-----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, MBTxVy6nDRJPpljB4gF9TM+QkNK/3ApMHfp/Fkd/X98993MQrJ0W39r8O0cn9Qwe rTiPaj+CXDSoAnkkhMsmIg== 0000950134-02-010037.txt : 20020814 0000950134-02-010037.hdr.sgml : 20020814 20020814151231 ACCESSION NUMBER: 0000950134-02-010037 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 02735505 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 c71193e10vq.txt FORM 10-Q FOR QUARTER ENDING JUNE 30, 2002 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 JUNE 30, 2002 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 June 30, 2002 was 2,179,176 shares. BLUE VALLEY BAN CORP INDEX PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS Independent Accountants' Report .............................................. 3 Consolidated Balance Sheets - June 30, 2002 (unaudited) and December 31, 2001 4 Consolidated Statements of Income (unaudited) - three months and six months ended June 30, 2002 and 2001 .................................... 6 Consolidated Statements of Stockholders' Equity (unaudited) - six months ended June 30, 2002 and 2001 .................................... 7 Consolidated Statements of Cash Flows (unaudited) - six months ended June 30, 2002 and 2001 ..................................................... 8 Notes to Consolidated Financial Statements (unaudited) - six months ended June 30, 2002 and 2001 ..................................................... 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ..................................................... 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .............. 23 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS ....................................................... 25 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS ............................... 25 ITEM 3. DEFAULTS UPON SENIOR SECURITIES ......................................... 25 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..................... 25 ITEM 5. OTHER INFORMATION ....................................................... 25 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ........................................ 26
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 accompanying consolidated balance sheet of Blue Valley Ban Corp as of June 30, 2002, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2002 and 2001 and the consolidated statements of stockholders' equity and cash flows for the six-month periods ended June 30, 2002 and 2001. These financial statements are the responsibility of the Company's management. We conducted our reviews 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 reviews, 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, 2001 and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended (not presented herein), and in our report dated February 1, 2002, 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, 2001 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 July 25, 2002 3 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEETS JUNE 30, 2002 AND DECEMBER 31, 2001 (dollars in thousands, except share data) ASSETS
JUNE 30, DECEMBER 31, 2002 2001 ----------- ----------- (Unaudited) Cash and due from banks $ 32,659 $ 20,159 Federal funds sold 45,000 5,000 -------- -------- Cash and cash equivalents 77,659 25,159 Available-for-sale securities 62,370 77,676 Mortgage loans held for sale 32,899 41,853 Loans, net of allowance for loan losses of $5,534 and $5,267 in 2002 and 2001, respectively 341,386 328,808 Premises and equipment 9,778 8,079 Foreclosed assets held for sale, net 174 49 Interest receivable 2,171 2,513 Deferred income taxes 989 904 Prepaid expenses and other assets 2,525 2,072 Federal Home Loan Bank stock, Federal Reserve Bank stock and other securities 3,459 3,477 Core deposit intangible asset, at amortized cost 1,357 1,433 -------- -------- Total assets $534,767 $492,023 ======== ========
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Report 4 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEETS JUNE 30, 2002 AND DECEMBER 31, 2001 (dollars in thousands, except share data) LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30, DECEMBER 31, 2002 2001 ----------- ------------ (Unaudited) LIABILITIES Deposits Demand $ 65,462 $ 74,229 Savings, NOW and money market 182,347 157,336 Time 183,843 162,680 -------- -------- Total deposits 431,652 394,245 Securities sold under agreements to repurchase 16,727 17,173 Long-term debt 37,683 36,118 Guaranteed preferred beneficial interest in Company's subordinated debt 11,500 11,500 Advances from borrowers for taxes and insurance 2,473 383 Accrued interest and other liabilities 3,841 4,079 -------- -------- Total liabilities 503,876 463,498 -------- -------- STOCKHOLDERS' EQUITY Capital stock Common stock, par value $1 per share; authorized 15,000,000 shares; issued and outstanding 2002 - 2,179,176 shares; 2001 - 2,175,176 2,179 2,175 Additional paid-in capital 5,711 5,641 Retained earnings 22,219 19,878 Accumulated other comprehensive income Unrealized appreciation on available-for-sale securities, net of income taxes of $521 in 2002 and $553 in 2001 782 831 -------- -------- Total stockholders' equity 30,891 28,525 -------- -------- Total liabilities and stockholders' equity $534,767 $492,023 ======== ========
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Report 5 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (dollars in thousands, except share data)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2002 2001 2002 2001 ----------- ----------- ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) INTEREST INCOME Interest and fees on loans $ 6,310 $ 7,099 $12,896 $14,003 Federal funds sold 184 239 200 580 Available-for-sale securities 917 1,058 1,933 2,258 Held-to-maturity securities 40 80 ------- ------- ------- ------- Total interest income 7,411 8,436 15,029 16,921 ------- ------- ------- ------- INTEREST EXPENSE Interest-bearing demand deposits 98 226 193 471 Savings and money market deposit accounts 731 1,334 1,534 2,841 Other time deposits 1,970 2,536 4,018 4,955 Securities sold under repurchase agreements 43 114 83 226 Long-term debt and advances 777 620 1,565 1,233 ------- ------- ------- ------- Total interest expense 3,619 4,830 7,393 9,726 ------- ------- ------- ------- NET INTEREST INCOME 3,792 3,606 7,636 7,195 PROVISION FOR LOAN LOSSES 470 555 1,070 1,095 ------- ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,322 3,051 6,566 6,100 ------- ------- ------- ------- NONINTEREST INCOME Loans held for sale fee income 3,272 1,156 6,280 1,453 Service fees 456 375 891 701 Realized gain on sales of investment securities 153 -- 193 217 Other income 50 54 139 112 ------- ------- ------- ------- Total noninterest income 3,931 1,585 7,503 2,483 ------- ------- ------- ------- NONINTEREST EXPENSE Salaries and employee benefits 3,755 2,251 7,074 4,164 Net occupancy expense 481 344 931 650 Other operating expense 1,201 922 2,472 1,883 ------- ------- ------- ------- Total noninterest expense 5,437 3,517 10,477 6,697 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 1,816 1,119 3,592 1,886 PROVISION FOR INCOME TAXES 635 356 1,251 611 ------- ------- ------- ------- NET INCOME $ 1,181 $ 763 $ 2,341 $ 1,275 ======= ======= ======= ======= BASIC EARNINGS PER SHARE $ 0.54 $ 0.35 $ 1.08 $ 0.59 ======= ======= ======= ======= DILUTED EARNINGS PER SHARE $ 0.53 $ 0.35 $ 1.05 $ 0.58 ======= ======= ======= =======
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Report 6 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (dollars in thousands, except share data)
ACCUMULATED ADDITIONAL OTHER COMPREHENSIVE COMMON PAID-IN RETAINED COMPREHENSIVE INCOME STOCK CAPITAL EARNINGS INCOME TOTAL ------------- ------- ---------- -------- ------------- -------- BALANCE, DECEMBER 31, 2000 $ 2,142 $ 5,277 $ 15,935 $ 461 $ 23,815 Issuance of 29,956 shares of common stock $ -- 30 303 -- -- 333 Net income 1,275 -- -- 1,275 -- 1,275 Change in unrealized depreciation on available-for-sale securities, net of income taxes of $246 368 -- -- -- 368 368 -------- ------- ------- -------- -------- -------- $ 1,643 ======== BALANCE, JUNE 30, 2001 2,172 5,580 17,210 829 25,791 Issuance of 3,500 shares of common stock -- 3 61 -- -- 64 Net income 2,668 -- -- 2,668 -- 2,668 Change in unrealized appreciation on available-for-sale securities, net of income taxes of $1 2 -- -- -- 2 2 -------- ------- ------- -------- -------- -------- $ 2,670 ======== BALANCE, DECEMBER 31, 2001 2,175 5,641 19,878 831 28,525 Issuance of 4,000 shares of common stock -- 4 70 -- -- 74 Net income 2,341 -- -- 2,341 -- 2,341 Change in unrealized appreciation on available-for-sale securities, net of income tax credit of $(32) (49) -- -- -- (49) (49) -------- ------- ------- -------- -------- -------- $ 2,292 ======== BALANCE, JUNE 30, 2002 $ 2,179 $ 5,711 $ 22,219 $ 782 $ 30,891 ======= ======= ======== ======== ========
JUNE 30, DECEMBER 31, JUNE 30, 2002 2001 2001 ----- ----- ----- RECLASSIFICATION DISCLOSURE Unrealized appreciation on available-for-sale securities, net of income taxes of $45, $112 and $333 for the periods ended June 30, 2002, December 31, 2001 and June 30, 2001, respectively $ 67 $ 172 $ 498 Less: reclassification adjustments for appreciation included in net income, net of income taxes of $77, $113 and $87 for the periods ended June 30, 2002, December 31, 2001 and June 30, 2001, respectively (116) (170) (130) ----- ----- ----- Change in unrealized appreciation on available-for-sale securities, net of income taxes (credit) of $(32), $1, and $246 for the periods ended June 30, 2002, December 31, 2001 and June 30, 2001, respectively $ (49) $ 2 $ 368 ===== ===== =====
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Report 7 BLUE VALLEY BAN CORP CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (dollars in thousands, except share data)
JUNE 30, 2002 JUNE 30, 2001 ------------- ------------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,341 $ 1,275 Items not requiring (providing) cash Depreciation and amortization 486 352 Amortization of premiums and discounts on securities 30 16 Provision for loan losses 1,070 1,095 Deferred income taxes (53) (92) Gain on sales of available-for-sale securities (193) (217) Loss on sale of foreclosed assets 30 122 (Gain) loss on sale of premises and equipment 10 (5) Changes in Accrued interest receivable 342 331 Mortgage loans held for sale 8,954 (25,509) Prepaid expenses and other assets (485) 375 Accrued interest payable and other liabilities (238) 664 -------- -------- Net cash provide by (used in) operating activities 12,294 (21,593) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Net originations of loans (18,366) (30,375) Proceeds from sales of loan participations 4,478 2,424 Purchase of premises and equipment (2,099) (945) Proceeds from the sale of premises and equipment 12 11 Proceeds from the sale of foreclosed assets 85 324 Proceeds from sales of available-for-sale securities 13,183 5,192 Proceeds from maturities of available-for-sale securities 17,205 18,600 Purchases of available-for-sale securities (15,000) (17,210) Proceeds from the sale of Federal Home Loan and Federal Reserve Bank stock 893 -- Purchases of Federal Home Loan and Federal Reserve Bank stock (875) -- -------- -------- Net cash used in investing activities (484) (21,979) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits, money market, NOW and savings accounts 16,244 12,644 Net increase in time deposits 21,163 22,134 Repayments of long-term debt (80) (74) Proceeds from long-term debt 1,645 -- Net payments on short-term debt -- (5,000) Proceeds from sale of common stock 74 333 Net increase (decrease) in other borrowings (446) 2,441 Net increase in advances from borrowers for taxes and insurance 2,090 1,613 -------- -------- Net cash provided by financing activities 40,690 34,091 -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 52,500 (9,481) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 25,159 35,920 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 77,659 $ 26,439 ======== ========
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Report 8 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (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 June 30, 2002, and the consolidated results of its operations, stockholders' equity and cash flows for the periods ended June 30, 2002 and 2001, 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 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, 2001 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 its 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 six-months ended June 30, 2002 and 2001 is as follows:
JUNE 30, 2002 JUNE 30, 2001 ------------- ------------ (Unaudited) (Unaudited) (amounts in thousands, except share and per share data) Net income $ 2,341 $ 1,275 ========== ========== Average common shares outstanding 2,177,013 2,157,802 Average common share stock options outstanding 56,867 45,519 ---------- ---------- Average diluted common shares 2,233,880 2,203,321 ========== ========== Basic earnings per share $ 1.08 $ 0.59 ========== ========== Diluted earnings per share $ 1.05 $ 0.58 ========== ==========
See Independent Accountants' Report 9 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED) NOTE 3: LONG-TERM DEBT Long-term debt at June 30, 2002 and December 31, 2001, consisted of the following components:
JUNE 30, 2002 DECEMBER 31, 2001 ------------ ----------------- (Unaudited) (in thousands) Note Payable - other (A) $ 1,538 $ 1,618 Note Payable - bank (B) 3,645 2,000 Federal Home Loan Bank advances (C) 32,500 32,500 ------- ------- Total long-term debt $37,683 $36,118 ======= =======
(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) Borrowing under $10 million revolving line of credit; interest only at the fed funds rate + 1.68% due quarterly until 2003, when the outstanding principal balance is due; collateralized by common stock of the Company's subsidiary bank. (C) Due in 2008 and 2010 and 2011; collateralized by various assets including mortgage-backed loans, and U.S. Treasury and Agency securities. The interest rates on the advances range from 4.00% to 5.682%. Federal Home Loan Bank advance availability is determined quarterly and at June 30, 2002, approximately $51,596,000 was available. Aggregate annual maturities of long-term debt at June 30, 2002 are as follows:
(in thousands) July 1 to December 31, 2002 $ 82 2003 3,820 2004 188 2005 203 2006 219 Thereafter 33,171 ------- $37,683 =======
See Independent Accountants' Report 10 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2002 AND 2001 (UNAUDITED) NOTE 4: 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. See Independent Accountants' Report 11 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 June 30, 2002 and 2001. Net income for the quarter ended June 30, 2002, was $1.2 million, as compared to net income of $763,000 for the quarter ended June 30, 2001, representing an increase of $418,000, or 54.78%. Diluted earnings per share increased 51.43% to $0.53 during the second quarter of 2002 from $0.35 in the same period of 2001. The Company's annualized return on average assets and average stockholders' equity for the three-month period ended June 30, 2002 were 0.90% and 16.43%, compared to 0.69% and 12.23%, respectively, for the same period in 2001, increases of 30.43% and 34.34%, respectively. The principal contributor to our increase in net income from the prior year second quarter to the current year was an increase in non-interest income. The expansion of the Company's internet mortgage capabilities coupled with declines in market interest rates during 2001 resulted in a significant increase in the number of residential mortgage loans originated, a trend which has persisted through the second quarter of 2002. The Company's internet mortgage capabilities were expanded considerably with the creation of the Internet Mortgage Division and the introduction of its website, internetmortgage.com, during the first quarter of 2001. The division began realizing significant gains in non-interest income during the second quarter of 2001; however, the income generated did not begin to offset the costs of expansion, mainly increased staffing and occupancy costs, until the third quarter of the year. Consequently, the Company has realized a considerably greater impact on net income from mortgage origination and refinancing revenue generated by this division during the three-month period ended June 30, 2002 as compared to the same period in 2001. In addition, the Company's Retail Mortgage Division has also experienced a significant increase in residential mortgage loan originations in the Company's local market during the second quarter of 2002 due to declines in market interest rates. Non-interest income generated by the Retail Mortgage Division increased by nearly 60% during the second quarter of 2002 as compared to the second quarter of 2001. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net interest income of $3.8 million remained virtually unchanged during the three-month period ended June 30, 2002 as compared to the three-month period ended June 30, 2001. Interest income for the current year second quarter was $7.4 million, a decrease of $1.0 million, or 12.15%, from $8.4 million in the same quarter in the prior year. This decrease was primarily a result of an overall decrease in the yield on average earning assets of 197 basis points to 6.18 % in the second quarter of 2002, as compared to 8.15% in the prior year second quarter. Average earning asset volume increased from the second quarter of 2001 to the current period by $66.8 million, or 15.92%, which partially offset the decrease in yield on interest-earning assets. The 197 basis point decrease in yield has resulted primarily from declines in market interest rates throughout 2001 which have persisted into the current year. Interest expense for the current year second quarter was $3.6 million, a decrease of $1.2 million, or 25.07%, from $4.8 million in the prior year second quarter. The decrease is attributable to a decrease in the rates paid on average interest-bearing liabilities during the current quarter. There have been two primary causes for this decline in interest rates. First is the impact of the overall decline in market interest rates on the rates of our funding sources. Secondly, promotional time deposits offered during May, June and July of 2000, which bore interest rates notably higher than current market rates, renewed, repriced or matured during the first quarter of 2002 at significantly lower rates. The rate paid on total average interest-bearing liabilities decreased to 3.35% during the quarter ended June 30, 2002 compared to 5.22% during the same quarter in 2001, a decrease of 187 basis points. Average interest-bearing deposits increased by $47.2 million, or 14.69% from the prior year and other interest-bearing liabilities increased by $15.6 million or 31.64% from the prior year, mainly in the form of long-term FHLB borrowings. These increases in interest-bearing liability volume partially offset the overall decrease in rate. Six months ended June 30, 2002 and 2001. Net income for the six months ended June 30, 2002 was $2.3 million, compared to net income of $1.3 million for the six-month period ended June 30, 2001, representing an increase of $1.0 million, or 83.67%. Diluted earnings per share increased 81.03% to $1.05 during the six months ended June 30, 2002 from $0.58 in the same period of 2001. The Company's annualized return on average assets and average stockholders' equity for the six-month period ended June 30, 2002 were 0.91% and 16.05%, compared to 0.59% and 10.43%, respectively, for the same period in 2001, increases of 54.24% and 53.88%, respectively. The principal contributor to our increase in net income from the six months ended June 30, 2001 to the current year was an increase in non-interest income. The expansion of the Company's internet mortgage capabilities coupled with declines in market interest rates during 2001, which have persisted into the current year, resulted in a significant increase in the number of residential mortgage loans originated, a trend which has continued through the six-months ended June 30, 2002. The Company's internet mortgage capabilities were expanded considerably with the creation of the Internet Mortgage Division and the introduction of its website, internetmortgage.com, during the first quarter of 2001. The division began realizing significant gains in non-interest income during the second quarter of 2001; however, the income generated did not begin to offset the costs of expansion, mainly increased staffing and occupancy costs, until the third quarter of the year. Consequently, the Company has realized a considerably greater impact on net income from mortgage origination and refinancing revenue during the six-month period ended June 30, 2002 as compared to the same period in 2001. In addition, the Company's Retail Mortgage Division experienced a significant increase in residential mortgage loan originations in the Company's local market during the six-month period ended June 30, 2002 due to declines in market interest rates. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Non-interest income generated by the Retail Mortgage Division increased by nearly 80% during the six-months ended June 30, 2002 as compared to the same period in 2001. Net interest income of $7.6 million increased by $441,000 or 6.13% during the six-month period ended June 30, 2002 as compared to $7.2 million for the six-month period ended June 30, 2001. Interest income for the six months ended June 30, 2002 was $15.0 million, a decrease of $1.9 million, or 11.18%, from $16.9 million for the same period in the prior year. This decrease was primarily a result of an overall decrease in the yield on average earning assets of 206 basis points to 6.37 % during the six months ended June 30, 2002, compared to 8.43% during that period in the prior year. Average earning asset volume increased from the first half of 2001 to the current period by $71.8 million, or 17.53%, which partially offset the decrease in yield on interest-earning assets. The 206 basis point decrease in yield has resulted primarily from decreases in market interest rates throughout 2001 which have persisted into the current year. Interest expense for the six-month period ended June 30, 2002 was $7.4 million, a decrease of $2.3 million, or 23.99%, from $9.7 million in the same period of the prior year. The decrease is attributable to a decrease in the rates paid on average interest-bearing liabilities during the current period. There have been two primary causes for this decline in interest rates. First is the impact of the overall decline in market interest rates on the rates of our funding sources. Secondly, promotional time deposits offered during May, June and July of 2000, which bore interest rates notably higher than current market rates, renewed, repriced or matured during the first quarter of 2002 at significantly lower rates. The rate paid on total average interest-bearing liabilities decreased to 3.53% during the six-month period ended June 30, 2002 compared to 5.40% during the same period in 2001, a decrease of 187 basis points. Average interest-bearing deposits increased by $39.8 million, or 12.68% from the prior year and other interest-bearing liabilities increased by $19.8 million or 40.56% from the prior year, mainly in the form of long-term FHLB borrowings. These increases in interest-bearing liability volume partially offset the overall decrease in rate. 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. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AVERAGE BALANCES, YIELDS AND RATES
SIX MONTHS ENDED JUNE 30, --------------------------------------------------------------------------------- 2002 2001 ----------------------------------------- ------------------------------------ AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE -------- -------- -------- -------- --------- ------- ASSETS Federal funds sold ......................... $ 24,470 $ 200 1.65% $ 23,835 $ 580 4.91% Investment securities - taxable ............ 54,473 1,589 5.88 58,120 1,974 6.85 Investment securities - non-taxable (1) .... 14,909 521 7.05 15,712 552 7.09 Mortgage loans held for sale ............... 48,110 1,586 6.65 12,939 422 6.58 Loans, net of unearned discount and fees ... 339,141 11,310 6.73 298,738 13,581 9.17 -------- -------- -------- -------- Total earning assets ..................... 481,103 15,206 6.37 409,344 17,109 8.43 -------- -------- -------- -------- Cash and due from banks - non-interest bearing .................................. 23,825 14,259 Allowance for possible loan losses ......... (5,154) (4,569) Premises and equipment, net ................ 8,832 6,863 Other assets ............................... 10,998 8,744 -------- -------- Total assets ............................. $519,604 $434,641 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits-interest bearing: Interest-bearing demand accounts .......... $ 28,988 $ 193 1.34% $ 30,275 $ 471 3.14% Savings and money market deposits ......... 147,176 1,534 2.10 129,044 2,841 4.44 Time deposits ............................. 177,849 4,018 4.56 154,859 4,955 6.45 -------- -------- -------- -------- Total interest-bearing deposits ......... 354,013 5,745 3.27 314,178 8,267 5.31 -------- -------- -------- -------- Short-term borrowings ...................... 20,249 135 1.34 20,525 432 4.24 Long-term debt ............................. 48,283 1,513 6.32 28,232 1,027 7.34 -------- -------- -------- -------- Total interest-bearing liabilities ...... 422,545 7,393 3.53 362,935 9,726 5.40 -------- -------- -------- -------- Non-interest bearing deposits .............. 64,099 44,176 Other liabilities .......................... 3,551 2,884 Stockholders' equity ....................... 29,409 24,646 -------- -------- Total liabilities and stockholders' equity ............................... $519,604 $434,641 ======== ======== Net interest income/spread ................. $ 7,813 2.84% $ 7,383 3.03% ======== ===== ======== ===== Net interest margin ........................ 3.27% 3.64%
- ---------- (1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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: o changes in volume, reflecting changes in volume multiplied by the prior period rate; and o 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
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO 2001 -------------------------------------- CHANGE CHANGE DUE TO DUE TO TOTAL RATE VOLUME CHANGE ------- ------- ------- (DOLLARS IN THOUSANDS) Federal funds sold ........................ $ (386) $ 6 $ (380) Investment securities - taxable ........... (278) (107) (385) Investment securities - non-taxable (1) ... (4) (27) (31) Mortgage loans held for sale .............. 5 1,159 1,164 Loans, net of unearned discount ........... (3,618) 1,347 (2,271) ------- ------- ------- Total interest income .......... (4,281) 2,378 (1,903) ------- ------- ------- Interest-bearing demand accounts .......... (269) (9) (278) Savings and money market deposits ......... (1,496) 189 (1,307) Time deposits ............................. (1,456) 519 (937) Short-term borrowings ..................... (295) (2) (297) Long-term debt ............................ (142) 628 486 ------- ------- ------- Total interest expense ......... (3,658) 1,325 (2,333) ------- ------- ------- Net interest income ....................... $ (623) $ 1,053 $ 430 ======= ======= =======
- ---------- (1) Presented on a fully tax-equivalent basis assuming a tax rate of 34%. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PROVISION FOR LOAN LOSSES The provision for loan losses for the second quarter of 2002 was $470,000, compared to $555,000 for the same period of 2001, resulting in a $85,000, or 15.32%, decrease. For the six-months ended June 30, 2002 and 2001, the provision was $1.1 million for both periods. The decrease in the provision in the second quarter of 2002 has resulted from improvements in credit quality in our loan portfolio. We make provisions for loan losses in amounts management deems necessary to maintain the allowance for loan losses at an appropriate level. NON-INTEREST INCOME
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 2002 2001 2002 2001 ------ ------ ------ ------ (In thousands) Loans held for sale fee income ..... $3,272 $1,156 $6,280 $1,453 NSF charges and service fees ....... 247 179 499 339 Other service charges .............. 209 196 392 362 Realized gain on sales of investment securities ...................... 153 -- 193 217 Other income ....................... 50 54 139 112 ------ ------ ------ ------ Total non-interest income .... $3,931 $1,585 $7,503 $2,483 ====== ====== ====== ======
Non-interest income increased to $3.9 million, or 148.01%, during the three-month period ended June 30, 2002, from $1.6 million during the three-month period ended June 30, 2001. Non-interest income for the six-months ended June 30, 2002 was $7.5 million, an increase of $5.0 million, or 202.17%, from $2.5 million for the six-months ended June 30, 2001. These increases are primarily attributable to an increase in loans held for sale fee income, though significant increases were also realized in NSF charges and service fees. Loans held for sale fee income increased $2.1 million, or 183.04%, and $4.8 million, or 332.21%, for the three-month and six-month periods ended June 30, 2002, respectively. We have experienced significant growth in our loans held for sale income due to the expansion of our internet mortgage capabilities concurrent with a relatively low-rate environment. Mortgage originations and refinancing, and the resultant revenue, have continued to flourish in the low interest rate environment which has persisted through the second quarter of 2002. This increase was partially offset by a decrease in the realized gain on sales of investment securities of $40,000 during the second quarter of 2002. Interest rate volatility experienced in the bond market during 2002 has created opportunities for the Company to realize appreciation on available-for-sale securities. The Company sold six investment securities during the current year with a total book value of $13.0 million and realized a gain of $193,000. During 2001, many of our investment securities had appreciated significantly due to the declining interest rate environment. We took advantage of opportunities to mitigate the risk of long-term rate volatility in our available-for-sale investment portfolio by selling some of our longer-term bonds. Four investment securities with a total book value of $5.0 million were sold during the first six months of 2001 resulting in a gain of $217,000. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NON-INTEREST EXPENSE
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- 2002 2001 2002 2001 ------- ------- ------- ------- (IN THOUSANDS) Salaries and employee benefits . $ 3,755 $ 2,251 $ 7,074 $ 4,164 Occupancy ...................... 481 344 931 650 FDIC and other insurance expense 77 40 146 80 General and administrative ..... 1,124 882 2,326 1,803 ------- ------- ------- ------- Total non-interest expense $ 5,437 $ 3,517 $10,477 $ 6,697 ======= ======= ======= =======
Non-interest expense increased to $5.4 million, or 54.59%, during the three-month period ended June 30, 2002 and to $10.5 million, or 56.44%, during the six-month period ended June 30, 2002, from $3.5 million and $6.7 million in the prior year periods, respectively. These increases are primarily attributable to an increase in salaries and employee benefits expense, which increased $1.5 million, or 66.81%, during the second quarter of 2002 and $2.9 million, or 69.88%, during the six-month period ended June 30, 2002, compared to the prior year periods. Salaries and employee benefits expense increased as we hired additional staff to facilitate our growth. We had 227 full-time equivalent employees at June 30, 2002 as compared to 169 at June 30, 2001. Many areas of the Company added employees to manage growth with the expansion of the Internet Mortgage Division necessitating approximately 50% of the net increase in full-time employees. Also, as our internet and retail mortgage loan originations have grown, commissions paid have also grown, contributing to the increase in salaries and employee benefits expense during 2002. FINANCIAL CONDITION Total assets for the Company at June 30, 2002, were $534.8 million, an increase of $42.7 million, or 8.69%, compared to $492.0 million at December 31, 2001. Deposits and stockholders' equity at June 30, 2002, were $431.7 million and $30.9 million, respectively, compared with $394.2 million and $28.5 million, respectively, at December 31, 2001, increases of $37.4 million, or 9.49%, and $2.4 million, or 8.29%, respectively. Loans at June 30, 2002 totaled $341.4 million, an increase of $12.6 million, or 3.83%, compared to December 31, 2001. The loan to deposit ratio at June 30, 2002 was 80.37% compared to 84.74% at December 31, 2001. The deposit growth of 9.49% has provided the funding necessary to facilitate our loan growth. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Mortgage loans held for sale at June 30, 2002 totaled $32.9 million, a decrease of $9.0 million, from $41.9 million at December 31, 2001. Seasonal factors, efficiencies in loan processing, etc. can cause periodic fluctuations in the balance of mortgage loans held for sale. As the low interest rate environment has persisted, the average volume of loans has steadied somewhat in the second quarter of 2002 to an average balance of $36.0 million. Excess cash and due from bank balances, federal funds sold, scheduled calls and maturities of investment securities, 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 June 30, 2002, approximately $51,596,000 million was available. 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: 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NON-PERFORMING ASSETS
AS OF ---------------------------------------- JUNE 30, -------------------- DECEMBER 31, 2002 2001 2001 ------ ------ ------------ (Dollars in thousands) REAL ESTATE LOANS: Past due 90 days or more $ 15 $ 205 $ -- Nonaccrual 1,462 838 824 INSTALLMENT LOANS: Past due 90 days or more -- 21 33 Nonaccrual -- 15 13 CREDIT CARDS AND RELATED PLANS: Past due 90 days or more 4 -- -- Nonaccrual -- -- -- COMMERCIAL (TIME AND DEMAND) AND ALL OTHER LOANS: Past due 90 days or more 669 152 76 Nonaccrual 149 887 752 LEASE FINANCING RECEIVABLES: Past due 90 days or more -- -- -- Nonaccrual 232 790 1,365 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 2,531 2,908 3,063 FORECLOSED ASSETS HELD FOR SALE 174 67 49 ------ ------ ------ Total non-performing assets $2,705 $2,975 $3,112 ====== ====== ====== Total nonperforming loans to total loans 0.73% 0.92% 0.92% Total nonperforming loans to total assets 0.47% 0.64% 0.62% Allowance for loan losses to nonperforming loans 218.65% 170.25% 171.96% Nonperforming assets to loans and foreclosed assets held for sale 0.78% 0.94% 0.93%
As of June 30, 2002, non-performing loans equaled 0.73% of total loans. We closely monitor non-performing credit relationships and our philosophy has been to value non-performing loans at their estimated collectible value and to aggressively manage these situations. The percentage of non-performing loans to total loans at June 30, 2002 is in line with historical percentages despite a decline in general economic conditions, as the loan portfolio has been cautiously monitored for possible non-performing loans and these situations have been aggressively managed when they have emerged. Generally, the Bank maintains its allowance for loan losses in excess of its non-performing loans. As of June 30, 2002, our ratio of allowance for loan losses to non-performing loans was 218.65%. 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth information regarding changes in our allowance for loan and valuation losses for the periods indicated. SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
AS OF AND FOR THE ----------------------------------------------- SIX MONTHS ENDED JUNE 30, YEAR ENDED -------------------------- DECEMBER 31, 2002 2001 2001 -------- -------- ----------- (Dollars in thousands) BALANCE AT BEGINNING OF PERIOD $ 5,267 $ 4,440 $ 4,440 LOANS CHARGED-OFF Commercial real estate 70 -- -- Residential real estate -- -- 5 Commercial 211 569 1,015 Personal 38 26 80 Home Equity -- -- -- Construction -- -- -- Leases 706 169 836 -------- -------- -------- Total loans charged-off 1,025 764 1,936 -------- -------- -------- RECOVERIES: Commercial real estate 1 -- -- Residential real estate -- -- 5 Commercial 78 69 119 Personal 18 29 41 Home Equity -- -- -- Construction -- -- -- Leases 125 82 198 -------- -------- -------- Total recoveries 222 180 363 -------- -------- -------- NET LOANS CHARGED-OFF 803 584 1,573 PROVISION FOR LOAN LOSSES 1,070 1,095 2,400 -------- -------- -------- BALANCE AT END OF PERIOD $ 5,534 $ 4,951 $ 5,267 ======== ======== ======== LOANS OUTSTANDING: Average $339,141 $298,738 $310,727 End of period 346,920 314,857 334,075 RATIO OF ALLOWANCE FOR LOAN LOSSES TO LOANS OUTSTANDING: Average 1.63% 1.66% 1.70% End of period 1.60% 1.57% 1.58% RATIO OF ANNUALIZED NET CHARGE-OFFS TO Average loans 0.48% 0.39% 0.51% End of period loans 0.47% 0.37% 0.47%
21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The allowance for loan losses as a percent of total loans has remained fairly constant at 1.60% as of June 30, 2002, compared to 1.58% at December 31, 2001. For the six months ended June 30, 2002, annualized net charge-offs equaled 0.48% of average total loans. This ratio is slightly below historical averages due in part to charge-off recoveries of $222,000 during the period. Liquidity is measured by 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 the money and capital markets. The funds are used to meet deposit withdrawals, maintain reserve requirements, fund loans and operate the organization. Core deposits are defined as demand deposits, interest-bearing transaction accounts, savings deposits and certificates of deposit less than $100,000. Also excluded from core deposits are brokered and internet deposits. Core deposits were 64.57% of our total assets at June 30, 2002, and 66.54% of total assets at December 31, 2001. 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 June 30, 2002, the Bank was within the established guidelines. At June 30, 2002, our total stockholders' equity was $30.9 million and our equity to asset ratio was 5.78%. At June 30, 2002, our Tier 1 capital ratio was 9.13% compared to 8.87% at December 31, 2001, while our total risk-based capital ratio was 10.73% compared to 10.69% at December 31, 2001. Both exceed the capital minimums established in the risk-based capital requirements. 22 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 Asset/Liability 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 changes in interest rates will not affect net interest income or the economic value of equity by more than 10%, per 100 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 June 30, 2002 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 22.38% (5.21%) 200 basis point rise 15.53% (3.72%) 100 basis point rise 7.69% (2.14%) Base Rate Scenario -- -- 50 basis point decline (5.74%) (0.97%) 100 basis point decline (10.22%) (2.11%) 150 basis point decline (14.10%) (3.23%)
23 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The above table indicates that, at June 30, 2002, 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 June 30, 2002, in the event of a sudden increase or decrease in prevailing market rates, the current net economic value of our equity would decrease. Net economic value of equity at risk is based on the current market values of assets, liabilities, and current off-balance sheet positions, and was in excess of our book value at June 30, 2002. 24 PART II: OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable ITEM 2. CHANGES IN 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 On May 15, 2002, the Company held its Annual Meeting of Stockholders. There were 2,175,676 shares outstanding and entitled to vote at the Annual Meeting, of which 1,748,147 shares were represented in person or by proxy. The following items were submitted at the Annual Meeting for consideration by the stockholders. 1. Election of Director C. Ted McCarter and Don H. Alexander were elected at the Annual Meeting to serve a three year term, or until his successor is duly elected and qualified. The voting results for both were as follows: Shares Voted For: 1,748,147 Shares Voted Against 0 Shares Abstained 0 The directors of the Company whose terms of office extended beyond the date of the Annual Meeting include: Robert D. Regnier Wayne A. Henry, Jr. Thomas A. McDonnell 2. The acts of the Directors and Officers as shown by the books and records regularly kept and maintained by the corporation since the last Annual Meeting of the Stockholders of the Company were approved and ratified. The voting results were as follows: Shares Voted For: 1,748,147 Shares Voted Against 0 Shares Abstained 0 ITEM 5. OTHER INFORMATION Not applicable 25 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (D) EXHIBITS 11. Computation of Earnings Per Share. Please see p. 9. 15. Letter regarding Unaudited Interim Financial Information 99.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 99.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 (E) REPORTS ON FORM 8-K Blue Valley filed no reports on Form 8-K during the quarter ended June 30, 2002. 26 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: August 14, 2002 By: /s/ Robert D. Regnier ------------------------------------ Robert D. Regnier, President and Chief Executive Officer Date: August 14, 2002 By: /s/ Mark A. Fortino ------------------------------------ Mark A. Fortino, Treasurer 27 EX-15 3 c71193exv15.txt LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION EXHIBIT 15 LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D. C. 20549 We are aware that our report dated July 25, 2002 on our review of the interim financial information of Blue Valley Ban Corp for the periods ended June 30, 2002 and 2001 and included in the Company's quarterly report on Form 10-Q 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 July 25, 2002 EX-99.1 4 c71193exv99w1.txt CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER EXHIBIT 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Blue Valley Ban Corp (the "Company") on Form 10-Q for the quarter ended June 30, 2002, as filed with the United States Securities and Exchange Commission on the date hereof (the "Report"), I, Robert D. Regnier, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Robert D. Regnier ------------------------------------- Robert D. Regnier, President and Chief Executive Officer August 14, 2002 EX-99.2 5 c71193exv99w2.txt CERTIFICATION OF THE CHIEF FINANCIAL OFFICER EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Blue Valley Ban Corp (the "Company") on Form 10-Q for the quarter ended June 30, 2002, as filed with the United States Securities and Exchange Commission on the date hereof (the "Report"), I, Mark A. Fortino, Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Mark A. Fortino --------------------------------- Mark A. Fortino, Treasurer (Chief Financial Officer) August 14, 2002 -----END PRIVACY-ENHANCED MESSAGE-----