deposit interest rates currently offered on the aggregate interest-bearing liability rate will be lessened until these higher-rate certificates of deposits renew, reprice or mature. 13 Average Balance Sheets. The following table sets forth for the periods and as of the dates indicated, information regarding our average balances of assets and liabilities as well as the dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities and the resultant yields or costs. Ratio, yield and rate information are based on average daily balances where available; otherwise, average monthly balances have been used. Nonaccrual loans are included in the calculation of average balances for loans for the periods indicated. AVERAGE BALANCES, YIELDS AND RATES
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------------------ 2001 2000 ------------------------------------------------------------------------ AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE --------- -------- --------- ---------- -------- --------- ASSETS Federal funds sold........................... $ 18,828 $ 657 4.67 % $ 9,448 $ 443 6.26 % Investment securities - taxable.............. 57,888 2,875 6.64 38,288 1,940 6.77 Investment securities - non-taxable (1)...... 15,770 734 6.22 14,861 713 6.41 Mortgage loans held for sale................. 20,457 1,009 6.59 1,925 117 8.12 Loans, net of unearned discount and fees..... 305,685 20,164 8.82 263,104 19,420 9.86 --------- --------- ---------- --------- Total earning assets.................... 418,628 25,439 8.12 327,626 22,633 9.23 --------- --------- ---------- --------- Cash and due from banks - non-interest bearing...................................... 15,159 11,944 Allowance for possible loan losses........... (4,709) (4,032) Premises and equipment, net.................. 7,201 5,709 Other assets................................. 9,040 7,968 --------- ---------- Total assets............................ $ 445,319 $ 349,215 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits-interest bearing: Interest-bearing demand accounts.......... $ 31,472 $ 692 2.94 % $ 24,477 $ 635 3.47 % Savings and money market deposits......... 130,905 4,008 4.09 107,898 4,096 5.07 Time deposits............................. 156,932 7,425 6.33 114,907 5,273 6.13 --------- --------- ---------- --------- Total interest-bearing deposits......... 319,309 12,125 5.08 247,282 10,004 5.40 --------- --------- ---------- --------- Short-term borrowings........................ 20,883 578 3.70 27,377 1,083 5.28 Long-term debt .............................. 18,032 706 5.23 11,857 478 5.38 Guaranteed preferred beneficial interest in Company's subordinated debt.............. 11,500 895 10.41 3,022 236 10.43 --------- --------- ---------- --------- Total interest-bearing liabilities ..... 369,724 14,304 5.17 289,538 11,801 5.44 --------- --------- ---------- --------- Non-interest bearing deposits................ 47,217 36,954 Other liabilities ........................... 3,203 2,677 Stockholders' equity......................... 25,175 20,046 --------- ---------- Total liabilities and stockholders' equity ................................ $ 445,319 $ 349,215 ========= ========== Net interest income/spread .................. $ 11,135 2.95 % $ 10,832 3.79 % ========= ========= ========= ========= Net interest margin.......................... 3.56 % 4.42 % ========= =========
- --------------- (1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%. 14 Analysis of Changes in Net Interest Income Due to Changes in Interest Rates and Volumes. The following table presents the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. It distinguishes between the increase or decrease related to changes in balances and changes in interest rates. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: - changes in volume, reflecting changes in volume multiplied by the prior period rate; and - changes in rate, reflecting changes in rate multiplied by the prior period volume. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate. CHANGES IN INTEREST INCOME AND EXPENSE VOLUME AND RATE VARIANCES
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO 2000 ------------------------------------- CHANGE CHANGE DUE TO DUE TO TOTAL RATE VOLUME CHANGE ---------- ---------- ---------- (DOLLARS IN THOUSANDS) Federal funds sold................................................ $ (136) $ 350 $ 214 Investment securities - taxable................................... (39) 974 935 Investment securities - non-taxable (1)........................... (22) 43 21 Mortgage loans held for sale...................................... (26) 918 892 Loans, net of unearned discount .................................. (2,189) 2,933 744 ---------- ---------- ---------- Total interest income.................................. (2,412) 5,218 2,806 ---------- ---------- ---------- Interest-bearing demand accounts.................................. (105) 162 57 Savings and money market deposits................................. (877) 789 (88) Time deposits..................................................... 166 1,986 2,152 Short-term borrowings............................................. (282) (223) (505) Long-term debt.................................................... (13) 241 228 Guaranteed preferred beneficial interest in Company's subordinated debt................................................. - 659 659 ---------- ---------- ---------- Total interest expense................................. (1,111) 3,614 2,503 ---------- ---------- ---------- Net interest income............................................... $ (1,301) $ 1,604 $ 303 ========== ========== ==========
--------------- (1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%. 15 PROVISION FOR LOAN LOSSES The provision for loan losses for the third quarter of 2001 was $570,000, compared to $495,000 for the same period of 2000, resulting in a $75,000, or 15.15%, increase. For the nine-months ended September 30, 2001 and 2000, the provision was $1.7 million and $1.4 million, respectively, resulting in a 15.63% increase. The increases in the provision have resulted from growth in the loan portfolio to $320.3 million at September 30, 2001, an increase of $36.9 million, or 13.03%, from $287.7 million at September 30, 2000. We make provisions for loan losses in amounts that management deems necessary to maintain the allowance for loan losses at an appropriate level. The allowance for loan losses is reviewed monthly, considering such factors as current and projected economic conditions, loan growth, the composition of the loan portfolio, loan trends and classifications, and other factors. NON-INTEREST INCOME
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ----------------------------- -------------------------- 2001 2000 2001 2000 ------------- ------------ ----------- ----------- (IN THOUSANDS) Loans held for sale fee income.................... $ 1,819 $ 288 $ 3,272 $ 827 NSF charges and service fees...................... 210 184 549 477 Other service charges............................. 222 286 584 748 Realized gain on sales of investment securities... 282 - 499 - Other income ..................................... 53 59 165 219 ------------- ------------ ----------- ----------- Total non-interest income................... $ 2,586 $ 817 $ 5,069 $ 2,271 ============= ============ =========== ===========
Non-interest income increased to $2.6 million, or 216.52%, during the three-month period ended September 30, 2001, from $817,000 during the three-month period ended September 30, 2000. Non-interest income for the nine-months ended September 30, 2001 was $5.1 million, an increase of $2.8 million, or 123.21%, from $2.3 million for the nine-months ended September 30, 2000. These increases are primarily attributable to an increase in the volume of mortgage loans originated and sold and gains realized on the sales of investment securities. Mortgage loan sales fee income increased by $1.5 million and $2.4 million for the three-month and nine-month periods ended September 30, 2001, respectively. The recent expansion of our Internet Mortgage Division coupled with the recent declines in market interest rates have led to a significant increase in residential mortgage loan originations and sales. Also contributing to the increase in non-interest income during the nine-month period ended September 30, 2001 were realized gains on sales of investment securities of $499,000. Due to the current declining interest rate environment, many of our investment securities have shown significant appreciation during the current year period. During the first quarter of 2001, investment securities with a total net book value of $5.0 million were sold with realized gains of $217,000. During the third quarter of 2001, investment securities with a total net book value of $10.9 million were sold with realized gains of $282,000. NON-INTEREST EXPENSE
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ----------------------------- ------------------------------ 2001 2000 2001 2000 ------------- ------------ ------------- ------------- (IN THOUSANDS) Salaries and employee benefits................. $ 2,686 $ 1,466 $ 6,850 $ 4,299 Occupancy....................................... 438 291 1,088 824 FDIC and other insurance expense................ 47 57 127 118 General and administrative ..................... 1,013 775 2,816 2,341 ------------- ------------ ------------- ------------- Total non-interest expense................ $ 4,184 $ 2,589 $ 10,881 $ 7,582 ============= ============ ============= =============
Non-interest expense increased to $4.2 million, or 61.61%, during the three-month period ended September 30, 2001 and to $10.9 million, or 43.51%, during the nine-month period ended September 30, 2001, from $2.6 million and $7.6 million in the prior year periods, respectively. These increases are primarily attributable to an increase in salaries and employee benefits expense, which increased $1.2 million, or 83.22%, during the third quarter of 2001 and $2.6 million, or 59.34%, during the nine-month period ended September 30, 2001, as compared to the prior year periods. Salaries and employee benefits expense increased as we hired additional staff to expand our Internet Mortgage Division, open a new branch location, and to meet the needs of our existing loan and retail departments. We had 187 full-time employees at September 30, 2001 as compared to 120 at September 30, 2000. Fifty of the new full-time employees were a result of the recent expansion of our Internet Mortgage Division and seven of the new full-time employees were added as a result of our new Shawnee, Kansas branch location. Further, 16 as mortgage loan originations and sales have increased, commissions paid have also grown as well, further contributing to the increase in salaries and employee benefits expense during the second quarter of 2001. FINANCIAL CONDITION Total assets for the Company at September 30, 2001, were $479.1 million, an increase of $64.4 million, or 15.53%, compared to $414.7 million at December 31, 2000. Loans at September 30, 2001 totaled $320.3 million, an increase of $32.6 million, or 11.33%, compared to December 31, 2000. The loan to deposit ratio at September 30, 2001 was 82.58% compared to 85.05% at December 31, 2000. Deposit growth of 14.67%. Mortgage loans held for sale at September 30, 2001 totaled $48.2 million, an increase of $47.0 million, from $1.2 million at December 31, 2000. The recent expansion of our Internet Mortgage Division coupled with the recent declines in market interest rates have led to significant increases in residential mortgage loan originations and sales. Federal funds sold and deposit growth have provided the funding necessary to facilitate the mortgage loan origination growth. Also available to fund growth is a line-of-credit with the Federal Home Loan Bank. Advance availability with the Federal Home Loan Bank is determined quarterly and at September 30, 2001, approximately $66,206 million was available. Deposits and stockholders' equity at September 30, 2001, were $387.8 million and $27.3 million, respectively, compared with $338.2 million and $23.8 million, respectively, at December 31, 2000, increases of $49.6 million, or 14.67%, and $3.5 million, or 14.80%, respectively. Non-performing assets consist primarily of loans past due 90 days or more and nonaccrual loans and foreclosed real estate. The following table sets forth our non-performing assets as of the dates indicated: 17 NON-PERFORMING ASSETS
AS OF AND FOR THE --------------------------------------------------- NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------------------------- 2001 2000 2000 ---- ---- ---- (DOLLARS IN THOUSANDS) REAL ESTATE LOANS: Past due 90 days or more $ 447 $ - $ 206 Nonaccrual 818 394 499 INSTALLMENT LOANS: Past due 90 days or more - - - Nonaccrual 14 59 37 CREDIT CARDS AND RELATED PLANS: Past due 90 days or more 1 - - Nonaccrual - - - COMMERCIAL (TIME AND DEMAND) AND ALL OTHER LOANS: Past due 90 days or more 80 649 24 Nonaccrual 1,148 633 1,326 LEASE FINANCING RECEIVABLES: Past due 90 days or more 6 - - Nonaccrual 1,724 180 382 DEBT SECURITIES AND OTHER ASSETS (EXCLUDE OTHER REAL ESTATE OWNED AND OTHER REPOSSESSED ASSETS): Past due 90 days or more - - - Nonaccrual - - - --------------- -------------- ------------- Total non-performing loans 4,238 1,915 2,474 --------------- -------------- ------------- FORECLOSED ASSETS HELD FOR SALE 105 304 334 --------------- -------------- ------------- Total non-performing assets $4,343 $2,219 $2,808 =============== ============== ============= Total nonperforming loans to total loans 1.32% 0.68% 0.86% Total nonperforming loans to total assets 0.88% 0.48% 0.60% Allowance for loan losses to nonperforming loans 112.93% 227.42% 179.47% Nonperforming assets to loans and foreclosed assets held for sale 1.36% 0.78% 0.97%
As of September 30, 2001, non-performing loans were 1.32% of total loans. We cautiously monitor non-performing credit relationships and aggressively manage these situations. Additionally, it is our philosophy to value non-performing loans at their estimated collectible value. The percentage of non-performing loans to total loans at September 30, 2001 is above historical percentages as a deterioration in general economic conditions has been experienced during 2001. At September 30, 2001, two large lease financing receivables account for approximately 40% of the total lease financing receivables classified as nonaccrual in the table above and significant reserves have been allocated for these two receivables. Generally, the Bank maintains its allowance for loan losses in excess of its non-performing loans. As of September 30, 2001, our ratio of allowance for loan losses to non-performing loans was 112.93%. The following table sets forth information regarding changes in our allowance for loan and valuation losses for the periods indicated. 18 SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
AS OF AND FOR THE ------------------------------------------------------- NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------------------------- 2001 2000 2000 ---- ---- ---- (DOLLARS IN THOUSANDS) Balance at beginning of period $ 4,440 $ 3,817 $ 3,817 Loans charged-off: Commercial real estate - - - Residential real estate 5 - - Commercial 944 343 343 Personal 55 140 153 Home Equity - - - Construction - - - Leases 525 534 1,034 ---------------- ---------------- ----------------- Total loans charged-off 1,529 1,017 1,530 Recoveries: Commercial real estate - - - Residential real estate - - - Commercial 71 51 104 Personal 33 26 46 Home Equity - - - Construction - - - Leases 106 38 53 ---------------- ---------------- ----------------- Total recoveries 210 115 203 ---------------- ---------------- ----------------- Net loans charged-off 1,319 902 1,327 Provision for loan losses 1,665 1,440 1,950 ---------------- ---------------- ----------------- Balance at end of period $ 4,786 $ 4,355 $ 4,440 ================ ================ ================= Loans outstanding: Average 305,685 263,104 268,227 End of period 320,265 283,349 287,669 Ratio of allowance for loan losses to loans outstanding: Average 1.57% 1.66% 1.66% End of period 1.49% 1.54% 1.54% Ratio of net charge-offs to: Average loans 0.58% 0.46% 0.49% End of period loans 0.55% 0.43% 0.46%
The allowance for loan losses as a percent of total loans has remained fairly constant at 1.49% as of September 30, 2001, compared to 1.54% at December 31, 2000. For the nine months ended September 30, 2001, net charge-offs equaled 0.58% of average total loans on an annualized basis. This ratio is slightly above historical averages primarily due to two commercial loan charge-offs during the third quarter of 2001. Liquidity represents a financial institution's ability to raise funds through deposits, borrowed funds, capital, or the sale of marketable assets, such as residential mortgage loans, a portfolio of SBA loans, or available-for-sale securities. Other sources of liquidity including cash flow from the repayment of loans are also considered in determining whether liquidity is satisfactory. Liquidity is also achieved through growth of core deposits and liquid assets, and accessibility to funds from capital markets. The funds are used to meet deposit withdrawals, maintain reserve requirements, fund loans and operate the organization. Core deposits, defined as demand deposits, interest-bearing transaction accounts, savings deposits and certificates of deposit less than $100,000, were 66.96% of our total assets at September 30, 2001, and 69.36% of total assets at December 31, 2000. Internal guidelines have been established to measure liquid assets as well as relevant ratios concerning asset levels and purchased funds. These indicators are reported to the board of directors monthly, and at September 30, 2001, the Bank was within the established guidelines. At September 30, 2001, our total stockholders' equity was $27.3 million and our equity to asset ratio was 5.71%. At September 30, 2001, our Tier 1 capital ratio was 8.63% compared to 9.51% at December 31, 2000, while our total risk-based capital ratio was 10.61% compared to 11.95% at December 31, 2000. Both exceed the capital minimums established in the risk-based capital requirements. 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a continued part of our financial strategy, we attempt to manage the impact of fluctuations in market interest rates on our net interest income. This effort entails providing a reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield. Our funds management policy is established by our Board of Directors and monitored by our Risk Management Committee. Our funds management policy sets standards within which we are expected to operate. These standards include guidelines for exposure to interest rate fluctuations, liquidity, loan limits as a percentage of funding sources, exposure to correspondent banks and brokers, and reliance on non-core deposits. Our funds management policy also establishes the reporting requirements to the Board of Directors. Our investment policy complements our funds management policy by establishing criteria by which we may purchase securities. These criteria include approved types of securities, brokerage sources, terms of investment, quality standards, and diversification. We use an asset/liability modeling service to analyze the Bank of Blue Valley's current sensitivity to instantaneous and permanent changes in interest rates. The system simulates the Bank's asset and liability base and projects future net interest income results under several interest rate assumptions. This allows management to view how changes in interest rates will affect the spread between the yield received on assets and the cost of deposits and borrowed funds. The asset/liability modeling service is also used to analyze the net economic value of equity at risk under instantaneous shifts in interest rates. The "net economic value of equity at risk" is defined as the market value of assets less the market value of liabilities plus/minus the market value of any off-balance sheet positions. By effectively looking at the present value of all future cash flows on or off the balance sheet, the net economic value of equity modeling takes a longer-term view of interest rate risk. We strive to maintain a position such that current changes in interest rates will not affect net interest income or the economic value of equity by more than 5%, per 50 basis points. The following table sets forth the estimated percentage change in the Bank of Blue Valley's net interest income over the next twelve month period and net economic value of equity at risk at September 30, 2001 based on the indicated instantaneous and permanent changes in interest rates.
NET INTEREST NET ECONOMIC INCOME VALUE OF CHANGES IN INTEREST RATES (NEXT 12 MONTHS) EQUITY AT RISK ------------------------- ---------------- -------------- 300 basis point rise 6.95% (10.41%) 200 basis point rise 4.74% (6.43%) 100 basis point rise 2.76% (0.61%) Base Rate Scenario - - 50 basis point decline (1.49%) 1.85% 100 basis point decline (2.67%) 1.88% 200 basis point decline (5.23%) 1.97%
The above table indicates that, at September 30, 2001, in the event of a sudden and sustained increase in prevailing market rates, our net interest income would be expected to increase as our assets would be expected to reprice quicker than our liabilities, while a decrease in rates would indicate just the opposite. The table also indicates that, at September 30, 2001, in the event of a sudden increase in prevailing market rates, the loss in the estimated market value of fixed rate loans and investment securities would be in excess of the estimated market value gain on certificates of deposits and fixed-rate callable FHLB advances, which would have the effect of lowering the economic value of equity. A sudden decrease in prevailing market rates would indicate just the opposite. During the three-month period ended September 30, 2001, our prime lending rate declined by 75 basis points, year-to-date our prime lending rate has decreased by 350 basis points. As discussed above, this decrease in the prime lending rate has resulted in a decrease in our net interest margin as our interest-rate sensitive assets exceed our interest-rate sensitive liabilities. 20 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On July 18, 2000, the Registration Statement on Form S-1 (File Nos. 333-34328 and 333-34328-01) filed by the Company and the Trust was declared effective by the Securities and Exchange Commission. The offering of the 1,437,500 10.375% trust preferred securities that was the subject of the Registration Statement commenced on July 21, 2000. The offering was made through an underwriting syndicate managed by Stifel, Nicolaus & Company, Incorporated. The public offering price was $8.00 per trust preferred security, and the Company received aggregate net proceeds of approximately $10.6 million, after deducting underwriting commissions and estimated offering expenses of approximately $900,000. Of these net proceeds, $7.1 million were used to retire outstanding indebtedness under our bank stock loan and $2.0 million were contributed to the Bank in the form of additional capital. The remainder of the proceeds have been retained by the Company for general corporate purposes, including additional investments from time to time in the Bank in the form of additional capital and possible future acquisitions. 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 AND REPORTS ON FORM 8-K (A) EXHIBITS 11. Computation of Earnings Per Share. Please see p. 9. 15. Letter regarding Unaudited Interim Financial Information (B) REPORTS ON FORM 8-K Blue Valley filed no reports on Form 8-K during the quarter ended September 30, 2001. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Blue Valley Ban Corp Date: November 14, 2001 By: /s/ Robert D. Regnier ------------------------ Robert D. Regnier, President and Chief Executive Officer Date: November 14, 2001 By: /s/ Mark A. Fortino ---------------------- Mark A. Fortino, Treasurer 22 EX-15 3 c66062ex15.txt UNAUDITED INTERIM FINANCIAL INFORMATION EXHIBIT 15 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D. C. 20549 We are aware that our report dated October 30, 2001 on our review of the interim financial information of Blue Valley Ban Corp for the periods ended September 30, 2001 and 2000 and included in the Company's quarterly report on Form 10Q for the quarter then ended is incorporated by reference in Registration Statement 333-46022. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered part of the registration statement prepared or certified by us within the meaning of Sections 7 and 11 of that Act. /s/ BKD, LLP Kansas City, Missouri October 30, 2001 -----END PRIVACY-ENHANCED MESSAGE-----