10-Q 1 c79096e10vq.txt FORM 10-Q 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, 2003 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 66225-6128 OVERLAND PARK, KANSAS (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (913) 338-1000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Guarantee with respect to the American Stock Exchange Trust Preferred Securities, $8.00 par value, of BVBC Capital Trust I Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer. Yes [ ] No [X] As of June 30, 2003 the registrant had 2,253,736 shares of Common Stock ($1.00 par value) outstanding, of which 1,202,853 shares were held by non-affiliates. The aggregate market value of the common shares of the registrant held by non-affiliates, computed based on the June 30, 2003 closing price of the stock, was approximately $33.7 million. BLUE VALLEY BAN CORP INDEX PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Independent Accountants' Report.....................................................................3 Consolidated Balance Sheets - June 30, 2003 (unaudited) and December 31, 2002.......................4 Consolidated Statements of Income (unaudited) - three months and six months ended June 30, 2003 and 2002..........................................6 Consolidated Statements of Stockholders' Equity (unaudited) - six months ended June 30, 2003 and 2002 ..........................................................7 Consolidated Statements of Cash Flows (unaudited) - six months ended June 30, 2003 and 2002...........................................................8 Notes to Consolidated Financial Statements (unaudited) - six months ended June 30, 2003 and 2002...........................................................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 ITEM 4. CONTROLS AND PROCEDURES.......................................................................24 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, 2003, and the related consolidated statements of income for the three-month and six-month periods ended June 30, 2003 and 2002 and the consolidated statements of stockholders' equity and cash flows for the six-month periods ended June 30, 2003 and 2002. 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of America. 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, 2002 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 14, 2003 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, 2002 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, 2003 3 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEETS JUNE 30, 2003 AND DECEMBER 31, 2002 (dollars in thousands, except share data) ASSETS
DECEMBER 31, JUNE 30, 2003 2002 ------------- ------------ (Unaudited) Cash and due from banks $ 26,447 $ 27,755 Federal funds sold -- -- -------- -------- Cash and cash equivalents 26,447 27,755 Available-for-sale securities 62,805 61,364 Mortgage loans held for sale 101,050 119,272 Loans, net of allowance for loan losses of $7,876 and $6,914 in 2003 and 2002, respectively 406,954 373,168 Premises and equipment 16,813 10,277 Foreclosed assets held for sale, net 547 614 Interest receivable 1,964 2,014 Deferred income taxes 1,707 1,688 Prepaid expenses and other assets 2,660 2,541 Federal Home Loan Bank stock, Federal Reserve Bank stock and other securities 5,959 5,209 Core deposit intangible asset, at amortized cost 1,204 1,281 -------- -------- Total assets $628,110 $605,183 ======== ========
See Accompanying Notes to Consolidated Financial Statements and Independent Accountant's Report 4 BLUE VALLEY BAN CORP CONSOLIDATED BALANCE SHEETS JUNE 30, 2003 AND DECEMBER 31, 2002 (dollars in thousands, except share data) LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, JUNE 30, 2003 2002 ------------- ------------ (Unaudited) LIABILITIES Deposits Demand $ 89,674 $ 86,591 Savings, NOW and money market 179,055 167,553 Time 201,645 169,643 -------- -------- Total deposits 470,374 423,787 Federal funds purchased and securities sold under agreements to repurchase 24,203 33,688 Short-term debt -- 35,000 Long-term debt 68,995 58,051 Guaranteed preferred beneficial interest in Company's subordinated debt 19,000 11,500 Balance due under U.S. Treasury note option 3,410 3,142 Accrued interest and other liabilities 3,786 5,671 -------- -------- Total liabilities 589,768 570,839 -------- -------- STOCKHOLDERS' EQUITY Capital stock Common stock, par value $1 per share; authorized 15,000,000 shares; issued and outstanding 2003 - 2,253,736 shares; 2002 - 2,222,711 2,254 2,223 Additional paid-in capital 6,875 6,284 Retained earnings 28,455 25,052 Accumulated other comprehensive income Unrealized appreciation on available-for-sale securities, net of income taxes of $505 in 2003 and $523 in 2002 758 785 -------- -------- Total stockholders' equity 38,342 34,344 -------- -------- Total liabilities and stockholders' equity $628,110 $605,183 ======== ========
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, 2003 AND 2002 (dollars in thousands, except share data)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, 2003 2002 2003 2002 ----------- ------------ ----------- ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) INTEREST INCOME Interest and fees on loans $ 7,285 $ 6,310 $14,332 $12,896 Federal funds sold 7 184 13 200 Available-for-sale securities 523 917 1,105 1,933 ------- ------- ------- ------- Total interest income 7,815 7,411 15,450 15,029 ------- ------- ------- ------- INTEREST EXPENSE Interest-bearing demand deposits 49 98 90 193 Savings and money market deposit accounts 569 731 970 1,534 Other time deposits 1,753 1,970 3,467 4,018 Federal funds purchased and securities sold under repurchase agreements 40 43 82 83 Long-term debt and advances 1,013 777 1,966 1,565 ------- ------- ------- ------- Total interest expense 3,423 3,619 6,575 7,393 ------- ------- ------- ------- NET INTEREST INCOME 4,392 3,792 8,875 7,636 PROVISION FOR LOAN LOSSES 600 470 1,200 1,070 ------- ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,792 3,322 7,675 6,566 ------- ------- ------- ------- NONINTEREST INCOME Loans held for sale fee income 5,900 3,272 11,005 6,280 Service fees 557 456 1,074 891 Realized gain on sales of investment securities -- 153 -- 193 Other income 149 50 225 139 ------- ------- ------- ------- Total noninterest income 6,606 3,931 12,304 7,503 ------- ------- ------- ------- NONINTEREST EXPENSE Salaries and employee benefits 5,405 3,755 10,077 7,074 Net occupancy expense 805 481 1,463 931 Other operating expense 1,648 1,201 3,130 2,472 ------- ------- ------- ------- Total noninterest expense 7,858 5,437 14,670 10,477 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 2,540 1,816 5,309 3,592 PROVISION FOR INCOME TAXES 913 635 1,906 1,251 ------- ------- ------- ------- NET INCOME $ 1,627 $ 1,181 $ 3,403 $ 2,341 ======= ======= ======= ======= BASIC EARNINGS PER SHARE $ 0.73 $ 0.54 $ 1.53 $ 1.08 ======= ======= ======= ======= DILUTED EARNINGS PER SHARE $ 0.71 $ 0.53 $ 1.48 $ 1.05 ======= ======= ======= =======
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, 2003 AND 2002 (dollars in thousands, except share data)
ACCUMULATED ADDITIONAL OTHER COMPREHENSIVE COMMON PAID-IN RETAINED COMPREHENSIVE INCOME STOCK CAPITAL EARNINGS INCOME TOTAL ------------- -------- ---------- -------- ------------- -------- 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 ======== ======== ======== ======== ======== Issuance of 43,535 shares of common stock -- 44 573 -- -- 617 Net income 3,055 -- -- 3,055 -- 3,055 Dividends on common stock ($0.10 per share) (222) (222) Change in unrealized appreciation on available-for-sale securities, net of income taxes of $2 3 -- -- -- 3 3 -------- -------- -------- -------- -------- -------- $ 3,058 ======== BALANCE, DECEMBER 31, 2002 $ 2,223 $ 6,284 $ 25,052 $ 785 $ 34,344 ======== ======== ======== ======== ======== Issuance of 31,025 shares of common stock -- 31 591 -- -- 622 Net income 3,403 -- -- 3,403 -- 3,403 Change in unrealized appreciation on available-for-sale securities, net of income tax credit of $(18) (27) -- -- -- (27) (27) -------- -------- -------- -------- -------- -------- $ 3,376 ======== BALANCE, JUNE 30, 2003 $ 2,254 $ 6,875 $ 28,455 $ 758 $ 38,342 ======== ======== ======== ======== ========
DECEMBER 31, JUNE 30, 2003 2002 JUNE 30, 2002 ------------- ------------ ------------- RECLASSIFICATION DISCLOSURE Unrealized appreciation (depreciation) on available-for-sale securities, net of income taxes (credit) of $(18), $47, and $45 for the periods ended June 30, 2003, December 31, 2002 and June 30, 2002, respectively $ (27) $ 3 $ 67 Less: reclassification adjustments for appreciation included in net income, net of income taxes of $0, $0, and $77 for the periods ended June 30, 2003, December 31, 2002 and June 30, 2002, respectively -- -- (116) -------- -------- -------- Change in unrealized appreciation on available-for-sale securities, net of income taxes (credit) of $(18), $2, and $(32) for the periods ended June 30, 2003, December 31, 2002 and June 30, 2002, respectively $ (27) $ 3 $ (49) ======== ======== ========
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, 2003 AND 2002 (dollars in thousands, except share data)
JUNE 30, 2003 JUNE 30, 2002 ------------- ------------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,403 $ 2,341 Adjustments to reconcile net income to net cash flow from operating activities: Depreciation and amortization 708 486 Amortization of premiums and discounts on securities 18 30 Provision for loan losses 1,200 1,070 Deferred income taxes (1) (53) Net gain on sales of available-for-sale securities -- (193) Net loss on sale of foreclosed assets 5 30 Net loss (gain) on sale of premises and equipment (18) 10 Originations of loans held for sale (857,343) (494,792) Proceeds from the sale of loans held for sale 875,565 503,746 Changes in Accrued interest receivable 51 342 Prepaid expenses and other assets (275) (485) Accrued interest payable and other liabilities (1,885) (238) --------- --------- Net cash provided by operating activities 21,428 12,294 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Net originations of loans (35,028) (18,366) Proceeds from sales of loan participations -- 4,478 Purchase of premises and equipment (7,011) (2,099) Proceeds from the sale of premises and equipment 18 12 Proceeds from the sale of foreclosed assets 104 85 Proceeds from sales of available-for-sale securities -- 13,183 Proceeds from maturities of available-for-sale securities 56,528 17,205 Purchases of available-for-sale securities (58,032) (15,000) Proceeds from the sale of Federal Home Loan Bank stock, Federal Reserve Bank stock, and other securities -- 893 Purchases of Federal Home Loan Bank stock, Federal Reserve Bank stock, and other securities (750) (875) --------- --------- Net cash used in investing activities (44,171) (484) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits, money market, NOW and savings accounts 14,584 16,244 Net increase in time deposits 32,002 21,163 Repayments of long-term debt (4,381) (80) Proceeds from long-term debt 15,325 1,645 Net proceeds from guaranteed preferred beneficial interest in Company's subordinated debt 7,500 -- Net payments on short-term debt (35,000) -- Proceeds from sale of common stock 622 74 Net decrease in other borrowings (9,485) (446) Net increase in balance due under U.S. Treasury note option 268 2,090 --------- --------- Net cash provided by financing activities 21,435 40,690 --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,308) 52,500 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 27,755 25,159 --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,447 $ 77,659 ========= =========
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, 2003 AND 2002 (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, 2003, and the consolidated results of its operations, stockholders' equity and cash flows for the periods ended June 30, 2003 and 2002, 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 accounting principles generally accepted 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, 2002 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, 2003 and 2002 is as follows:
JUNE 30, 2003 JUNE 30, 2002 ------------- ------------- (Unaudited) (Unaudited) (amounts in thousands, except share and per share data) Net income $ 3,403 $ 2,341 ========== ========== Average common shares outstanding 2,230,606 2,177,013 Average common share stock options outstanding 72,852 56,867 ---------- ---------- Average diluted common shares 2,303,458 2,233,880 ========== ========== Basic earnings per share $ 1.53 $ 1.08 ========== ========== Diluted earnings per share $ 1.48 $ 1.05 ========== ==========
See Independent Accountants' Report 9 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) NOTE 3: LONG-TERM DEBT Long-term debt at June 30, 2003 and December 31, 2002, consisted of the following components:
DECEMBER 31, JUNE 30, 2003 2002 ------------- ------------ (Unaudited) (in thousands) Note Payable - other (A) $ 1,370 $ 1,456 Note Payable - bank (B) -- 4,095 Note Payable - bank (C) 5,125 -- Federal Home Loan Bank advances (D) 62,500 52,500 ------- ------- Total long-term debt $68,995 $58,051 ======= =======
(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 $8 million revolving line of credit; interest only at the Fed Funds Rate + 1.68% due quarterly until December 2003, when the outstanding principal balance is due; collateralized by common stock of the Company's subsidiary bank. (C) Due in December 2012, payable in quarterly installments of principal plus interest at the Fed Funds Rate + 1.68%; collateralized by common stock of the Company's subsidiary bank. (D) Due in 2007, 2008, 2010, 2011 and 2013; collateralized by various assets including mortgage-backed loans. The interest rates on the advances range from 1.55% to 5.682%. Federal Home Loan Bank advance availability is determined quarterly and at June 30, 2003, approximately $88,137,000 was available. Aggregate annual maturities of long-term debt at June 30, 2003 are as follows:
(in thousands) July 1 to December 31, 2003 $ 289 2004 613 2005 653 2006 694 2007 20,736 Thereafter 46,010 ------- $68,995 =======
See Independent Accountants' Report 10 BLUE VALLEY BAN CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2003 AND 2002 (UNAUDITED) NOTE 4: ACCOUNTING FOR STOCK-BASED COMPENSATION The Company applies Accounting Principles Board No. 25 and related Interpretations in accounting for its stock option plan and no compensation cost has been recognized. Pro forma compensation costs for the Company's plan are determined based on the fair value at the option grant dates using the minimum value method under Statement of Financial Accounting Standards No. 123 "Accounting for Stock-based Compensation." During the quarter, the Company issued no stock options; consequently, reported and pro forma net income were identical. NOTE 5: TRUST PREFERRED SECURITIES On April 10th, 2003, BVBC Capital Trust II ("the Trust"), a Delaware business trust formed by the Company, completed the sale of $7,500,000 of trust preferred securities. The Trust is a 100% owned finance subsidiary of the Company. The Trust also issued $232,000 of common securities to the Company and used the total proceeds of $7,732,000 from the offering to purchase $7,732,000 in principal amount of variable rate (LIBOR plus 3.25%) junior subordinated debentures of the Company due April 24, 2033. The offering was a private placement that the Company used to reduce existing debt as well as fund additional growth. Securities issued by the Trust are subordinate to the $11,500,000 issued by BVBC Capital Trust I on July 21, 2000. 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; a deterioration in the demand for mortgage financing; 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 CRITICAL ACCOUNTING POLICIES Our critical accounting policies are largely proscribed by accounting principles generally accepted in the United States of America. After a review of our policies, we determined that accounting for the allowance for loan losses, income taxes, and stock-based compensation are deemed critical accounting policies because of the valuation techniques used, and the sensitivity of these financial statement amounts to the methods, as well as the assumptions and estimates underlying these balances. Accounting for these critical areas requires the most subjective and complex judgments that could be subject to revision as new information becomes available. There have not been any material changes in our critical accounting policies since December 31, 2002. Further description of our critical accounting policies can be found in our Annual Report on Form 10-K for the year ended December 31, 2002. RESULTS OF OPERATIONS Three months ended June 30, 2003 and 2002. Net income for the quarter ended June 30, 2003, was $1.6 million, compared to net income of $1.2 million for the quarter ended June 30, 2002, representing an increase of $446,000, or 37.76%. Diluted earnings per share increased 33.96% to $0.71 during the second quarter of 2003 from $0.53 in the same period of 2002. The Company's annualized return on average assets and average stockholders' equity for the three-month period ended June 30, 2003 were 1.07% and 17.59%, compared to 0.90% and 16.43%, respectively, for the same period in 2002, increases of 18.88% and 7.06%, respectively. Six months ended June 30, 2003 and 2002. Net income for the six months ended June 30, 2003 was $3.4 million, compared to net income of $2.3 million for the six-month period ended June 30, 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2002, representing an increase of $1.1 million, or 45.36%. Diluted earnings per share increased 40.95% to $1.48 during the six months ended June 30, 2003 from $1.05 in the same period of 2002. The Company's annualized return on average assets and average stockholders' equity for the six-month period ended June 30, 2003 were 1.15% and 18.86%, compared to 0.91% and 16.05%, respectively, for the same period in 2002, increases of 26.37% and 17.50%, respectively. The principal contributing factors to our increase in net income from the three and six months ended June 30, 2002 to the current year were an increase in non-interest income, specifically loans held for sale fee income, and an increase in net interest income, partially offset by an increase in non-interest expense. The current low interest rate environment resulted in continued strong demand for residential mortgage loan originations as well as a decline in funding rates. The Company continues to capitalize on the mortgage resources put into place during 2001 and 2002. NET INTEREST INCOME Fully tax equivalent (FTE) net interest income for the three-month period ended June 30, 2003 was $4.5 million, an increase of $590,000 or 15.21%, from $3.9 million for the three-month period ended June 30, 2002. FTE interest income for the current year second quarter was $7.9 million, an increase of $394,000, or 5.25%, from $7.5 million in the prior year second quarter. This increase was primarily a result of an overall increase in average earning assets. Average earning asset volume increased from the second quarter of 2002 to the current period by $83.2 million, or 17.10%. Partially offsetting the increase in average earning assets was a decline in yield on interest-earning assets. The yield on average earning assets declined 63 basis points to 5.55% in the second quarter of 2003, compared to 6.18% in the prior year second quarter. The 63 basis point decrease in yield resulted primarily from decreases in market interest rates during 2002 and the impact of the low interest rates on new and repriced assets during 2002 and 2003. Interest expense for the current year second quarter was $3.4 million, a decrease of $196,000, or 5.42%, from $3.6 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 second quarter of 2003. The primary cause for this decline was the overall decline in market interest rates and the impact of the low interest rates on new and repriced liabilities during 2002 and 2003. The rate paid on total average interest-bearing liabilities decreased to 2.80% during the quarter ended June 30, 2003 compared to 3.35% during the quarter ended June 30, 2002, a decrease of 55 basis points. Average interest-bearing deposits increased slightly by $2.3 million, or 0.61% from the prior year and other interest-bearing liabilities increased by $54.5 million or 84.0% from the prior year, mainly in the form of FHLB borrowings, guaranteed preferred beneficial interest in Company's subordinated debt, Federal Funds purchased, securities sold under agreements to repurchase and note payable. The increase in interest-bearing liability volume partially offset the decrease in rate. FTE net interest income for the six-month period ended June 30, 2003 was $9.0 million, an increase of $1.2 million or 15.58%, from $7.8 million for the six-month period ended June 30, 2002. FTE interest income for the six months ended June 30, 2003 was $15.6 million, a slight increase of $400,000, or 2.63%, from $15.2 million for the six months ended June 30, 2002. This increase was 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS primarily a result of an overall increase in average earning assets. Average earning asset volume increased from June 30, 2002 to the current period by $76.2 million, or 15.83%. Partially offsetting the increase in average earning assets was a decline in yield on interest-earning assets. The yield on average earning assets declined 72 basis points to 5.65% for the first six months of 2003, compared to 6.37% for the first six months of 2002. The 72 basis point decrease in yield resulted primarily from decreases in market interest rates during 2002 and the impact of the low interest rates on new and repriced assets during 2002 and 2003. Interest expense for the six-month period ended June 30, 2003 was $6.6 million, a decrease of $818,000, or 11.07%, from $7.4 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 first six months of 2003. The primary cause for this decline was the overall decline in market interest rates and the impact of low interest rates on new and repriced liabilities during 2002 and 2003. The rate paid on total average interest-bearing liabilities decreased to 2.79% during the six-month period ended June 30, 2003 compared to 3.53% during the same period in 2002, a decrease of 74 basis points. Average interest-bearing deposits increased slightly by $592,000, or 0.16% from the prior year and other interest-bearing liabilities increased by $52.9 million or 77.21% from the prior year, mainly in the form of FHLB borrowings, guaranteed preferred beneficial interest in Company's subordinated debt, Federal Funds purchased, securities sold under agreements to repurchase and notes payable. The increase in interest-bearing liability volume partially offset the 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 FTE 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, ------------------------------------------------------------------------------ 2003 2002 ------------------------------------ ------------------------------------ AVERAGE AVERAGE AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE --------- --------- ---- --------- --------- ---- ASSETS Federal funds sold...................... $ 2,520 $ 13 1.04% $ 24,470 $ 200 1.65% Investment securities - taxable......... 50,798 802 3.18 54,473 1,589 5.88 Investment securities - non-taxable (1) 13,456 459 6.89 14,909 521 7.05 Mortgage loans held for sale............ 87,885 2,205 5.06 48,110 1,586 6.65 Loans, net of unearned discount and fees 402,616 12,127 6.07 339,141 11,310 6.73 --------- --------- --------- --------- Total earning assets.................. 557,275 15,606 5.65 481,103 15,206 6.37 --------- --------- --------- --------- Cash and due from banks - non-interest bearing............................... 19,810 23,825 Allowance for possible loan losses...... (7,549) (5,154) Premises and equipment, net............. 15,334 8,832 Other assets............................ 14,253 10,998 --------- --------- Total assets.......................... $ 599,123 $ 519,604 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits-interest bearing: Interest-bearing demand accounts......... $ 27,296 $ 90 0.67% $ 28,988 $ 193 1.34% Savings and money market deposits........ 139,028 970 1.41 147,176 1,534 2.10 Time deposits............................ 188,280 3,467 3.71 177,849 4,018 4.56 --------- --------- --------- --------- Total interest-bearing deposits........ 354,605 4,527 2.57 354,013 5,745 3.27 --------- --------- --------- --------- Short-term borrowings.................... 46,005 276 1.21 20,249 135 1.34 Long-term debt........................... 75,440 1,772 4.74 48,283 1,513 6.32 --------- --------- --------- --------- Total interest-bearing liabilities..... 476,050 6,575 2.79 422,545 7,393 3.53 --------- --------- --------- --------- Non-interest bearing deposits............ 81,795 64,099 Other liabilities........................ 4,902 3,551 Stockholders' equity..................... 36,377 29,409 --------- --------- Total liabilities and stockholders' equity................. $ 599,123 $ 519,604 ========= ========= Net interest income/spread............... $ 9,031 2.86% $ 7,813 2.84% ========= ==== ========= ==== Net interest margin...................... 3.27% 3.27%
---------- (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. CHANGES IN INTEREST INCOME AND EXPENSE VOLUME AND RATE VARIANCES
SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO 2002 ----------------------------------- CHANGE CHANGE DUE TO DUE TO TOTAL RATE VOLUME CHANGE ------- ------- ------- (DOLLARS IN THOUSANDS) Federal funds sold......................... $ (74) $ (113) $ (187) Investment securities - taxable............ (729) (58) (787) Investment securities - non-taxable (1).... (12) (50) (62) Mortgage loans held for sale............... (379) 998 619 Loans, net of unearned discount............ (1,095) 1,912 817 ------- ------- ------- Total interest income........... (2,289) 2,689 400 ------- ------- ------- Interest-bearing demand accounts........... (97) (6) (103) Savings and money market deposits.......... (507) (57) (564) Time deposits.............................. (743) 192 (551) Short-term borrowings...................... (13) 154 141 Long-term debt............................. (380) 639 259 ------- ------- ------- Total interest expense.......... (1,740) 922 (818) ------- ------- ------- Net interest income........................ $ (549) $ 1,767 $ 1,218 ======= ======= =======
----------- (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 2003 was $600,000, compared to $470,000 for the same period of 2002. For the six-months ended June 30, 2003 and 2002, the provision was $1.2 and $1.1 million, respectively. 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 SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------- 2003 2002 2003 2002 ------ ------ ------- ------ (IN THOUSANDS) Loans held for sale fee income ......... $5,900 $3,272 $11,005 $6,280 NSF charges and service fees ........... 320 247 610 499 Other service charges .................. 237 209 464 392 Realized gain on sales of investment securities ........................... -- 153 -- 193 Other income ........................... 149 50 225 139 ------ ------ ------- ------ Total non-interest income......... $6,606 $3,931 $12,304 $7,503 ====== ====== ======= ======
Non-interest income increased to $6.6 million, or 68.04%, during the three-month period ended June 30, 2003, from $3.9 million during the three-month period ended June 30, 2002. Non-interest income for the six-months ended June 30, 2003 was $12.3 million, an increase of $4.8 million, or 63.98%, from $7.5 million for the six-months ended June 30, 2002. These increases are attributable primarily to increases 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 $2.6 million, or 80.31%, and $4.7 million, or 75.23%, for the three-month and six-month periods ended June 30, 2003, respectively. During 2002, we experienced significant growth in our loans held for sale income due to the expansion of our mortgage operations concurrent with a relatively low interest 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 2003. NON-INTEREST EXPENSE
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ -------------------- 2003 2002 2003 2002 ------ ------ ------- ------- (IN THOUSANDS) Salaries and employee benefits .... $5,405 $3,755 $10,077 $ 7,074 Occupancy ......................... 805 481 1,463 931 FDIC and other insurance expense .. 58 77 119 146 General and administrative ........ 1,590 1,124 3,011 2,326 ------ ------ ------- ------- Total non-interest expense .. $7,858 $5,437 $14,670 $10,477 ====== ====== ======= =======
17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Non-interest expense increased to $7.9 million, or 44.52%, during the three-month period ended June 30, 2003 and to $14.7 million, or 40.02%, during the six-month period ended June 30, 2003, from $5.4 million and $10.5 million in the prior year periods, respectively. These increases are attributable primarily to an increase in salaries and employee benefits expense which increased $1.7 million, or 43.94%, during the second quarter of 2003 and $3.0 million, or 42.45%, during the six-month period ended June 30, 2003, compared to the prior year periods. Salaries and employee benefits expense increased due to increased volume-based incentive compensation in our mortgage production departments as well as additional staff hired to facilitate our growth. We had 296 full-time equivalent employees at June 30, 2003 compared to 227 at June 30, 2002. Many areas of the Company added employees to manage growth and expansion. FINANCIAL CONDITION Total assets for the Company at June 30, 2003, were $628.1 million, an increase of $22.9 million, or 3.78%, compared to $605.2 million at December 31, 2002. Deposits and stockholders' equity at June 30, 2003, were $470.4 million and $38.3 million, respectively, compared with $423.8 million and $34.3 million, respectively, at December 31, 2002, increases of $46.6 million, or 10.99%, and $4.0 million, or 11.64%, respectively. Loans at June 30, 2003 totaled $414.8 million, reflecting an increase of $34.7 million, or 9.14%, compared to December 31, 2002. The loan to deposit ratio at June 30, 2003 was 88.12% compared to 89.69% at December 31, 2002. Mortgage loans held for sale at June 30, 2003 totaled $101.1 million, a decrease of $18.2 million, or 15.28% compared to December 31, 2002. The Company's principal funding source for mortgage loans held for sale is deposits and advances from the Federal Home Loan Bank. Advance availability with the Federal Home Loan Bank is determined quarterly and at June 30, 2003, approximately $88,137,000 million was available. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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: NON-PERFORMING ASSETS
AS OF ------------------------------------ JUNE 30, DECEMBER 31, 2003 2002 2002 ------ ------ ------------ (Dollars in thousands) REAL ESTATE LOANS: Past due 90 days or more $1,060 $ 15 $ 54 Nonaccrual 589 1,462 582 INSTALLMENT LOANS: Past due 90 days or more 3 -- -- Nonaccrual 5 -- -- CREDIT CARDS AND RELATED PLANS: Past due 90 days or more 61 4 23 Nonaccrual -- -- -- COMMERCIAL (TIME AND DEMAND) AND ALL OTHER LOANS: Past due 90 days or more 3,130 669 -- Nonaccrual 1,579 149 233 LEASE FINANCING RECEIVABLES: Past due 90 days or more -- -- 3 Nonaccrual 421 232 223 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 6,849 2,531 1,118 FORECLOSED ASSETS HELD FOR SALE 547 174 614 ------ ------ ------ Total non-performing assets $7,396 $2,705 $1,732 ====== ====== ====== Total nonperforming loans to total loans 1.67% 0.73% 0.29% Total nonperforming loans to total assets 1.09% 0.47% 0.18% Allowance for loan losses to nonperforming loans 115.00% 218.65% 618.29% Nonperforming assets to loans and foreclosed assets held for sale 1.80% 0.78% 0.46%
As of June 30, 2003, non-performing loans equaled 1.67% of total loans, representing a substantial increase in non-performing loans from December 31, 2002. This increase was primarily due to several commercial credit relationships which became past due over 90 days during the first half of 2003. The Company had already reserved for the estimated potential loss from these credit relationships when they were identified as impaired. The level of loans charged-off decreased during the second quarter of 2003, as evidenced by the decrease in our ratio of net charge-offs to average loans, to 0.24% for the period ending June 30, 2003 compared to 0.36% for the period ending December 31, 2002. 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. Generally, the Company maintains its allowance for loan 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS losses in excess of its non-performing loans. As of June 30, 2003, our ratio of allowance for loan losses to non-performing loans was 115.00%. 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, 2003 2002 2002 -------- -------- ------------ (Dollars in thousands) BALANCE AT BEGINNING OF PERIOD $ 6,914 $ 5,267 $ 5,267 LOANS CHARGED-OFF Commercial real estate 159 70 323 Residential real estate -- -- -- Commercial 124 211 323 Personal 40 38 66 Home Equity -- -- -- Construction -- -- -- Leases 81 706 870 -------- -------- -------- Total loans charged-off 404 1,025 1,582 -------- -------- -------- RECOVERIES: Commercial real estate 5 1 1 Residential real estate 2 -- -- Commercial 50 78 123 Personal 24 18 23 Home Equity -- -- -- Construction -- -- -- Leases 86 125 162 -------- -------- -------- Total recoveries 166 222 309 -------- -------- -------- NET LOANS CHARGED-OFF 238 803 1,273 PROVISION FOR LOAN LOSSES 1,200 1,070 2,920 -------- -------- -------- BALANCE AT END OF PERIOD $ 7,876 $ 5,534 $ 6,914 ======== ======== ======== LOANS OUTSTANDING: Average $402,616 $339,141 $349,879 End of period 414,830 346,920 380,082 RATIO OF ALLOWANCE FOR LOAN LOSSES TO LOANS OUTSTANDING: Average 1.96% 1.63% 1.98% End of period 1.90% 1.60% 1.82% RATIO OF ANNUALIZED NET CHARGE-OFFS TO Average loans 0.12% 0.48% 0.36% End of period loans 0.12% 0.47% 0.33%
20 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 increased slightly to 1.90% as of June 30, 2003, compared to 1.82% at December 31, 2002. As of June 30, 2003, net charge-offs equaled 0.12% of average total loans on an annualized basis. 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 or a portfolio of SBA loans. 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, defined as demand deposits, interest-bearing transaction accounts, savings deposits and time deposits less than $100,000 (excluding brokered deposits), were 58.60% and 57.80% of our total assets at June 30, 2003, and December 31, 2002, respectively. Management has established internal guidelines 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, 2003, the Company was within the established guidelines. At June 30, 2003, our total stockholders' equity was $38.3 million and our equity to asset ratio was 6.10%. At June 30, 2003, our Tier 1 capital ratio was 9.15% compared to 8.82% at December 31, 2002, while our total risk-based capital ratio was 10.21% compared to 10.13% at December 31, 2002. As of June 30, 2003, we had capital in excess of the requirements for a "well-capitalized" institution. 21 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 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 June 30, 2003 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 40.44% 6.24% 200 basis point rise 26.08% 4.60% 100 basis point rise 14.68% 2.79% Base Rate Scenario -- -- 25 basis point decline (3.92)% (0.94)% 50 basis point decline (7.65)% (1.94)% 100 basis point decline (11.57)% (3.12)%
22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The above table indicates that, at June 30, 2003, 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. Generally, in the decreasing rate scenarios, not only would adjustable rate assets (loans) reprice to lower rates faster than our liabilities, but our liabilities - long-term Federal Home Loan Bank of Topeka (FHLB) advances and existing time deposits - would not decrease in rate as much as market rates. In addition, fixed rate loans might experience an increase in prepayments, further decreasing yields on earning assets and causing net interest income to decrease. Another consideration with a rising interest rate scenario is the impact on mortgage loan refinancing, which would likely decline, leading to lower loans held for sale fee income, though the impact is difficult to quantify or project. The table also indicates that, at June 30, 2003, in the event of a sudden increase or decrease in prevailing market rates, the current net economic value of our equity would decrease. Given our current asset/liability position, a 25, 50 or 100 basis point decline in interest rates will result in a lower economic value of our equity as the change in estimated loss on liabilities exceeds the change in estimated gain on assets in these interest rate scenarios. Currently, under a falling rate environment, the Company's estimated market value of loans could increase as a result of fixed rate loans, net of possible prepayments. The estimated market value of investment securities could also rise as our portfolio contains higher yielding securities. However, the estimated market value increase in fixed rate loans and investment securities is offset by time deposits unable to reprice to lower rates immediately and fixed-rate callable advances from FHLB. The likelihood of advances being called in a decreasing rate environment is diminished resulting in the advances existing until final maturity, which has the effect of lowering the economic value of equity. 23 ITEM 4. CONTROLS AND PROCEDURES In accordance with Item 307 of Regulation S-K promulgated under the Securities Act of 1933, as amended, and within 90 days of the date of this Quarterly Report on Form 10-Q, the Chief Executive Officer and Chief Financial Officer of the Company (the "Certifying Officers") have conducted evaluations of the Company's disclosure controls and procedures. As defined under Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the term "disclosure controls and procedures" means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Certifying Officers have reviewed the Company's disclosure controls and procedures and have concluded that those disclosure controls and procedures are effective as of the date of this Quarterly Report on Form 10-Q. In compliance with Section 302 of the Sarbanes-Oxley Act of 2002, (18 U.S.C. 1350), each of the Certifying Officers executed an Officer's Certification included in this Quarterly Report on 10-Q. As of the date of this Quarterly Report on Form 10-Q, there have not been any significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 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 14, 2003, the Company held its Annual Meeting of Stockholders. There were 2,235,736 shares outstanding and entitled to vote at the Annual Meeting, of which 1,650,345 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 Directors Robert D. Regnier and Thomas A. McDonnell were elected at the Annual Meeting to serve a three year term or until their successor is duly elected and qualified. The voting results for both were as follows: Shares Voted For: 1,650,345 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: Don H. Alexander Wayne A. Henry, Jr. C. Ted McCarter 2. The Company's 1998 Equity Incentive Plan amendments were approved The voting results were as follows: Shares Voted For: 1,613,885 Shares Voted Against 20,000 Shares Abstained 16,460 ITEM 5. OTHER INFORMATION Not applicable 25 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (E) EXHIBITS 11. Computation of Earnings Per Share. Please see p. 9. 15. Letter regarding Unaudited Interim Financial Information 31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Treasurer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Treasurer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (F) REPORTS ON FORM 8-K On May 15, 2003, Blue Valley filed a report on Form 8-K covering the press release for the Company's first quarter 2003 earnings. 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 13, 2003 By: /s/ Robert D. Regnier ---------------------------- Robert D. Regnier, President and Chief Executive Officer Date: August 13, 2003 By: /s/ Mark A. Fortino ---------------------------- Mark A. Fortino, Treasurer 27